Hosts: Vancouver, British Columbia, Canada June 16-18,

Transcription

1 Hosts: Vancouver, British Columbia, Canada June 16-18,

2 Source of income variability at the northern limits of agricultural production in Europe Petri Liesivaara Sami Myyrä MTT Agrifood Research Finland

3 Where the income risks come from? Based on earlier studies and experiences, the main sources of income fluctuation between years are volatile commodity prices as well as weather-related related and thus volatile yields. Before the year 2005 yield variability dominated price variability in Finland (Liu and Pietola, 2005). After 2006 price variability has increased. One of the main questions in development of new insurance schemes is: Where the income risks come from? MTT Agrifood Research Finland

4 Monthly prices of wheat, barley and oil seeds in Finland / kg Oil seeds Wheat Barley Source: Information Centre of the Ministry of Agriculture and Forestry MTT Agrifood Research Finland

5 Yields of wheat, barley and oil seeds in Finland Yield 100 kg/ha Wheat Barley 20 Oil 15 seeds Source: Information Centre of the Ministry of Agriculture and Forestry MTT Agrifood Research Finland

6 Data Data from the Finnish farm accountancy data network (FADN) were used. The per hectare net revenue (NR) of crop i is defined as the product of prices p and yields q minus the costs c for fertilizer, seed and pesticides: NR(p,q,c) = p i *q i c fertilizer c seed c pesticides The variability of NR is measured by its variance over time. We defined the variance of NR for every farm and for wheat, barley and oil seeds over two periods. All farms having records for more than three years in the studied period are included in the analysis. MTT Agrifood Research Finland

7 Method Variance decomposition to reveal the impacts of different components on the per hectare net revenue (Burt and Finley, 1968): var(nr) = 2 q p var(p) + var(q) + var(c q 2 p 2 cov(p,q) - 2cov(GR,c 2cov(c fertilizer,c pesticides var(p)var(q) + cov(p,q) ) - 2cov(c 2 fertilizer fertilizer fertilizer ) + var(c seed ) - 2cov(GR,c,c seed ) + var(c seed ) - 2cov(c ) pesticides pesticides ) + - 2cov(GR,c,c seed ) + pesticides ) - where var(.) and cov(.) denote variances and covariances, GR represents gross revenue and μ p and μ q are the expected values of price and produced quantity. Wilcoxon signed rank sum test is used to test if variance decomposition holds in our data MTT Agrifood Research Finland

8 Results The approximated variability in net revenue did not differ from the observed net revenue variability Decomposition is valid The results were normalized by dividing each component of the variance by the sum of all direct effects. - > direct effects summed up to 100 Increasing the variance of any direct component increased the net revenue variability. Indirect effects could be of either sign. Negative covariance between the yield and price was found (natural hedge). MTT Agrifood Research Finland

9 Source of income variability at the northern limits of agricultural production in Europe Variance decomposition results Wheat Direct effects (%) Mean Std Dev Mean Std Dev Yield 51,9* 24,5 30,1 21,1 Price 24,6 19,3 61,2* 22,3 Fertilizer 9,7 14,0 5,1 62 6,2 Seed 7,4 9,7 2,2 6,2 Pesticides 6,3 9,9 1,4 2,9 Costs 23,4 N/A 86 8,6 N/A Indirect effects (%) Price/Yield -2,9 40,6-1,3 42,9 Revenue/Fertilizer 6,4 29,5-3,1 23,4 Revenue/Seed 4,3 24,8-0,4 13,3 Revenue/Pesticides 0,1 18,5-0,5 10,3 Seed/Fertilizer 0,0 15,0 0,8 4,3 Pesticide/Fertilizer 1,4 8,7 0,9 3,6 Seed/Pesticide -1,1 12,1 0,0 2,0 N *Yield or price risk is the main and significant (at the 5% level) el) source of net revenue en e variability. MTT Agrifood Research Finland

10 Source of income variability at the northern limits of agricultural production in Europe Variance decomposition results Barley Direct effects (%) Mean Std Dev Mean Std Dev Yield 57,2* 30,0 39,4 27,3 Price 14,3 15,4 44,7 27,8 Fertilizer 11,5 15,3 8,1 89 8,9 Seed 12,2 15,3 5,9 13,8 Pesticides 4,8 9,6 2,0 3,6 Costs 28,5 N/A 15,9 N/A Indirect effects (%) Price/Yield -1,7 28,3-7,3 41,5 Revenue/Fertilizer 4,4 29,8-1,7 25,5 Revenue/Seed -0,3 29,4 1,8 19,2 Revenue/Pesticides 7,8 18,7-0,7 15,7 Seed/Fertilizer -4,8 14,0-1,8 9,0 Pesticide/Fertilizer 1,0 10,0 1,5 5,6 Seed/Pesticide -0,6 14,5 0,4 8,5 N *Yield or price risk is the main and significant (at the 5% level) el) source of net revenue en e variability. MTT Agrifood Research Finland

11 Source of income variability at the northern limits of agricultural production in Europe Variance decomposition results Oil seeds Direct effects (%) Mean Std Dev Mean Std Dev Yield 56,9* 26,9 49,0 24,8 Price 23,2 18,7 39,9 23,1 Fertilizer 11,0 15,3 8,1 10,5 Seed 3,6 5,4 1,5 3,6 Pesticides 5,4 7,9 1,5 2,5 Costs 19,99 N/A 11,11 N/A Indirect effects (%) Price/Yield 8,1 38,6-30,0 42,7 Revenue/Fertilizer 6,4 28,6 2,3 22,7 Revenue/Seed -0,5 18,6 1,1 9,8 Revenue/Pesticides -3,0 25,3 1,4 9,7 Seed/Fertilizer 1,8 13,7-0,1 6,1 Pesticide/Fertilizer 0,7 12,4 1,0 6,0 Seed/Pesticide -0,9 9,4 0,4 1,5 N *Yield or price risk is the main and significant (at the 5% level) el) source of net revenue en e variability. MTT Agrifood Research Finland

12 Source of income variability at the northern limits of agricultural production in Europe Conclutions Our results are consistent t with earlier results regarding years before Recent price spikes in commodity markets have increased the price risks faced by Finnish farmers. Currently price risks dominate in wheat production Recent price peaks have mostly been positive compared to long term commodity price trends MTT Agrifood Research Finland

13 Thank you! Petri Liesivaara, Sami Myyrä, MTT Agrifood Research Finland Latokartanonkaari 9, Helsinki

14 The Crop Damage Compensation (CDC) program Main characteristics are similar to those in the traditional yield insurance contracts All main crops (grains, hey, silage) included. Deductible of 30% (whole farm) from regional yield average. Yield losses are monitored at the farm Only quantity losses are compensated Average producer prices are used to determine the monetary compensation. -> the true coverage is lower for high h performance (yield & quality) farmers than for low performance farmers.