RISI{ MANAGEMENT STRATEGIES IN

NEW ZEALAND AGRICULTURE AND HORTICULTURE

Dr Sandra Martin

Department of Farm and Horticultural Management P 0 Box 84

Lin~oln University Canterbury

NEW ZEALAND

Paper presented at the 39th Annual Confer~; nee of the Australian Agricultural Economics Society,

Perth, Western Attstra1t~, 14~16 Febrtu;zry 1995

INTRODUCTION

The deregulation of the New Zealand economy which began in .1984 radicaLly a.ltet~d:the ec()no~i¢ environment. facing New Zealand fanners and growers (Tyler and Lattimore, ~9~0}, Iqput~and output .subsidies, development incentives and .taxation deductions were removed •. Prod~cer Board subsidies were withdrawn, state assets were sold and a user,o;pays principle introduced for •m,any government services. As a result, New Zealand farmers are now fully exposed to .the vagax;ies of the market place.

This has increased the risk exposure facing primary producers. A$ well ,as nmnaging tisl<s associated with physical factors such as unfavourable weather and pests and diseases~ farmers 'and growers are now required to deal with greater market uncertainty. As a ~suit, they lia.ve ,be~n forced to re-evaluate sources of risk which they face and to take measures to pro.tect their businesses against these risks. This is likely to have resulted in changes to traditional patterns of risk management as frumers and grmvers have adjusted to the new risk environment. This .phenomenon is not unique to New Zealand with Australian farmers also facing these deregulatory pressures. In the U.S.A., Eidman (1994) has noted that a complex risk environment has emerged over ~e last 15 years with the fann sector becoming more sensitive to a wide range of external forces,

Even though it is universally acknowledged that risk and uncertainty play an important role in agriculture world-wide. concern has been expressed that the volume of risk research which exists in the literature is nat matched by an understanding of producers' perceptions of riSk and risk management (Boggess et al, 1985; Malcolm, 1994). Such concern must 'be heightened in the changing risk circumstances which accompany deregulation in many countries.

In the literature, various techniques far analysing risk have been applied to different strategies under different farming systems, with prescriptions far risk efficient outcome.s often being the output of this research. However, if strategies being evaluated by researchers do not corr~~pond to those preferred by producers, then the value of this research will be greatly dirnint$hed .. Resen.I'chers ami policy makers have begun to appreciate this and to initiate benchmark studi¢s .on :pro~ucerst perceptions )frisk and risk management. {Boggess et al, 1985; Patrick et al, 1985; Scott, 1.994).

In this paper, the importance which producers attach to different tisk management st.:nlt~~e~ is identified in the context of the deregulated New Zealand farming .environment Initia!ly1 risk and risk management are briefly defined. Sources of risk are then discussed and·traQ.i~o,nat Strategies which are used to .reduce risk are outlined. Finally, the results ofa natio:nwide:pps~~ls.t.trveyofNew Zealand farmers and growers on risk management are presented and .·.discussed. ·

RISK AND RISK \MANAGEMENT

Risk can be dnssified as business or financial risk (Gabriel. an? iBd~et;J.98P:>.~ ',~tt:stpe_s$.:.;~'$}<, incorporates production risk {which impacts on yields) and matkl;!tnsk,(whic~d~p~ct~:??:i~eu~.a.rl~: output prices). This business risk is reflected in the variability of'the. net qp~tiiting:i~.~o?1e·.(g,r'Jhe:· net cash flows) of the business. Financial risk is reflected in·the· added variability<of,t.hC!~~et··~~~b. flows to the owners of equity. It essentially represents the ri~k ofqelng unabl~.t{) rpeet·~prl,or.cJaim~ on the business with cash generated by the fann. Debt servicing commitments usually ·ac¢ort11t:(or . a large component of these prior c!uims. ·

If the net operating income of a farm business consistently fails to excee~ ·prior commi.tmertt$!·the·n the survival of the business is threatened. The objective of risk management is to re:~uc~ the chances of a vulnerable situation such as this while achieving the highest .·possible .retuhjs ;for· the owners of equity consistent with their attitudes to risk. ·

Risk management strategies can have two broad effects. There are those strate,gies which can be used to control risk exposure, and those which aim to control the. im,pact .of :risk on the: :farm business (Jolly, 1983). Risk exposure can be controlled by manipula~ingthe probabfli~tdisirlbutions facing the farm business so. thar variability is reduced. This .can be done .by either srnooth'iqg oqt. yields and prices or by cutting off troughs. Examples of risk responses w.hich :Smooth .()ut ·)d~l<.ls and prices are enterprise selection, enterprise diversification a:nd marketing strategj¢$ Whi¢1). smootll out pdce fluctuations. Insurance is an example of a strategy which can be:~sed ,tQ cut:off.trop;gqs. Controlling the impact of risk on the fann business does not influence the l.lrtdetlyi~g~isti)bupQ'rls faced by the business. Strategies in this category impact .on th~ capacity ofthe fru-rt) :pu~~qes~4o absorb unfavourable downturns. They could include raising theJev~l of .)T,i~Ids:..al)d ptjce~ so :,that the level of net operating income is higher, as well as low<!ting leverage, matching.Q.ebtrc;!p~yrn¢nt to income generation and maintaining cash or credit reserves.

