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3. 2022 Extension Risk Management Education National Conference

Assessing the Risk Impacts of Crop Diversification on Farm Revenue

Godfrey Ejimakor, Terrence Thomas, and Obed Quaicoe

Summary

Small farm operations are less likely to purchase crop insurance as protection against crop losses. This makes them less resilient to adverse weather conditions due to crop losses or yield risk. Exposure to both yield and price risk result in volatile revenue streams. In order to increase resiliency, it is necessary for small farms to manage revenue or income risk. There are many risk management strategies. Each strategy is a form of self-insurance, which involves a cost. Information on the cost of self-insurance is useful to help small operators to assess the level of sacrifice needed to determine the appropriate risk management strategy to follow. One of the methods to manage risk is product or crop diversification. Even though diversification may reduce risk, it could come at the expense of lower farm income or revenue. We will use information on crop prices and yields to estimate market, yield, and revenue risks for crops in two low-income counties in the state of North Carolina. The two counties have many small farms that produce a limited number of crops including sweet potatoes. Revenues and risks associated with single crops will be estimated as the expected values and the standard deviations of revenue per acre, respectively. The farm-level impact of risk reduction strategies such as on crop diversification and other risk management strategies will be suggested as alternative strategies to the purchasing crop insurance.

Details

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