Managing Risk in Agriculture

Policy Assessment and Design

image of Managing Risk in Agriculture

This book examines the implications of risk management for policy in agriculture.  Opening with a chapter on risk management principles and guidelines for policy design in agriculture, the book goes on to look at quantitative analysis of risk and then at policy in various countries.

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Exogenous risk and price variability

Price variability is mainly the result of developments in the commodity markets in responding to supply and demand forces and market adjustment processes. Although farmers cannot influence this type of risk, they need to manage it. This chapter analyses how different exogenous factors, such as yields, the price of oil or some macroeconomic variables, can generate price volatility. Monte Carlo simulations, using the AGLINKCOSIMO model, show that although the exogenous factors considered in the model are not responsible for all potentially observed price variability, they can contribute to an important share of it. High volatility can occur exceptionally due to exogenous shocks if they happen in specific patterns.

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