ABSTRACT
This chapter provides some basic information about how to assess income risk and how to manage that risk while selecting enterprises to be produced. It assists decision makers in their assessment of market opportunities by introducing topics on the risks involved with agricultural enterprises and how to measure those risks. Risk management involves selecting methods for countering business risks. The business risks faced by agricultural producers are both varied and significant. Income risks are a function of production and yield risks, market and price risks, and forecasting risks. Production risk has many sources, both exogenous and endogenous to the firm, all of which combine to create variation in yields per acre across time. The chapter explores a crops yield risk that is measured using average annual yields per acre within a single area. After measures of risk and return have been estimated for individual products, they can be used in a portfolio approach to crop selection.
