Farm Wealth Implications of Canadian Agricultural Business Risk Management Programs

Dawn E. Trautman, Scott R. Jeffrey and Jim Unterschultz

No 149881, 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. from Agricultural and Applied Economics Association

Abstract: This paper examines the effect of Canadian agricultural business risk management (BRM) programs on farm financial performance. Monte Carlo simulation is used to model stochastic prices and production for a representative Alberta cropping operation. Net present value (NPV) analysis is used to evaluate BRM program participation. Participation is modeled for AgriInvest, AgriStability, and AgriInsurance. Adoption of select BMPs is also modeled to examine the impact of BRM programs on incentives to adopt environmental stewardship practices. Results indicate that BRM program participation significantly improves farm financial performance with a corresponding reduction in risk. Much of the benefit from participation comes from subsidization associated with the programs. While recent changes to BRM programs result in reduced support, the impact on representative farm performance is small. BRM program participation reinforces incentives to adopt BMPs that already have positive net benefits (e.g., crop rotation BMPs) and increases the magnitude of disincentives (i.e., net costs) associated with adoption of land use BMPs such as wetland restoration or buffer strips. The results from this analysis raise questions related to both risk management and environmental policy in terms of policy effectiveness, efficiency and compatibility.

Keywords: Crop Production/Industries; Farm Management; Land Economics/Use; Production Economics; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 34
Date: 2013
New Economics Papers: this item is included in nep-agr, nep-env and nep-rmg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea13:149881

DOI: 10.22004/ag.econ.149881

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