Crop selection under price and yield fluctuation: Analysis of agro-economic time series from South Korea
2016
Lee, Heera | Bogner, Christina | Lee, Saem | Koellner, Thomas
Temporal fluctuations of crop price and yield can have a strong influence on farmers' revenue. Under uncertainty, farmers' crop selection on – what to cultivate and how much of their land to allocate to different crops– is of crucial importance to secure their revenue as well as related ecosystem services. Multi-crop farming can be seen as a strategy to mitigate uncertainties that farmers face. In this study, we used Singular Spectrum Analysis (SSA) to quantify the fluctuations of crop price and yield for single and multiple crop selections in South Korea. Furthermore, risk adjusted revenue of each crop selection was analysed using the Sharpe ratio. We constructed three empirical crop portfolios containing one, three and five crops. For the single crop farming, six main crops in South Korea were analysed, and household data were used to build empirical crop portfolios. Our results showed that revenue from rice farming was the most stable, whereas it fluctuated strongly for pepper. However, growing rice provided the lowest revenue and farmers who cultivate multiple crops might as much as double their revenue compared to rice farming. Diversified crop farming can be a means of enhancing revenue. The biggest part of fluctuations in portfolios with several crops was seasonal, which might be mitigated by planning in advance. The artificial stability of rice price was due to policy intervention. However, it should be noted that the rice policy has been reformed and a high protection for domestic rice farming would no longer last in the future in South Korea. These results might have practical consequences for farmers' decision making on crop selection as well as for agricultural policy.
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