Abstract
The variability of producers ‘net income levels is largely a function of variability in output price, yield, and input prices. Yet, the tools available to manage price risk and yield risk are not widely used by producers. Is the market failing to provide agricultural producers with effective risk management tools? To identify producers’ needs, the paper establishes the relative importance of price and yield risk by decomposing the variability of revenues from a sample of crops in California agriculture. The risk tools available to producers of those commodities are compared to producers needs for tools. Results indicate that “market failure” is readily apparent in markets for tools to manage risks. However, the nature of these missing or incomplete markets does not necessarily imply inefficiencies that would justify government intervention.
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