Research Reports
A Study on the Risk and Portfolio in Agriculture
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AuthorKim, Meebok
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Publication Date2012.12.30
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Original
Background of Research
The domestic agricultural industry is faced with great challenges due to various risks, thus highlighting the importance of risk management by farmers and the government. Under these circumstances, this study aims to quantify the risks faced by the domestic agriculture on the production side and provide new insights into the risks.
Method of Research
This study conducted a literature review to understand the relationship between the risks and production portfolios, and the risks in agriculture, such as changes in yield and price, are categorized to help understand the risks.
Research Results and Implications
In chapter 3, we quantify the risks in production and price. After summarizing the theoretical background of risk indices, Roy’s safety-first ratio (SF ratio) is examined to quantify the risks. Several data sets are used, including the yields and prices of crops and livestock.
In chapter 4, we analyze the risk index of farm household’s portfolios using all information. Roy’s SF ratio is non-linearly related to the share of rice production in farm household's portfolio. However, Roy’s SF ratio is negatively related to the share of livestock.
In chapter 5, we also evaluated the risks of Korean agriculture. In the last 20 years, Korean agriculture has kept certain portfolios composed of rice, vegetables, fruits, livestock, etc. In order to quantify the risks of these portfolios, we employed the Value at Risk and considered changes in quantified risks due to weather variations.
Finally, five adaptations of the risk quantification are suggested. Even though there is difficulty of modifying a financial method to agricultural products, this study underscores importance of information and quantified risks for farm households and the government.
Researchers: Meebok Kim, Changho Kim
Research period: 2012. 1. - 2012. 11.
E-mail address: mbkim@krei.re.kr
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