Research Reports
A Study on the Farm Management Stabilization Support System: Current Situation and Policy Implications (Year 1 of 2)
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AuthorPark, Joonkee
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Publication Date2014.12.30
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Original
Farm Management Risks and Implications
This study conducts in-depth analyses of agricultural income level and variability, price volatilities, and case studies on sharp price change to shed light on the current status of farm management risks.
An increased volatility in agricultural income along with continuous decrements in income level and income rate (ratio of agricultural income and gross agricultural revenue) imply that the farm management risks have increased. An empirical analysis of commodity price changes underpins the increments in price volatility which are expected to exacerbate the farm management conditions. This phenomenon is especially conspicuous among major commodities such as pepper, garlic, and onion. The increased price instabilization may be attributed to an increment in quantities supplied by domestic production and imports, stagnated domestic demand, and potential presence of price ceiling. An analysis of price transmission through distribution channels points out that producers, among all the relevant participants, are most vulnerable to such price changes. Case studies on exceptional price changes over the past twenty years show that unanticipated shocks, for example, natural disasters and/or disease, can be major causes.
It is also shown that the agricultural income rate has continuously lowered to reflect farm management risk expansion. The reason for the decreasing income rate varies by commodity. For example, stable prices along with increased production costs lead rice producers to face with such hardships. Increased management risks faced by some fruit and vegetable producers can be accounted for price or yield variations rather than production costs. Put together, the current situations emphasize the necessity for introduction or modification of farm management schemes to address such risks embedded in farm management.
Suggestions for Management Program Revision
Based on earlier analyses and discussion, this study presents directions toward which current policy tools may be guided. First, policy priority needs to be placed on reducing farm management risks rather than balancing supply-demand in markets. Second, policy tools should be classified and elaborated to cope with a variety of risk types. Third, it is required to enhance cost-effectiveness and efficiency of budget. Fourth, a careful review on current tools and provision is needed not to violate the WTO rules. Fifth, agricultural futures and other alternatives could be introduced to hedge the management risks.
This study’s suggestions regarding policy scheme modification are as follows. First, the current Direct Payment Scheme needs to be revised to better mitigate the shocks from rapid price changes. Second, additional tools against catastrophic disasters are necessary as a basic safety net. Third, it is worthwhile to consider including production cost components in the Direct Payment Scheme formula so that the Payment can absorb the ‘cost pressures’. Fourth, more detailed studies are required as to farm-level income stabilization instruments.
Future Works
This study is scheduled to be conducted over two years. In the second year, this study will focus on the following: 1) how to revise current schemes and introduce crop･farm-specific tools; 2) how to further develop some major programs including the Direct Payment Scheme; and 3) evaluating appropriateness of introducing new programs.
Researchers: Park Joon-kee; Kim Tae-gon; Rhew Chan-hee;
Kim Young-june; Jeon Ji-yeon
Research Period: 2014. 1.~2014. 12.
E-mail address: jkpark@krei.re.kr
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