RISK SOURCES

The classification of risk into business (or production and ·pric¢)risk :an'd :t:iria~c'i~·rlsk ~low~··~the impact of each of these sources of risk on the farm operation to be :clearly ·m?nit()red"by<obs~ryjng their influence on yield, output prices and input costs,· and r~sioual·C~$1J ;fl?)VS::to e.q~t~ p~n¢t'g~ · However, it may obscure the subtle forces which .impact on,tbese.:yi~14s(pxjq~.S~·~fi;r~si<!,~(lt.cti$h flows. Sonka and Patrick (1984) identify three. additionalcate.go~es,1ofpu~i~e~s·J!~~1 ··Qi~s~~o·ejng. · technological. legal and social and·human. They argue·that·ri~J6mAy·b.e·;t~1Jlle~,l~ch~QJogi~al~·it is possible that ;urrent investments in assets may be ·offset,hy techpi?~tim:X?r9Y~xpeni~:iP::Jh~',;f:uJpre. or if new technologies impa.ct;.on .. the.profitability of;fa~mirl~·-sy~t~tn~~ ?~~rus~•~Al~SRfi:~k~~~s·:rp;lr arise with the use of non,.fann sources of capital ancLc~ntraQtP .. aL·T~¢hqri.i~pis: ~~~9~·;~~s·~9ny~ .contracts~ Similarly, human. risk· may b~ associated wit~ :the.la.b?~t·~~~·l1J;t~~~~W,~U~:r~~fr9Ji?P~'?r· farming and. could include the vulnentbility of .the :$ol~·fa#n.'·PB¢r~\?r;:~n~ p)~;::~~~ita9l!~w,·:~~~:. · :reliability of labour. . More .recently, Anderson:. {1~9~)-.':ilrgue~:in;~"it)'lll~?:Y.~~.n.'''flj~p~~Pr:;~~t~#9rl~~.~9n: :, > ,

oftisk .. shou'ld .. jnclude'social,healthandpolicyTis~.~·;as,·.w,eH".B,s:iJh~''tl;~~~-~i9ng!~xi~l~'·a.ti~\p~·¢~::p$&$;;. which are so familiar to agricyltural ·economist~• .. · ., " ... ~:,:: .. \.' · ·; ···· :~ ·~:. :· .. , .· ·.

,.(.' ,< ·~· , , '':\, ,.·::~'.·, .. .,. ·-. · ··. ~ ,., · <.·?.···; ·r· ' - i:,/ c •,'{, ~. :,;· :,.: ·, ' '!(' 1 .,, , ~ ~", '.,,. I

,. ,''.) ' •• .. ~.'.' ); • .' -t .~-t.< :~ ~---~ :, . J: ,.._" '.' ,(!'; .. ;~ • ; :.,:'. ;''.:;~_·.:·~· ' ·:.~ ~' 0 : •• v, ~:··-:.·· '• '.f:_;. ~ '':< .: >:::'.·.~ ~(:· . ;.~'._~._,/./-\:,t~)t ~ ' ' !.;). ' .. \',~.: .• ; _'::'.T.:;·

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\ ,,:,; ;,,: ,·;;i:;;t;'t;;~~;J;;ii~~;~,;;~;;:~)i)i~~~~ii}~i~liJfli~ill

' . . ' .

RISK MANAG-EMENT ·srrRAT:E~lESi Risk management strntegie$ ht1ve been clt1ssH1ed tiS produqtior1,'Jn~~~t~n~,.,gx:i:noaij~illl·:~~:~tlcL. Fraser, 1976; Sonka and Patrick, 1984). Produc.tion te$ponses incltid,¢ .·.~elrct~r,J.~~~ryt~rP#sy~·:·~~{gh :.·· are known to have.a low yield variability, orselecting·;t·regtpnltl·Whi'qhtoi~arffi!'~her~.yi~l~$.'~~·· known to be more stable. Enterprise _diversification may ~lso .qe an ~ppropri{\t~W~)'·~otre(iyc~rg$~! · · and geographic. dispersion of frrnning activity. is. a ,funhe.r ··option. . ;Mo4ipcn?tinSHJif·~t~'qhn~ca,l prncdces may also serve as infonnal insur;mce schemes •. ~hese·{ll~Yjinghtd7.'f1n~e.~¢~.~s;.i~y~~~~·hel1t· in .machinery~ maintaining feed reserves, precautionary animaLandc:;plant he.althfille~SI.ii'~.s:~~9?·~s. preventative applications of insecticides and antibiotics. planti:ng sevefillc rar~des aqd;inv~stip,gJn irrigation. Substituting cupital for labour can avoid problem~ with :hire~ labq:u~. ~hem,~ti:v¢ly. appropriate incentive and reward stntctures may reduce risk fi"Qm :this ;soQt¢e. ·

Nlarketing strategies may include selecdng enterp~ses with a low exp~cte~ pric~·ya.,xj~ti\l~~¥'- ~pc:i spreading prodt1ct sales over. time by. either ,staggering ·production. ~or"storin~ prc:>~Y9~~ .,Fo.ny~P., contracting or hedging on the futures mnrket (when~th~seare av~B~ble)•allow·pr~ciucts.·:~n~J~~so·ro7 cases inputs. to be priced before detiv~ry •.. Improving the quality Qf infomtati'p,n on,pti~~s ,~nd. market requirements can· also reduce risk. Changes in fina.ncial ~rnan~gemem "prappc~s :~~n :also ameliorate risk. Responses can include maintl1ining additionalliquidhy by h()lding ~m.or~·,l~q~i~ · assets and matching the debt repayment structure . with .. t~e .income if$enera~ng \p'P.,~te,T of: ~ny purchased asset. Increasiqg the ratio ·of equity to total as~ets. will also red~ge.,.th,e;fin!pl~l~L!psk associated with the farm. This will involve injecting capital into the ;fC\tJlh"eitll~r~fr.orrrlnteiJl~l:pr external sources, Other financial strntt~gies include l~asing. .assets tat'her 'thn~ 'QW~ipg 'ffl~w:·~n~ various forms of insurance. In addition, investing capitAl i,noff*farm assets (which:m~y"J;>erfio'anqial•, or otherwise), is another variant of diversification which may ·be possiblet · ·

Although a range of risk.-reducing strategies l!re possible ·in principle, the .. number:'WbiCp'.i¥'¢:actH~lty . used by individual farmers 'in practice is likely ·to be! moqh more limhec:t~ ·S~~e~i.es, ·Jl1~~~ .. 9~ inappropriate because of farm size~ type, location or .. own7rship.· s~c~ure~ .·. l~ :thi$ '"~J~tl~,itbe strategies for managing risk considered most important by different: groups. offarm~r$ :~o(J; gtgwers in New Zealand are identified. ·

