Gross revenue risk in Swiss dairy farming

Abstract

This study investigated how agricultural policy reforms, including market liberalization and market deregulation, have influenced gross revenue risk of Swiss dairy producers using farm-level panel data between 1990 and 2009. Based on detrended data, variance decomposition was applied to assess how output prices and yields contributed to revenue risk over 3 different periods: the whole period (1990–2009), the first decade (1990–1999), and the second decade (1999–2009). In addition, the effect of expected changes in animal-based support for roughage-consuming cattle and price volatility on revenue risk was evaluated using a simulation model. Prices were the main contributor to revenue risk, even if the importance of yield risk increased over time. Swiss dairy producers can profit from natural hedge but market deregulation and market liberalization have reduced the natural hedge at the farm level. An increase in price volatility would substantially increase revenue risk and would, together with the abandonment of direct payments, reduce the comparative advantage of dairy production for risk-averse decision makers. Depending on other available risk management strategies, price risk management instruments might be a valuable solution for Swiss dairy producers in the future.