Off-farm investment in financial assets as a risk response for New Zealand sheep and beef farms

Abstract

Off-farm investment as a risk management strategy is not particularly popular among New Zealand sheep and beef farmers. This study explores the potential reduction in risk by diversifying farm asset portfolios to include financial investments. Portfolio analysis revealed that the negative correlation between rates of return on farm assets and shares found in the study could result in a risk reduction of as much as 20% by converting 16 to 25% of the farm investment portfolio into shares. These findings indicate that off- farm investment could be an important risk response for farmers.