1\fETHO])l)LOGY ., ,,' 'if I, "" '•',, '•' , ·, ''-

RISJ\ ·SO:.'ORCES

.At· a mote detailed level, market ri~ks were rtlnked as. v~rl import~nt l;>y ~U ::~Ol!~~~ ·. <!~\ll¢s A.4, · AS and A6 Appendix). Chnnges in product prices were ·rank~d ~s ·th~ 'most 'important tl~~.~~()~r¢e in almost every case with kiwifruit orchnrdlsts and ve.getable .growers ~bpwin~·.a 'hig\i~r:;lev~J'.pf com:em than other groups. AU groups except vegetable growers nmk~d qb;lqge.s iri th~ W¢#'~ economic and political situation as import~tnt. Changes in New· zeaiandl$ ~cQno~jg sitWltiorr~:~fid changes in input costs were also considered important, ;,!}though ~leer 'farmer$ w.;r¢.les$ c(>nC¢uie(:l: abot.n· input costs than other pastoral fam1ers. The importance atr;mhe~ to th~s¢·. rn~R~.t ~rlsk$· suggests that New Zealand producers are well awo.re ·of the v~garies of the int~O:hltional ·.m~k¢t place and are concerned abut the 'impact of this on thdr businesses.

Producers' assessments of production ri$ks w~re ·no~ gl.lite: $0 uniform. RaihfaU. :Vari~l?iltt:y ~v~: consider~d an importam. risk by dairy, sheep and beef ancf cropping. fanners ,~hd· v~getAqle, ·~ow¢~s bu.t was not so critical for deer fanners, pipfruit and l<:iwifruit orchardists !lnd floW;.er.~pw.¢~.: .:~;t the other hand, other weather factors were critical for :Pipfruit. ·and kiWifrgit .ID"owe~ biJt. PbJ,y::g'f: moderate importance for all other groups except deer farmers who ,were not .so c()npem~A' t.ib9Mt· them. Diseases and pests were ranked highly by pipfruit. and,.J<iwifr\lit orchar(ii$ts:and:·Y~~et~l:)t~.am:i flow~r growers, bm was of more mod~rate importance to.a1l·.oth¢r,groups. Th~s~ 4iffe~nq~~:'tn·t~~ importance attached to production risks reflect. the diffe,rent chtifa~tt!tistics of the "4iff~(et\t (afrri, types. products and industries. · ·

As would Pe expected given the responses .on financial n~k, chan~~s in Jntex-eSt'I';i:tes \wer~ ;vi~w~d · as a moderate ris.k source across all farm types with ~he excepticm pf vegeta.ble ·groW~J~ :w~p.yJ~M~e~ this as slightly less important.

RISK MANAGEMENT STRATEGIES

Pastoral }Farmers

Results:

.D.iSCli$SiQ n:

n appears that dairy farmers concerns about rninfall Yttriability are not mt;~ by 'bav.lng: JrrlgqJfqn, capacity but by maintaining fe~d reserves and h~viog the short-term.flexibillty to 4ld~ptt~::qh,{lJl~Ui~· circumstances. ln combination with routine spraying and qrenc.bing', these $U"~te$J~s :n¢lP· J{): maintain high yields nod to reduce yield variability. Because of the :Single Aesk .J1lar,~~tt~tt ~~·qgtut~ in the dairy ·industry, inctividual farmers are unuble to meet th~ir fep.x;s abo9t ·Jl}m-kt"tiirlsk~. ~Y employing marketing strategies in un attempt to influenc~ ehher th~lr ~prlc(} 'level: Q'f y#J~oUl~y;. Instead they ensure that they have the ability t·o absorb any unfavourable .PtiG!!falls gyke~plngJ:l~bt low, managing cf.lpital spending, anct a rang.e of l\UXiUucy Jinancinl strutl!gie~: :$l)p~. ;3,:~ ·:finan¢t~.~ . reserves, insurance. debt mnnugement and nrrangirm pverdtaft reserVe~, E)~jcy ·ftmn¢.~· .. ·m~¢'. significantly greater use of financial stra~egie$ thtm other pas.toral f~. :type~~ · · ·

Although long·run flexibility was modemtely important~ ernen>rise :di:Yer$il1¢'\0QO~. gff~f~nr investment and off~fann work were not, with ctnlcy fanners :a~tac;hin~ less impon~n~~/·lQ 'ili~~~: strategies than other fann types, nnd using them less~ The rigid. d¢rnanti ;for :J~~p~r':~in,:g!l~ enterprises may be one rer1son for this, .This gives the hnpressio,n ofaJ!gnt on~f~~f~q$·gn,~n~ enterprise where effons are mnde to ensure htgh ~nd stable yi~ld~ whHe: 'fnninW.irt'im~· th~·. ftD!-\OGiP,f: ability to absorb unfavourable downu.Irns. · · · ·

Sheep and Beef;

Sheep and beef fanners respond similarly to dairy f~rmer$ ~n dealing with. th~ :pt0du,gti9J1/,Ji:$l< associated with rainfall variability. Th¢Se. ~re met by m.aintainintl:f~¢9; ·t~$¢t,:\f¢,·~ (lf!\Q.i:~~~i~~. :·.tfr~ ability to adapt rapidly to changing weathe~ ci~oums~am:est ''Rotnine ~pray~n~: an4!~pvhin~·_"jt~l§9 emphasised, with the combined· impgc.t: ·of ;~hese pro~gcdQn ,-~tra.t~gi~S, ··p~ing :tQ· .en~nr~:i·t.IJAt,:d1~ physica,l performance of stock is high find sttlble. A'ltho~gh ·Only ¢9n~id~red· ~tp ·&e ·f1lpge,;~J~J~ . · hnportant strategies, having more than one ,bre~d or'prPtiuc~iQtt ·techniqiJe :al1d;ntitpr¢tH9~~g'Jq;J4lJ:. capacity are ranked more highly 'for sheep .nml beeffnrrn¢r~. than.:(l{liry,fg,qnecit .~nt,t:qr~Jl~·~·a,:ro.or~:•· .. often by them. · ·

