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The role of subsidies in managing the operating risk of agricultural enterprises

Author

Listed:
  • J. Špička

    (Institute of Agricultural Economics and Information, Prague, Czech Republic)

  • J. Boudný

    (Institute of Agricultural Economics and Information, Prague, Czech Republic)

  • B. Janotová

    (Institute of Agricultural Economics and Information, Prague, Czech Republic)

Abstract

The paper examines the relationship between the farmers' operating risk and current subsidies. Focused at the commodity level, the analysis is based on a sample survey of costs and yields of two crops (winter wheat and rapeseed) and two livestock commodities (cow milk and fattening cattle) carried out in 2005-2007 in the Czech Republic. The risk analysis relates to the growing conditions, crop yields and the livestock productivity. The future role of the subsidies as the risk management tool in the farming business, as well as the position of this instrument against the other risk management instruments is analysed. The break even analysis and the Monte Carlo simulation are used as analytical tools. The results indicate that the current subsidies have an impact on the stability of the farmers' income. Partially or fully decoupled payments serve as a "financial pillow" increasing the level of the farmers' income and extending the farmers' decision-making possibilities. Furthermore, the current subsidies reduce the variability of the farmers' income. The current subsidies are a suitable complement to other commonly used risk management tools primarily designed to reduce the farmers' and farm income variability.

Suggested Citation

  • J. Špička & J. Boudný & B. Janotová, 2009. "The role of subsidies in managing the operating risk of agricultural enterprises," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 55(4), pages 169-180.
    • Handle: RePEc:caa:jnlage:v:55:y:2009:i:4:id:17-2009-agricecon
    DOI: 10.17221/17/2009-AGRICECON
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    References listed on IDEAS

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    1. Harwood, Joy L. & Heifner, Richard G. & Coble, Keith H. & Perry, Janet E. & Somwaru, Agapi, 1999. "Managing Risk in Farming: Concepts, Research, and Analysis," Agricultural Economic Reports 34081, United States Department of Agriculture, Economic Research Service.
    2. G. Michalski, 2008. "Operational risk in current assets investment decisions: Portfolio management approach in accounts receivable," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 54(1), pages 12-19.
    3. Robert Holzmann & Steen Jørgensen, 2001. "Social Risk Management: A New Conceptual Framework for Social Protection, and Beyond," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 529-556, August.
    4. M. Svatoš, 2007. "Specific aspects of globalization," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 53(2), pages 65-68.
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    Cited by:

    1. Michal Chocholousek & Zuzana Hlouskova & Tereza Simova & Jan Huml, 2021. "Agriculture farms product differentiation assessment in the Czech Republic," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 67(3), pages 81-89.
    2. Tomas Hlavsa & Jindrich Spicka & Marie Stolbova & Zuzana Hlouskova, 2020. "Statistical analysis of economic viability of farms operating in Czech areas facing natural constraints," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 66(5), pages 193-202.
    3. Karel ŠRÉDL, 2010. "Behaviour of subjects in risk markets," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 56(5), pages 224-230.
    4. Milan Cizek & Miroslav Mimra & Miroslav Kavka & Jaroslav Humpal, 2019. "Analysis of economic risk in potatoes cultivation," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 65(7), pages 331-339.

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