Risk and Risk Management in the Sheep Sector

András Nábrádi - Hajnalka Madai András Nábrádi - Hajnalka Madai Department of Farm Business ManagementDepartment of Farm Business Management, , Faculty of Agricultural Faculty of Agricultural

Economics and Rural DevelopmentEconomics and Rural Development, , Centre for Agricultural SciencesCentre for Agricultural Sciences, , University of University of Debrecen, Debrecen, HungaryHungary

Summer University on Information Technology in Agriculture and Rural Development

August 21-222006

The aim of the The aim of the researchresearch

►To reTo revveal general circumstances eal general circumstances of sheep farmers and producersof sheep farmers and producers in Hajdú-Bihar Countyin Hajdú-Bihar County..

►To survey risk and risk sources of To survey risk and risk sources of sheep farming in the Region.sheep farming in the Region.

►To survey the applied risk To survey the applied risk management techniques.management techniques.

MethodologyMethodology►Studying of Studying of

international and international and Hungarian Hungarian tectechhnical nical literature, - literature, - methods and methods and examples.examples.

►PPeersonal rsonal interviews and interviews and questionersquestioners - - with experts and with experts and farmersfarmers

Categories of Risk Sources and Risk Categories of Risk Sources and Risk Management TechniquesManagement Techniques

BUSINESS BUSINESS RISKRISK

ProductionProduction:: typetype, , technological and technological and environmental conditions and circumstancesenvironmental conditions and circumstances

MarketMarket: : prices of outputs and inputsprices of outputs and inputs, c, coo--

operationoperation Institutional/LegalInstitutional/Legal: : rregulationegulation, , restrictionsrestrictions, , lawslaws, , supportssupports, , informationinformation, , contractingcontracting, , insuranceinsurance, , securitysecurity

Personal/HumanPersonal/Human:: ageage, , attitudeattitude, , familyfamily, , backgroundbackground, , education and skillseducation and skills, labor , labor

FINANCIAL FINANCIAL RISKRISK

techniques and methods of dealing with financetechniques and methods of dealing with finance, , dept and payment managementdept and payment management, , diversity of diversity of investmentinvestment

RISK RISK MANAGEMENMANAGEMEN

TT

TECHNIQUESTECHNIQUES

ProductionProduction

MarketingMarketing

FinancialFinancial

Method of survey and Method of survey and processing dataprocessing data

► 144 decoded questions in 3 main groups144 decoded questions in 3 main groups Risk and risk sources Risk and risk sources Risk management methods and application Risk management methods and application Basic data survey of producers and farmsBasic data survey of producers and farms

► Softwares: MS Excel and SPSS 10.0Softwares: MS Excel and SPSS 10.0

► Processing 516 sheep breaders and studied Processing 516 sheep breaders and studied farms, among them 512 were relevantfarms, among them 512 were relevant

Results – Risk SourcesResults – Risk Sources

4,2 4,2 4,1 3,9

3,6 3,5 3,5 3,5

2,52,4

2,3 2,3 2,3 2,2 2,2 2,2 2,1 1,81,8

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

Ave

rag

es o

f L

inke

rt-s

cale

5,1

5,5

5,6

5,24

5,2

5,28

5,4

5,36

5,16

5,34

5,17

5,38

5,37

5,22

5,35

5,43

5,25

5,7

5,15

Codes of Questions

Averages of Importance of Risk Sources

The Most Important Risk Sources The Most Important Risk Sources

5.1 5.1 Risk of Rainfall Quantity and DistributionRisk of Rainfall Quantity and Distribution during the yearduring the year ( 4,24)( 4,24)

5.5 5.5 Price Risk of Sheep ProductsPrice Risk of Sheep Products (4,19)(4,19) 5.6 5.6 Price Risk of Price Risk of Lamb Lamb (4,08)(4,08) 5.24 5.24 Risk of Costs and Input PricesRisk of Costs and Input Prices (3,88)(3,88) 5.2 5.2 Risk of Other Weather Conditions Risk of Other Weather Conditions (3,6)(3,6) 5.4 5.4 Risk of EpidemicsRisk of Epidemics (3,5)(3,5) 5.28 Changes in Hungarian Agricultural 5.28 Changes in Hungarian Agricultural