.... '·' ~· ,· ·.', ,,,.. . . J;;' (.' :; ,.··:.,: ,;,. . ···!· "'r:c'.'.:" <''''},~!t''t( :'··'',:(·''' '::C!'f;;:.·:;~·!;'~; 5: .t · ... ,:~~. ",;; .::.<. .• , .:~, ' ,,: . . , , ,, ..... ,,·::·. 'i''!i;'i'!'·i:: .. w.rrw ,,,,,gc;:t•.:,·.(''""''•'f

~~tt::r;~:~:i ;~~~~~~,!e~~~:ri~~;~~~~~~~~;~~f~l~~~f~iltl,~:,;lr~~1~~ji~f~~~ conjun~.don ·~idl'.!An Ability to 're~gt qqfql(}~ ·.~Q ;pric.~··Q.bqq~~$. :~!J:~~~;,!P.IJl~~~;i$9i9:~··,~Q,fl~f\5~~~~;~.hjl~t' :: .. :•.. ··. :···'' sp~o,dlng $al~$ tlnd linvin~<tl1ore tha~.~pn(:· ~nt~r,ptis~ t;~h' i~Q)QQtlt .. PMF,;Pri~~···t]Q9l~~dgn~i',·,;Jg~:~,~~~~; · ··:, · · ·~:.,; lonset't~nu.~. enter,prise fle:xiV.lJity·is~useQ. JP··mainla.ln .• 'lUAt~~~.rg~ppn$l~~~~:~~si:'~tt.fi:t~B~~!t1~~gt:R~¢~'···.~,:. ··· ;'.;' farm~~ psing: this :Smtte~y more 9f~e.r1 thun ~oth~t p~smr~l~f~~rs·~:. fP~~~~r~,'·HPil.~~q~ip.~t~i~r'09.k 1 .· .. :}, comtid~red .. tto important risk 1JlAna~em~nt sm\(cgy~ WhlQ~t •. sn~.u~~sts tht\~. 'th¢~t} ... f~~·~:U}-v1~J .. ·l't~ .... ·· · :· , .. :;c: maintain. :th~ ability ~o enbnn~e pdq~ penQmlanCP as m~c;h aslh~Y·. c;an Whil~, l!~~pgg.th~r·~.~~~~l~~ •·. to sm®th out pdQe~ •. Conc~ms.which sh~e.p and bee"ffarmer~ ·.~~ve AbQ!ll th~ :fm·p~¢,~·ptt~~i~y¥·· ptodiJ~don. and mttrket risk are met .b.y .mnintnining the, 'aoUhy to ~bsorb. an~ ·~mfilV~Rt~b1~:99'YUt.t!tp$ by ket}ping debt low nod rnnnnging capitAl $Pending; w:hh the$~ be'ing ·sypp¢rt~4 :'l'~y· ifh~: ~~m~ attxiliary strategies used by dtriry fnnners. ·· · · · ·

Like d~icy fanners, sheep nrtd beef fannc;rs ht1ve •ti d¢flnHe On.tfttrm ris~ f99Q$ ·w,ith· .~(f~f~n irtvestment nnd off-.farm work not Ponsidered tO be .importp.o~ :risk·.·respons~s,,. alJ~QP}lb ;~~~~~r importance .. is ~ttnched to off~fann. work by family membQrS anci .. mqre of.~bi~ ,~gqr$' 'tlHYti~.' dnicying. Eiowevert Pnlike dairy farmers, this on .. fann focus c~n t!ocomp.ns~~ :mQrn th~n: Qn.~ enterprise.

Deer farmers hnv~ veQ' simihtr risk respon.ses to sheep ffnd beef imners. Th~¥ c~Jso ,Plaa,~ importance on souttd and stable :stock perfPrmnocQ. Tp achieve this, th~y Str¢ssth~ s~ro~~P~qgP~tic>n strategies n$ mher pastoral. farmers emphasising rot1 tine s.pruy.iog and drenc;hin~··~nq:mt)i,nt~lnio~,(e~~ reserves, even though they do not view min fall variability ns. such n $t}Vere threat. Lil<l} $~e¢p~apP: beef fanners~ th~y rank havin!l more than one breed nmi not :produc;in~ to full Q+tpachy :mt?r~ fii,&lllY than dairy fanners,. and use. ntore than-one breed more .often than li!ticy farmer$~ ~ttlthp~·~Jx~,tn~~e:i strqtegies are only moderately irnponant They m~et conc;en1s· ~.bout mtlrket rl$lc in 'Jh~~ $P.ID~ w~~; as sheep and beef fa.rmers, employing strategies such as using market inform~tio~~, sprtt;tciio.~ .. ~.~~~~, having more thnn. one .enterprise and tong-run enterprise flexibHhy to P..otb enhanc.~ ~nd' ~~:f~Rjli§e: returns. They nl~o rank k~eplng debt Jow as an important dsk management ·strntf;&~r'l?YJ<m~n4~~g c~pltnt spending was not ranked as highly as it wu.$ by other groups and wa~, t!$~tl :les~; qft,eq:~ Bowev~r1 it .was an impontctm (ttJXlliary strategy, along with arrMging ov.~rd.~a(t ~~~~1;9~$,, ~elJt .. management, financial reserves and insurance. Th.e~e fimincinl s~ategieS ;preserv~ fu~,~l;Hlit)l9~·~~~t fanners to absorb residual business risk. Deer farmer$. ra,nk off~ farm. inv~sun~n~: :a,n~ ·?ff-f,t\rrJJ income more highly than other p~stora\ farmer$, and ov~r .hnlf Pf;lh~. ma,in 'IiPJTI Qp~tatQ~'w~n:~~'9:ff the farm even though they do not view this as a, pnrtic~I~rly impon.nm cl$k .:m~n~g~'ll~~~;:~tr'.~te~'~ This is likely to .be .A bistOricfil reflection of the fact th~u mttny de~r fanners wer~ ,\\forktn~>Pff.fqim before they got into <leer farming. ·

·",·,

TijJJtE 11 A.,com;pndson?ofUteJmportancea'Uacbed ;t() different risk.:man:-~gement responses and their use by pastoral farm types.

