Quantifying and Managing Risk in Agriculture

The purpose of this paper is to review relevant portions of the risk literature and propose an agenda of applied risk research. More specifically, the paper discusses the major sources of risk in agriculture, summarizes several methods of quantifying risk, summarizes the literature on estimates of agricultural producers' risk preferences, and briefly discusses alternative methods to manage risk. The applied research agenda given in the final section is included to promote discussion of ways that we can aid decision makers apply what has been learned. The discussion focuses on these topics as they relate to agricultural producing units. Many of the same procedures can be applied to firms in processing and distribution as well as to the analysis of aggregate policy issues. The comments are developed from experience, primarily in the United States, and based on work in other areas of the world.