PolicyPolicy(3,5)(3,5)

The Least Important Risk SourcesThe Least Important Risk Sources

5.15 5.15 Risk of Lack of Seep Milk Selling ContractsRisk of Lack of Seep Milk Selling Contracts (1,79)(1,79)

5.7 Price Risk of Sheep Milk5.7 Price Risk of Sheep Milk(1,82)(1,82)

5.25 Risk of Fluctuation of Interest Rates 5.25 Risk of Fluctuation of Interest Rates (2,(2,1010)) 5.35 Risk of Increasing Hired Labor Cost 5.35 Risk of Increasing Hired Labor Cost (2,19)(2,19)

5.22 Breaking Contracts 5.22 Breaking Contracts (2,26)(2,26)

Other Risk Sources at About the Other Risk Sources at About the AverageAverage

5.42 5.42 RiskRisk of Lack of Integration of Producers of Lack of Integration of Producers (2,56)(2,56)

5.33 Risk of Accident and Health Problems 5.33 Risk of Accident and Health Problems (3,43)(3,43)

5.36 Risk of Theft and Security 5.36 Risk of Theft and Security (3,46)(3,46)

The most Frequently Used Management Techniques

% Using% Using MeanMean

► Cooperation, integration of producers 74,4

3,8

► Maintaining feed reserves 73,6 3,5

► Up-to-date market information 65,9 3,7

► Monitoring of pest, diseases, crops, prices 63,4

3,7

► Weather forecasting 60,7 3,6

► Security, safeguarding 58,3 3,8

► More crop variety, breed,

or dual-purpose animals 58,1 3,5

The Least Frequently Used Management Techniques

% Using% Using MeanMean

► Forward contracting 28,9 3,4

► Long term flexibility 27,9 3,2

► Not producing to full capacity 25,8 3,6

► Irrigation of crops and grassland 20,0 3,7

► Off-farm investment in other industries 18,0 3,7

► Debt management, monitoring, 16,3 3,6

► Keeping dept low 16,1 3,5

RankRankss of Risk Sources and Risk of Risk Sources and Risk Management TechniquesManagement Techniques

BUSINESS BUSINESS RISKRISK

ProductionProduction:: typetype, , technological and technological and environmental conditions and circumstancesenvironmental conditions and circumstances

3,13,1

MarketMarket: : prices of outputs and inputsprices of outputs and inputs, c, coo--

operationoperation 2,82,8

Institutional/LegalInstitutional/Legal: : rregulationegulation, , restrictionsrestrictions, , lawslaws, , supportssupports, , informationinformation, , contractingcontracting, , insuranceinsurance, , securitysecurity

3,03,0

Personal/HumanPersonal/Human:: ageage, , attitudeattitude, , familyfamily, , backgroundbackground, , education and skillseducation and skills, , labor labor

2,72,7

FINANCIAL FINANCIAL RISKRISK

techniques and methods of dealing with financetechniques and methods of dealing with finance, , dept and payment managementdept and payment management, , diversity of diversity of investmentinvestment

2,82,8

RISK RISK MANAGEMENMANAGEMEN

TT

TECHNIQUESTECHNIQUES

ProductionProduction average use: average use: 42,7 %42,7 %

3,63,6

Marketing Marketing average use: average use: 51,6 %51,6 %

3,63,6

FinancialFinancial average use: average use: 28,6 %28,6 %

3,63,6

SuggestionsSuggestions

► To trainTo train farmers applying different risk farmers applying different risk management strategies and techniques. management strategies and techniques.

► To supportTo support ( (by the government and theby the government and the EU) EU)::- co-operations and integration of - co-operations and integration of producers, producers, value chain value chain- finding other alternative income - finding other alternative income sources, sources, (processing, (processing,

specialization)specialization)- producing good quality sheep product - producing good quality sheep product (value added). (value added).

► To assist farmers with information and To assist farmers with information and extension services.extension services.

Thank you for your Thank you for your attentionattention