Risk Response

,Production. Responses: RoUtine ~praying

and ,drenching Maintaining feed

teserves More ;iban ;One: 'breed ~or !Ptoductiorr :techhique

if\Ior'Producing to full ,capati ty

·ivfonitoring· ~pests~crops:;dimate

Dairy (N=315)

Mean Rank

3;9b {1.3)c 3~8 (LJ) L8 (L5) .2.2 ,(L5) 2.3 (1.7) :0~7

(l.A)

:Z;()

(~:8) 1a•·· (-t;9}· £~7 :(1:.5) t(}i9 ·. .t1A:1 :0:1 tt?J

l

2

14

12

11

21=

IS

l$':::

15=

i9:=

2-t=

Importance Attached to Response•

Sheep/Beef (N=488) Mean Rank

4*0 1= (LO) 4.0 1= (LO) 2.8 13= (1.:4) 2:8 13:: (L4) 2.2 16 (L6) o~s 21= (LS)

3~6·. 3== {J .. S) 3z6 3!:: f1:3) 3.4 ·6= ;!t5J ·J.·io t& (1:.5;) ;(11~ 21~ 1(1)1)

Deer (N=52)

Mean Rank

4.1 1 (l~O)

4~0 2 (1.1) 3.1 9= (1~6)

2.7 12:: (L5) 2.0 18 (L7) 0.9 21= (L5)

3.:8 3 (1.2) s~5 5 {'t3) ~

3.3 (1:. CL6) ~,~

1..:8 19 {)};6) 0~9 2l;=: ~(1C3)

--~----------------~

% Using Response

Sigd Dairy Sheep/Beef Deer

N.S. 92 95 94

*e 96 94 9.2

*** 39 69 T4

*'~* 43 {)3 51

N.S. 49 47 gg

***e 10 15 14

*** 51

*** 41

*** 34·

***• 15

***e 9

TABLE 1 '(contd): A comparison of the .importance attached to different risk 1nanagement responses and their use by pastoral farf!1 types.

Risk Response

'Financial Responses: Keeping debt low

1\1anaged 'capital spending

Arranging overdr;tft reserves

Debt :management

Financial Iteserves

Tnsut-dnce

,Q(f~!arin- investment

·Main·~fatffi·openitor working ~ •off farm --

F~fui~Y-lf1~hiber's ivorking ·nffJhnn

--: tDvernllJResponses: · - 5116d;,:tetrrr:'f1exihi1ity

Dairy (N=315}

Mean Rank

3.7 3 (1.3) 3.5 4 (L4) 23 10 (1.6) 2.8 9 (L8) 3.1 ·6= (L5) 2.9 ·8 (1;6) 1.6 17 (L6) 0:9 19= (L3) 1.;0 [8 (1.3)

Importance Attached to Response•

Sheep/Beef (N=488) Mean Rank

3"6 3= (1.5) 3.4 6= (L5) 27 15 (1 .. 7) 2~9 12 (1.8) 3~0 10= {L6) 3~0 10= (L7) 2~0 17 (13~ Ll 20 (1;5) L4 19 (L6)

'.6=

Deer (N=52) Mean Rank

3~6 4 {1.5) 32 8 (1.6) 3.0 11 (1.5) 2.7 12= (1.9) 2.6 14= (L5) 2.6 14= (1.:8) 2.3 17 (L8) 25 16 -(L9D L6 20 (L8)

9=

6=

lO

Siga Dairy

N.S. 85

N.S~ 86

NS. 75

N.S. 68

N.S. 72

N.S. 77

**- 36

***e 13

** 19

N~S. '80

N.S. 13

% Using Response

Sheep/Beef

82

83

67

69

-62

75

42

20

30

:80

:81

Deer

'83

7.0

73

58

59

·61

49

.54

Siga

N1S.

*

Re$lllt$:

There is 1lnle difference between ptpfrult ~nd ktwifn.tit•~owers·Jn t.he\rnsse$$r~~nt~qd.~s~: .. o~m~~~·· of ~he most important rlsk mnnqgeme.nt $tnue~l~s,. (Tnble 2). WHh.r¢~pe?t:to.prot,IQctiQJliJ·§~.R9h~~$*· there was no difference in the importance nnnch~d 'tO. ·routine sp.rt\ylng Wh~ch WA$ t~hl<e4'iffiP$~ important by both groups, nor in the importAnce of monlt9tlng ·res~s,. r;tQp$· nn4 qlim~ne \\fhiGb, ·~A~ also important. However; they did differ in their p¢r<;eptions ~~mct use of s.ome o~her: 'J),r~g~dqn str4t~gies. lrrigation wns ranked ns more imporumt by pipfr4lt growers tmd: wn.s:t\s~d 'l?y ·m9r~ respondemst Similarly the importance attached to nod IJSe of more th~m .one v~iety or.ptod.JJ~;nion techniqtJe was much higher for pipfntlt orchardists ~ht\n ·it was for ldwifrnil orohnrQ.iSt$.

Marketing strntegie.; which alleviate risk, s1.teh us spreading sales, forward cont(aqting l!nd. th~· PS~ of futures markets, are not considered to be highly tmponnm by growers~ llQWever, bothrsroqps attach modenne importance to market information and enterprise diversiftoaticm, Althougl1 th~re is no significnnt difference in their perceptions of these str4t~giest then:~ are differenGe$ intbe extcn~ to which they are u.sed with more pipfruit growers making grenter use qf both mnrket information and emerprise diversification.

