Initial situation
The income of a farm fluctuates because the components of income (volumes, prices, agricultural payments, etc.) also fluctuate. Various influencing factors are cited in the literature as causes of price volatility in procurement and sales markets, including changes in supply and demand, environmental conditions (e.g. weather extremes resulting in crop failures), changes in trade policy (e.g. trade restrictions) or macroeconomic factors (e.g. global money supply). Uncertainty (i.e. risk) regarding the future price level and its development arises due to the multitude of influencing factors and their interplay. Unfavourable price developments can cause a sharp drop in income at the individual farm level and subsequently endanger the existence of the farm. In the EU, various possibilities exist in the CAP period 2014-2020 to reduce income risks (e.g. risk management instruments according to Article 39 of Regulation (EU) 1305/2013). Other economies (e.g. USA, Canada) have been applying income stabilisation instruments in agriculture for a long time.
Objective
The aim of the project is to analyse possibilities for income stabilisation in Austrian agriculture. The analysis should include different sources of information (e.g. Austrian and international literature, data sets). Concrete problems are to be addressed with the help of different methods (e.g. workshops, surveys, model calculations). Core questions were: Does the participant pay in more for price protection than he/she receives in payouts? What is the need for public funds with a premium subsidy of 55%? Does the price protection have an income-stabilising effect?
Project procedure
In 2017, an initial literature review was conducted on the topic. In addition, a possible concept of an index-based income insurance was discussed and presented in cooperation with WIFO (Franz Sinabell, Thomas Url) (AES Annual Conference 2017, Dublin; WIFO Working Paper, No. 536/2017).
Within the framework of the project AWI/180/17, the Federal Institute of Agricultural Economics and Mining Research (BAB) participated in the project "Development of instruments for income stabilisation for milk and wheat producing farms in Austria" commissioned by the Lower Austrian Chamber of Agriculture from 2018 to 2021. Based on comprehensive research and evaluation of established solutions, a needs analysis was carried out through interviews with experts from business, science and interest groups in order to create a meaningful basis for model development. From the needs analysis it could be derived that there is a high interest in an affordable, flexible and effective instrument against price fluctuations. Based on these findings, different price hedging variants were defined and their influence on the stabilisation of agricultural income was analysed. The analyses were carried out separately for milk (cow's milk: conventional, organic) and selected arable crops (wheat, grain maize and rape: conventional) at the individual farm level and the extrapolated level for Austria. The work of the BAB included in particular:
- the organisation and implementation of two workshops in which the participants (a sample consisting of working group farm managers) were surveyed regarding their interest in price hedging and their requirements for price hedging (work package 2.3);
- the provision of a data set that was used as an example to develop the price hedging models studied (work package 2.5);
- an analysis of micro- and macroeconomic effects of the insurance model developed in this project (work package 2.6);
- the dissemination of the results (work package 2.7).
The project was completed in 2020 and selected results were published in 2020 and 2021.
Project results
The present work deals in particular with the hedging of the producer price of milk and cash crops (wheat, maize, rapeseed).
Extrapolated to Austria, the need for subsidies amounts to 33.4 million euros per year. In a comparison "with/without price hedging", price hedging reduces the fluctuations in income from agriculture and forestry for about 84% of all dairy farms, and in the case of specialised farms for almost 90% of the farms.
For cash crop farms (>50 t annual sales volumes of wheat, grain maize, rape), the calculations show a positive balance of payments and subsidised premiums (55% premium subsidies) of 1,089 euros per farm and year for the observation period 2008 to 2018. The extrapolated subsidy requirement for Austria is 22.1 million euros per year. For about 58% of the extrapolated farms, the fluctuations in income from agriculture and forestry decrease.
Under the assumptions made and due to the degree of specialisation, price hedging has a stronger income stabilising effect on dairy farms than on arable farms. It should be noted that the results are highly dependent on model and data specifications and the observation period.
Selected project results were published in 2020 and 2021.
Grüneis H., Heinschink K., Hambrusch J., Tribl C., Haslinger M., Url T., Scharner M., Sinabell F., Steinkellner M. (2020): Ergebnisbericht zum Projekt "Entwicklung von Instrumenten zur Einkommensstabilisierung für Milch und Weizen produzierende Betriebe in Österreich". Status: 29.10.2020. Vienna. URL: https://dafne.at/content/report_release/24da91df-b255-4a68-9b4a-e2914ac39dbb_0.pdf (abgefragt: 10.01.2022).
Heinschink K., Hambrusch J., Tribl C., Grüneis H., Scharner M. (2020): Auswirkungen einer Preisabsicherung auf die Einkommen landwirtschaftlicher Betriebe. Short paper in the proceedings 2020, pp. 53-54. 30th Annual Meeting of the Austrian Society for Agricultural Economics, 17.09.2020, online. URL: https://oega.boku.ac.at/fileadmin/user_upload/Tagung/2020/OEGA_Tagungsband_2020.pdf (retrieved: 02.02.2022).
Hambrusch J., Heinschink K., Tribl C., Grüneis H. (2020): Effects of price hedging on farm incomes: Selected results for dairy farms. Paper presented at the 30th Annual Meeting of the Austrian Society for Agricultural Economics, 17.09.2020, online.
Hambrusch J., Heinschink K., Tribl C., Scharner, M. (2021): Analyse eines Instruments zur Absicherung des Erzeugermilchpreises - Simulationsergebnisse für Milchbetriebe in Österreich (Analysis of an instrument for milk price hedging - simulation results for Austrian dairy farms). Austrian Journal of AGricultural Economics and Rural Studies (AJARS), Vol. 30, pp. 35-43. DOI 10.15203/OEGA_30.6 URL: https://oega.boku.ac.at/fileadmin/user_upload/Tagung/2020/AJARS30/09_Hambrusch_et_al_DOI30_6.pdf (retrieved: 10.01.2022).
BMLRT - Federal Ministry of Agriculture, Regions and Tourism (s.a.): "MARGIN-RISK". Project entry in the Database for Research on Sustainable Development (DaFNE). URL: https://dafne.at/projekte/margin-risk (retrieved: 10.01.2022).
Timetable
Project start: April 2017
Project end: June 2021
Project page: https://dafne.at/projekte/margin-risk
