Evaluating Alternative Safety Net Programs in Alberta: A Firm-level Simulation Analysis

Scott R. Jeffrey and Frank S. Novak

No 24118, Staff Paper Series from University of Alberta, Department of Resource Economics and Environmental Sociology

Abstract: This paper examines alternative risk management strategies in terms of their effectiveness for three representative Alberta farm operations. Stochastic dynamic simulation methods are used to model financial performance for these farms, and alternative risk management programs are compared in terms of their ability to stabilize returns, support income and reduce the probability of bankruptcy. The results suggest that government programs such as the Net Income Stabilization Account (NISA) program or the Farm Income Disaster Program (FIDP) in Alberta have some benefits in terms of supporting income levels and reducing the chances of farm failure. Neither program is very effective, however, in stabilizing year to year income or cash flow for the farm operations. As a risk management program, FIDP is more effective than NISA but this improved performance comes at the price of higher government costs. Performance of NISA and FIDP, relative to alternative risk management programs and strategies such as forward contracting or crop insurance, is mixed. In some cases, NISA does not seem to provide benefits beyond those available from other strategies, while FIDP tends to perform better than the alternatives. Finally, while increased debt load weakens firm financial performance, NISA and FIDP still provide some benefits in terms of supporting income and reducing the probability of bankruptcy.

Keywords: Farm Management; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 28
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ualbsp:24118

DOI: 10.22004/ag.econ.24118

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