Possible Impact of Risk Management Strategies with Farm Model on a Mixed Farm Type

Abstract

Background: Farm-level models have become an important tool for agricultural economists as there is a growing demand for microsimulation and analysis of farms at the individual level. Objectives: In this paper, we present a mathematical model with the main objective of assessing the effectiveness of production and various possible strategies for agricultural holdings by reducing risks. At the same time, we were also interested in the environmental impacts of such strategies. The latter was measured using the indicator of GHG emissions. Methods/Approach: The model applied is based on linear programming and upgraded with QRP for risk analysis. The approach was tested on medium size mixed agricultural holding, which often faces challenges in light of the structural changes taking place in Slovenia. Results: The results suggest that such a farm could improve financial results with a more efficient risk management strategy. With a slightly modified production plan, the expected gross margin (EGM) can be increased by up to 10% at more or less the same risk. However, if the farmer is willing to diversify the production plan and take a higher risk (+23%), the farm's EGM could increase by up to 18%. This kind of change in the production plan would also generate 17% more GHG emissions in total, calculated as kg equivalent of CO2 at the farm level, as both BL and C scenarios have the same relative ratio at 3.12 GHG CO2 eq. /EUR. Conclusions: Through this research, we concluded that diversification has a positive potential on a mixed farm, and the farm could achieve better financial results. With flexibility in management, the farmer could also achieve higher risk management efficiency and better farm results.