Risk management in fruit and vegetable production in Germany

Abstract

Increasing risk exposure for horticultural farms is a consequence of structural change, agricultural market liberalization and associated risks, and climate change. These developments have led to the increased importance of risk management in fruit and vegetable production in Germany. However, few risk management studies cover this area adequately. This study provides an overview of the risk management process for fruit and vegetable farms. After a discussion of relevant risk sources, the impact of price and production risk on revenue volatility for selected fruit and vegetable crops is presented based on variance decomposition. Finally, a systematic overview of currently available risk management instruments for fruit and vegetable farms is provided. Results indicate that there is a wide range of relevant risk sources. In this context, the strong dependence of producer prices on quality characteristics is noted. Revenue volatility analysis shows that the risk profile differs from crop to crop indicating the need for crop specific risk management strategies. The analysis of available risk management instruments shows that farmers can implement several instruments to manage production risks. However, insurance is only partly available. There are only a few instruments available to manage price risks. Accordingly, it is important to develop appropriate price risk management strategies to cope with increasing market risks.