Financial strategies ure considered important by both types of grower and there were Q, number of similarities in their responses. Keeping debt low o.nd mnnaged capital spencUng were oOn$fdered highly impoltnnt by both groups. Debt management wus consiqered more im;p()rtrmt by kiWifrui~ growers and wns used more often by them. Boldin~ financial reserves and insurance were auxili~ry financial strategies with insurance being considered more importnnt by .pipfmit growers than kiwifruit growers. Arranging overdraft reserve~ was another au.x.ilinry stnttegy of more modera.~e importance for both groups. However, off··:fann income was no~ imporumt ·a.nd whil~ off':-fi:U111 investment ranked more highly than earning off·{nrm income, it was still nora pauiculnrly important risk response even though half of ~he growers from both groups used it~ ·· ·

At a more generu.l level, long-term flexibility was considered to be quite an import~nt strnte~y by both groups of orchardists. However, significantly more pipfrult orcharcHsts made use of thi~ strategy than did kiwifruit orchardists.

Dtscussio rz:

Pip(ruit:

Pip fruit growers emphasise high yield, high qtlnlhy and sm.ble yields by a variety of production strategieq such as routine spraying, irrigation, monitoring pests, crops and climau~. and having mor~ than one variety or prod\lclion technique, The single desk mark~ting str.t.totur~ and the n~ture o~the product means that growers are unable to use shorHenn .1JHttkedng.,strmegl~~ to aUevi~.t~ fel!r$ ~b~ut price risk. In the longer term having more than one variety is nn importim~ respons~; which ;Js llsed to enhance prices and to stabilise them to some ex~ent~ Th)s is possible bec:tuse 'the New ~tdand Apple and PetU' Marketing Board hns a policy of seeking a vndetal ec:l~e in the jnternndQnal :rnat~et pluce and s.tructures its buying prices to encourage production ofits prefemd varietal mi~, Orgwers also emphasise Iong~term flexibilitY in theit operatiQns so thAt they can mak~ m~jor 'g!Jange~. lf nea~ssacy in order to reduce risk. M~rketfng. smne~ie~ of moderate .Jmpgng,oq¢ w~icb .· ~\lP.P?:Il'tbis are the use of market infonnntion and enterprise div~rsificmion. auvk .. {~p :fimmoi~l ~trate&i~s ·~tlph. as man~ sing cuphal ~pcmding, k~eping debt low, insurance nnd fimm~jJ~l.reserves ~~ .»~~~ tQ maintain the abili~y to absorb the impnctqflow ylelds nndptice dqwnmm~ .. Th~1aq~.of1tnft?11an~c; attached to off .. fttm1 investment and .off,.furm income ~Y~geSt$ i1 strQog on~fruin n~k man~gem~'nt· focus, ·· ··· ·

ll'

Kiwifruit:

Kiwifxuit growers respond similarly to pipfruit growers in many of their risk .responses:although there are some differences which can be explained by product and. industry characteristics. .Bigll. yield~ high quality and stable yields are achieved primarily through routine spraying with back-:-up through monitoring pests, crops and climate. The reason irrigation is oflesser .(buts till a significant degree ot) importance for kiwifruit growers is cultural with irrigation being a less critical factor in determining fruit size with khvifruit. Th.e lack of importance attached to the use of more than one variety as a risk management strategy reflects the decision by the kiwifruit industry to support one variety only as a pan of its strategy of establishing a new product in the market place. This may also explain why kiwifruit growers use market infonnation less as a risk management strategy even though they recognise its importance. Like pipfruit growers, kiwifruit growers attach importance to long-term flexibility and enterprise diversification though significantly less kiwifruit growers use these strategies. This difference is likely to be a reflection of the stage of development in the two industries. Most kiwifruit plantings tend to be single enterprises set up relatively recently during a period of buoyant prices when New Zealand still had dominance in the international market. Prices have since plummeted and although growers recognise the importance of flexibility and multiple enterprises, some may noi be able to put these strategies into place because of financial pressures.

Because the range of available production and mark~ting strategies for enhancing and stabilising yields and prices are more limited tbr kiwifruit growers, they rank a number of financial strategies which can be used to absorb unfavourable downturns in yields and prices more highly than pipfruit growers do, and place imponance on a greater number of financial strategies. An interesting difference is the high ranking anache.d by kiwifruit growers to debt management and financial reserves, and the significant difference between the two groups in the importance attached to, and use of, debt management. This ret1ecrs the current financial pressures facing many growers who bought properties at high prices when kiwifruit prices were high and are now having to adjust financially to falling prices and property values which have resulted from the product of international competitors coming on-stream.

Kiwifruit .growers have slightly less of an on-fam1 focus than pipfruit growers with off-farm investment being more highly ranked and significantly greater importance being attached to the off­farm earnings of the main operator even though this is a very low ranking strategy. This is not surprising given the single enterprise status of many kiwifruit operations and the .financial pressure they are under. It may also reflect the historical development of a new industry where outside investment was a significant force.

TADLE 2: A comnarison of the importance aftached to different risk management responses and their use by pipfruit and kiwifruit growers.

Risk Response Importance Attached to Response• % Using Response

Pipfruit Kiwifn1it Sigd Pip fruit Kiwifruit Sigd (N=91) (N=55)

Mean Rank Mean Rank lA'·

Production ResQonses: Routine spraying 4.6 I 4.5 1 N.S. 97 92 N.S.

(1.1) (0.9) More than one variety, breed 3.9 3 2.4 15= ** 87 33 **

or production technique (1.6) (1.5) Not producing to full 0.8 19= 1.8 19 ** 18 32 *

capacity (1.4) (1.5) Mbnitoi:ing pests, crops, climate 3.8 4 3.4 6 N.S. 85 78 N.S.

(1.4) (1.3) Irrigation 4.0 2 3.3 7= ** 91 76 *

(1.4) (1.7)

MrtrketingResponses: 3.0 10= 2.8 ll= N.S. 78 57 ** (1.9) (1.6) 1.8 15 2.4 15= N.S. 42 39 N.S. (L9) {1.9) 3.0 10= 2.7 13 N.S. 64 39 ** (l~7) (LS) 0.8 19= 1.5 20 N.S. 15 15 (1.5) (1.7) 0.5 21 L4 21 ** 8 13 (1.2) (1.8)

13

TAnLE2 (tontd): A cornparison of the importance attached to differe.rit risk management responses and their usc by pipfruit and kiwifruit growers.

