Finance and Risk Bearing in Agriculture

Abstract

Ongoing structural change in agriculture is significantly affecting the nature of risks faced by agricultural producers, the menu of available risk management practices, and the distributions of risk and returns within the food system (Boehlje and Lins 1998). A tri-model structure has emerged in production agriculture characterized by the co-existence of large industrialized units, commercial-scale family operations, and small, part-time or limited resource farms (see Economic Research Service 2000) for a more extensive typology). The industrialized component is characterized in part by large size, high levels of vertical coordination between agricultural production and other stages of the food system, and internalization of numerous risk management functions and other services (e.g., legal, accounting, communications, government relationships). Small farms, while numerous, make limited contributions to overall economic activity, are heavily dependent on non-farm income, and engage in minimal risk management.