Risk management in agriculture : Argentine evidence of perceived sources of risk, risk management strategies and risk efficiency in rice farming

Abstract

Rice production, as with any other production activity in agriculture, is risky. Rice producers in Argentina apply several risk management strategies to decrease the impact of risk. However, the effects of these strategies on reducing risk have not yet been quantified. This investigation aims to provide a firmer basis for analysing the risky agricultural environment, farmers' risk perceptions, and management responses to control risk. The specific objectives are to: 1) ascertain the rice farmers' perceptions about the relative importance of different sources of risk; 2) establish the risk responses that rice farmers implement; 3) determine the influence of the size of farms on farmers' perceptions of the risk sources and on the nature of their risk responses; and 4) evaluate the risk reducing effects of the farmers' responses on the gross margins of the rice enterprise.

In this research, 12 rice farmers in the counties of Mercedes and Curuzu Cuatia in the province of Corrientes were interviewed to ascertain their perceptions of the sources of risk affecting their businesses and their responses to risks. The second part of the interview sought to establish the costs of production, prices, and yields possibly obtained by implementing five marketing and production strategies in order to develop a gross margin stochastic model.

Gross margin stochastic models for each strategy and for each farm were simulated. The outputs of the simulations comprised two cumulative probability distributions for each strategy, one representing the cumulative probability of obtaining different gross margins using a specific risk management strategy and the other representing the cumulative probability of obtaining different gross margins not using that specific strategy. Each pair of these cumulative probability distributions was compared by using visual stochastic dominance analysis, thus determining which cumulative probability distributions were more efficient in reducing risk. Efficient cumulative probability distributions were then compared, obtaining the efficient set of cumulative distributions for each farm.

This research demonstrated that 'changes in the economic and political situation in Brazil' is the most important source of risk for farmers in the study area and that the importance of this source holds regardless the size of the rice farms. This research also suggested that farmers' perceptions of the sources of risk differ according to the size of the farms. For example, rice farmers' level of concern with production risks increases as the farm size decreases. Farmer's responses to risks also vary according to farm size; for instance, the number of strategies used by rice farmers decreases as the area of the farms falls. This research indicated that many strategic responses reduced risk, some of these responses reduced risk effects more than others.