Risk Response Importance Attached to Response• % Using Response

Pipfn1it Kiwifruit Sigd Pip fruit Kiwifruit Sigi1 (N=91) (N=55)

Mean Rank Mean Rank

· fiinancial.Responscs: Ke¢ping debt low 3.5 7 4.1 2 N.S. 78 87 N.S~

(1~6) (L3) M:rnaged'capital spending 3.6 5= 3.9 3 N.S. 92 86 N.S.

(1.4) (1.2) Atr~Uigin!r overdraft reserves 2.6 12= 3.0 9= N.S. 68 65 N1S.

(1.7) (1.6) 2.6 12= 3.5 4= * 62 77 * (L9) (1.6) 3.1 9 3.5 4= N.S. 75 72 N.S. (1.5) (1.2) 3.2 8 2.9 10 * 79 69 N.S. (1.6) (L4) 2.0 14 2.8 11= N.S. 52 48 N~s~ (1.7) (1.7) o.9 18 2.3 17 ** 23 32 N.S~ (lA) . (1.8} 1.2 17 2.(.) 18 N.S. 28 31 N;S·u (L5) (1.8)

16 2.5 14 * 39~ 39 (1.9)

5==· 3.3 1= N.s~ 86

Res11lts:

. ' ... '' _: ' . ;' ' ' :· -~· ','' ', -.. ·.·:. ·-·~_/._:·.:.::~-:~ _- ... ·_ ... ·_; ~. ;_:·:.:".::>,::);-:···:',T~-~::~: ... ~~-:,.··>~:·:~~--~;.' I ·,,,;.::1

Routine spraying is the most important P:rodu~tion··· stra.te:gy used b~ ~~9BPlp.~;:fl\nll~r.$.r~.v~g~t~f11~ .>:; ·· . • ::··

growers and /flower grow.ers with flower growers a.unch1ng ·s}Jghtly .mot7;;i.~P9r!~~~f~it9''ih ·;~~61~.\ : · :: .. 3) .. Monito.ring pestS, Props a.nd climttte \Vas also vecyirnpona.nt·to ~U}gr,Q~p~··thg4g~·~S,¢:~.J~s$:if?¥'" ..... . flower growers .. These strategies n,te :supportecJ by httvin~ more t}Jan~ ?ne'vaq¢~y·~r:pr~~t9.~(:)tt· techniqpe andirrigation, although on average, croppin~Jarmers ~ttached.'les!) ~lllpQrtanc;:e tg''l~~Ati'~~ · and used .it less. These farmers also ranked mtHntaining feed teserv¢s Jor .th'eir·StQGk~riterpps~s ,a,~ moderately important.

A number of marketing responses were used to alleviate risk nlthoy.~h·the <;o~1bi~ati<:m~~~ge~·to vary by farm type. Having ~ore than one emerpd~e wa~ ~anked the tUost·impgJ;t~rit :q1a,r!;~~n·g strategy by croppin& and vegetable producers but was of more 111oderate Jm.p?nanc~ tQ ;f!oW,~f gtowers .and was used by them less. Likewise, they attache<t less impormnc~ tO> the~ ~us~<of'mar}(~t infonnation than other· groups., although it was still important to them . .SpreAding~~l~s was·of1Jlore importance to v~getable growers while cropping farmers were the only group to make widespr~ad. use of forward contracting and to attttch some importance to this strategy.

Keeping debt low and managed capital spending were financial: strategies ranked hi'ghlY by· all th.ree groups. Back.-up financial strategies were arran~ing overdraft re$erves1 debt· 'mnn~gem(!nt' :h9l?h!~ financial reserves and insurance. Howe.ver. flower growers attached Jess im~ortil~~e th~~ g~heJJ groups to overdraft reserves and debt management and made less use of:the~(! SlJ:'+l(egies. Althtn~~h not an important strategy for any group, flower growers ranked off..;farm in¢om¢:.gained.byth~.:main operator WOrking off..;f~ more highly than Other groups, ancl mote floWer.gr()\"t~rs were ehg~g~cl in this practice. ·

At a more general level. short•term flexibility was raPked h\ghly by croRPing fil,rme.t~ b~t'ofrnqrt; moderate imponance to vegetable growers and of little importance .to flower :growers. T:hb differe.nce is reflected in the use of this strategy by lhe differenr groups. The ability· .to 'be flexible in the long-term was of moderate importance to aU groqps.

Discussion:

Croppinv,:

Cropping fanners employ a. wide range of production, rrm.r:kyting. and financialstqlte¥i~·s,(()i~le~l~!et risk. To enhance yield they routine.ly spray and monitor otops,pe~~s··~nq \Ve~Jhrr: ·~ie~a~v~a~1}~~ is reduced by having more than one enterprise, ushrgm.or:e than one vnrJ~tY ~n~:bein~ ·~ery11.e~iole in the shon•tenn. Because a large varietyofcrops:cap·be·groWnon.~goQ(.l:sqjls:jn~>.b~qjgll:c.liff1at~, · it . is not surprising that cropping· farmers on, relativ:~ly snttllt :f~qJ}S J:~hoplq 'Ch9p~~.)¢~tery9s~. diversification as a risk..strategy which .can ;ooost..:yieJ~s :.a~~bre4f.J~e, .. ,th~h~'~Y:ap~p1Utr~ .. ·fb~·,~~~~:~ nature of many of the crops means that 'the irnp~ct ?f ·p~or weeth~t: ~qgn<:\tQ90~ S,y.cg.:~': J~~l¢: ·9f rainfall at planting can be neutralised to an extent'by'the:~vs~··of'l~ter:nlaturi~~:v.ttp?H~~{~·~~~:;~~jiity·.· .. to be ·e.xtremely flexible. in .. the .. short-term· alloW~ ;such,··stn\t~~i,'~S.·'~?;'·~~~<y~~g:.·:tp}n1~i~pf,r}:.~ff~gf •.• Flex;ibility i$ .also maintaine.~. for sto~k. enter:p~s~$: W~¢r~\;.~e,¢~~·:rs~~~~·"··~~····m~int~:in~~i;SJ~~~;. interes~og.·~sult·wasthatini¥aiion W1\S.nqt fank~?·h~gljly~!,9~.~~~~·g~l'~~i~·ni':i¥R?~.~pf::!~~~:~~~m,~,~t,,' ~, .. strate~y~ .. 1-lowever, perusal of' the .. ~ishibutiplt:(lrt~~['l~.i.n~:)J,ti~'~.rn·~~h:·J~r::thJ~:;x#f:~~J~::,~,y,~~~~Jr~~~· ' .... ,.··

