The role of subsidies in managing the operating risk of agricultural enterprises (Article)

19 Feb

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Agricultural Economics

Volume 55, Issue 4, 2009, Pages 169-179

The role of subsidies in managing the operating risk of agricultural enterprises (Article)

Špička, J., Boudný, J., Janotová, B.

Institute of Agricultural Economics and Information, Slezská 7, 120 56 Prague 2, Czech Republic

View references (15)

Abstract

The paper examines the relationship between the farmers’ operating risk and current subsidies. Focused at the commodity level, the analysis is based on a sample survey of costs and yields of two crops (winter wheat and rapeseed) and two livestock commodities (cow milk and fattening cattle) carried out in 2005-2007 in the Czech Republic. The risk analysis relates to the growing conditions, crop yields and the livestock productivity. The future role of the subsidies as the risk management tool in the farming business, as well as the position of this instrument against the other risk management instruments is analysed. The break even analysis and the Monte Carlo simulation are used as analytical tools. The results indicate that the current subsidies have an impact on the stability of the farmers’ income. Partially or fully decoupled payments serve as a "financial pillow" increasing the level of the farmers’ income and extending the farmers’ decision-making possibilities. Furthermore, the current subsidies reduce the variability of the farmers’ income. The current subsidies are a suitable complement to other commonly used risk management tools primarily designed to reduce the farmers’ and farm income variability.

Author keywords

Agricultural policy; Direct payments; Income stability; Monte Carlo simulation; Risk management

Indexed keywords

Species Index: Bos; Brassica napus; Triticum aestivum

ISSN: 0139570XSource Type: Journal Original language: English

Document Type: Article

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Špička, J.; Institute of Agricultural Economics and Information, Slezská 7, 120 56 Prague 2, Czech Republic; email:spicka.jindrich
© Copyright 2009 Elsevier B.V., All rights reserved.

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