Risk of agricultural production in russian orel region
Keywords:Markowitz, profitability, risk, production, price, yield
The paper evaluates the risk of agricultural farms in Russian Orel region by using the modified Markowitz portfolio theory. We analyse individual farm data of agricultural animal and crop production with respect to yield, price and revenue agricultural risk. Farms included in the analyses represent four organizational legal forms and the range of agricultural products produced by these farms is wide. Therefore the research focused on the grain and milk production only. Over the period 2010 to 2014 the effects of Russian ban on import of agricultural products from EU can be observed in form of increased price level of individual commodity prices. Risk and return are negatively related and investors are comparing the risk with profitability. The same stands for farmers. They select the type of production based on expected return. The result show that the systemic yield, price and revenue risk of grain production is higher when compared to milk production. This is due the nature of animal and crop production. Climate and weather risk has much lower effect on animal production when compared to crop production. Therefore the overall risk of crop production is higher. But farmers consider the risk not isolated but in relation to profitability. The profitability of crop production is higher as in Orel region more than 90% of agricultural production is not animal related and farms are profitable with and also without subsidies. Our empirical study shows that in case of equal expected profitability animal production is more profitable for the farmer as it is linked to lower yield, price and revenue risk.
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