Risk and diversification in Arizona crop farm production

Published in 1971

This study estimates the degree of variability in prices, yields, and incomes associated with various crops and crop diversification systems in Arizona. Relationships among variabilities, returns above variable cost levels, equity levels, and farm sizes associated with various cropping systems are investigated. The variate difference method of calculating variability is used to derive estimates of income variability for various crops and crop diversification systems based on state price, yield, and cost data over a series of years. The results show that vegetable crops have high expected returns and high variability in returns in contrast to field crops with low expected returns and low variability in returns. However, in some specific diversification systems vegetable crops result in higher variability and lower returns than field crops. Further, the results indicate that a farmer should consider his scale and equity level when deciding what to produce. Varying degrees of risk are inherent in different equity and scale levels. A farmer at either of the two scales of operation considered in this study, 320 or 800 acres, and with a low equity level can easily go bankrupt in one bad year

AZU_TD_BOX277_E9791_1971_180.pdf (1.91 MB)

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