Price and Yield As Sources of Variability of Farm Revenues in Transition Economies: The Case of Armenia

Abstract

In transition economies, the shift to a market system has been accompanied by relevant evolutions of farm income level. Sustainability of farming depends not only on the level but also on the variability of economic results over time. Climatic changes and increasing market uncertainty make small-scale farmers particularly vulnerable to this. This paper analyses revenue variability of the five main crops in Armenia and, by using variance decomposition, it assesses what portion of it is associated with prices and yields and whether a natural hedge exists. The analysis accounts for presence of trends in yield, price and revenue - a situation commonly encountered in transition economies. Variability of revenues of single crops is high. While in some crops the variance associated with price exceeds that of yield, in other cases the opposite occurs. Policy and methodological insights regarding how to manage and to study revenue risk in transition economies are discussed.