Risk of agricultural production in russian orel region
Keywords:Markowitz, profitability, risk, production, price, yield
The paper evaluates the risk of agricultural farms in Russian Orel region by using the modified Markowitz portfolio theory. We analyse individual farm data of agricultural animal and crop production with respect to yield, price and revenue agricultural risk. Farms included in the analyses represent four organizational legal forms and the range of agricultural products produced by these farms is wide. Therefore the research focused on the grain and milk production only. Over the period 2010 to 2014 the effects of Russian ban on import of agricultural products from EU can be observed in form of increased price level of individual commodity prices. Risk and return are negatively related and investors are comparing the risk with profitability. The same stands for farmers. They select the type of production based on expected return. The result show that the systemic yield, price and revenue risk of grain production is higher when compared to milk production. This is due the nature of animal and crop production. Climate and weather risk has much lower effect on animal production when compared to crop production. Therefore the overall risk of crop production is higher. But farmers consider the risk not isolated but in relation to profitability. The profitability of crop production is higher as in Orel region more than 90% of agricultural production is not animal related and farms are profitable with and also without subsidies. Our empirical study shows that in case of equal expected profitability animal production is more profitable for the farmer as it is linked to lower yield, price and revenue risk.
Gempesaw C. M., Tambe A. M., Nayga R. M., Toensmeyer U. C. 1988. The Single Index Market Model in Agriculture. Northeast Journal of Agricultural and Resource Economics, vol. 17, p. 147-155.
Hardaker J., Huirne R., Anderson J., Lien G. 2004. Coping with risk in agriculture. CABI Publishing, ISBN 0-85-199973-5. https://doi.org/10.1079/9780851998312.0000
Heymann, E. 2007. Climate change and sectors: Some like it hot : working paper. Frankfurt : Deutsche Bank Research.
Holzman R., Jorgensen S. 2001. Social Risk management: A New conceptual framework for social protection, and beyond. International Tax and Public Finance, vol. 8, no. 4, p. 529-556. https://doi.org/10.1023/A:1011247814590
Huirne R., Meuwissen M., Hardaker B., Anderson J. 2000. Risk and risk management in agriculture: an overview and empirical results. International Journal of Risk Assessment and Management, vol. 1, no. 1-2, p. 125-136. https://doi.org/10.1504/IJRAM.2000.001491
Kahn, B. M., Zaks, D. 2009. Investing in agriculture: Far-Reaching challenge, significant opportunity : working paper. Frankfurt : Deutsche Bank Climate Change Advisors.
Kimura, S., Antón, J., Lrthi, C. 2010. Farm Level Analysis of Risk and Risk Management Strategies and Policies Cross Country Analysis : OECD Food. Agriculture and Fisheries Papers, no. 26, 55 p.
Kubicová, Ľ., Habánová, M. 2012. Development of milk consumption and marketing analysis of its demand. Potravinarstvo, vol. 6, no. 4, p. 66-72. https://doi.org/10.5219/236
Libbin J. D., Kohler J. D., Hawkes J. M. 2004. Does Modern Portfolio Theory Apply to Agricultural Land Ownership? Concepts for Farmers and Farm Managers. Journal of the American Society of Farm managers and Rural Appraisers, vol. 67, p. 85-96.
Markowitz H. M. 1952. Portfolio Selection. Journal of Finance, vol. 7, no. 1, p. 77-91. https://doi.org/10.1111/j.1540-6261.1952.tb01525.x
Michalski G. 2015. Agency Costs in Small and Medium Wood Industry Enterprises with Full Operating Cycle and Cash Levels. Procedia Economics and Finance, vol. 34, p. 461-468. https://doi.org/10.1016/S2212-5671(15)01655-X
Miller, A., Dobbins, C., Pritchett, J., Boehlje, M., & Ehmke, C. 2004. Risk management for farmers. Working paper, 04-11.
Mura, L. 2011. Position of competitiveness of Slovak agri-food sector within the V4 countries. Potravinarstvo, vol. 5, p. 170-175. Available online: http://www.potravinarstvo.com/dokumenty/mc_februar_2011/pdf/2/mura.pdf
Mura, L., Buleca, J., Zeleňáková, L., Qineti, A., Kozelová, D. 2012. An analysis of selected aspects of international business in Slovak diaries in EU framework. Mljekarstvo, vol. 62, no. 3, p. 219-226.
Peterson P. E., Luethold R. M. 1987. A portfolio approach to optimal hedging for a commercial cattle feedlot. Journal of Futures Markets, vol. 7, no. 4, p. 443-457. https://doi.org/10.1002/fut.3990070407
Sanchirico J. N., Smith M. D., Lipton D. W. 2005. Ecosystem Portfolios: A Finance-Based Approach to Ecosystem Management. In AERE Workshop 2005: Natural Resources at Risk, Jackson : WY, p. 1-33.
Tóth M., Lančarič D., Piterková A. and Savov R. 2014. Systematic risk in Agriculture: A case of Slovakia. Agris on-line Papers in Economics and Informatics, vol 6, p. 185-193.
How to Cite
LicenseAuthors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).