Price risk management for Australian broad acre farmers: some observations

Document Type

Article

Publication Date

6-2-2000

Journal Title

Australasian Agribusiness Review

ISSN

1442-6951

Keywords

Farm management, Western Australia, Risk management, Farm economics, Price risk, Yield crop loss, Broad acre farming

Disciplines

Agribusiness | Agricultural Economics | Agricultural Science | Agronomy and Crop Sciences | Natural Resource Economics | Natural Resources Management and Policy | Operations and Supply Chain Management

Abstract

This article briefly explores the nature of price risk faced by Australian broad acre farmers and outlines some farm management ramifications of price risk. The article describes the variation in price risk across time and across commodities. The underlying distributional form of prices faced by farmers is shown to have important ramifications for farm management. The likelihood of increases in price risk over the coming two decades is also discussed.

Commonly when people talk of risk they mean the possibility of loss or harm. However, strictly speaking, this exposure to adversity is only part of risk. It is downside risk. More generally, risk refers to a range of uncertainties (upside and downside) that affect a person's welfare.

Farmers faces many risks ( Krause, 1995 ). The two most commonly mentioned risks tend to be yield and price risk, although as mentioned later, there are several other important sources of risk affecting farm businesses. This article concentrates on price risk faced by broad acre farmers in Australia.

The article comprises four sections. The first section mentions briefly the main types of risk affecting farm businesses. The second examines price risks for some main commodities produced by broad acre farms. The implications for farm management of these price risks are discussed. A third section discusses future price risk. A final section offers some conclusions about price risk faced by Australian broad acre farmers.

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