:rl~r~t~,i~fd~i~:~r~;~i~;;~~~if~~~1ll!itl~1~111ii1~11ill·j~~t~·i~ times? whereas irrigated fanners will·have acc~ss to' a gfe.ater·rang~,;pf:Rr~ucjiol} .t~~pniqu~~ ;~<;J,.; ·, ·~

¢~ps. , ...•. ;~~:2':,,:i':f,:,:~f~;i~'fl4flf{~!lliflflifiliJII

The most .bighly ranked financial str~(tegtes were ke~ping debt low ;and munnghW cqpftale:~p~n~i~gi. ·. which Wt}re Sllpponed by financial reserves, debt management, insurance:and.J~rrnngi)tg·:9Ye~q:f~ft reserves. Off-fann investment .and income were not lmporumt although .the ,(lbil{ty ;fQ. :'Q¢·:f1ei.il::?te. in the long-.run was. Overall, the impression gained is that cropping farmers: :have art on;fa.fpr . · .. multiple enterprise focqs on risk management and are extremely tl~xibl~ andte!lponsive·\Vh4J-e~p~¢t · to weather conditions in the short .. term and market opportunities in both the short an<tlong ;tettn:~ ·

Vegeuzbles:

Vegetable growers have very ·similar risk responses to .cropping farmers .. · Tll¥Y ·~lS.~: ~pl~?e importance on high and stable yields by routine spraying, monitoring :pe~ts; cr9ps·an& ·ql!lp,~t~'l having more than one enterprise and having more than one variecy. :aow~ver;. they: ~ttaqh:ni?r,fi. importance, on average1 to the use of irrigation, whiCh is not surprising s~nGe. ve~ fe.wGrqp$;QQ not have heavy demands for water.

T;A.U&E 3: A ¢lil:t~parison or tlie importance aU ached to diO"'cr:cnt risk matmgmncnt response.~ and their usc by cropping, vegetable and flower 'tC$pp~d~filS•

-· - .- .. -· - ···- -- ·-·-= - -?~ :1

Risk Response lmportance Attached to Response• % Using: Resppnse

Cropping Vegetables (N=121) (N=48)

Flowers Sigd (N=59)

Cropping Vegetables Flowers. S~g~

lvfean Rank J\;1ean Rank Mean Rank

'Productioh ,ReSQonses: -J~outine;Spraying 4.fb }:= 4.0 1 4.5 l **e 93 89 95 N~.s.,

(l.lY'~ (1.4-) (0.9) ·l\'t~.H1taining ;feed 3A lD= 0.8 22 OA 21 *'**e 83 28 13 *** ··Je~etves· (L6) (15) {Ll)

=· :More:th~p· one·vanety, breed 3.7 6 3.1 9= 3.3 6 N~S:e 87 73 76 ** ~'?f•Pt(}tl~~tiottJe~nnique (13) (1.7) (1.5)

:N,ot prodm~iqg ~o ftillcapacity 2.3 18 L9 16 Ll 19= *** 50 54 23 *** (1.4) (1.8) (1.5)

.Monitoring :pests.cropsjclhnate 3~9 3 3.6 4= 3.5 2 N~S.e 90 84 74 {1~1) (L6) (L6) 2.7 17 3.3 7 3A 3= te 58 13 7:9' (2~2) (2~0) (L9)

3.-8 4= 3.4 6 3~0 10 **e: 88 89 Ct.-2) (1.6) (L8) 3..1. 13 3;6 4= 3 .. 1 1= *** 16. 18 (I;S) (L6) (2~0)

.··4:1 l= 3:7 3 lJ 7::::, ***c ·gg: 8'5 - iflA2 (L7) (1;6)

jA'. lO::. 1:5 IS' 1·1 '19= '*** 88 :32: " ' ;{;i.~):, '(L1) (t.SJ

JJ:f(':. ' 22 1~0 :20::: O.'a .22 ~·'fcC s~ 21 {(0!~). :(1..$) ;~nuo);

A comp;lrison' of:the hn{)orUtnce attached to different risk manngetncnt responses and their usc by cropping, vegetable antl flower

Risk Response

Einancial Respo11ses~ ·l(e~ping debt]ow

Managed capital spending

}\rranglng' t>verdraft teserves

®ebtrmli1Agement

~Financial reserves

Importance Attached to Response•

Cropping (N=l21)

Mean Rank

J.6 (1.5) 35 (L5) 2~9 (L6) 3.0 (1.8) 3.2 (L6) 3.0 (li6) 1.7 (~1o) ~:():9 :t;I:i3) 1.2·. :.(1~5)

7

8=

16

14=

12

14=

19

21

20

Vegetables (N=48)

Mean Rank

1.9 (1.3) 3.1 (1.7) 2.9 {1.8) 2.6 (1.9) 3.1 (L7) 2.'5 (1.8) 1.7 (L6) t.J {L7) 1~0 (f.$)

2

9=

13

14

9=

t5

17

19

:?.0;:

;9=

·:g

Flowers (N=59)

Mean Rank

3.4 3= {1;7) 3.4

,.,_ J-

(L6) 2.0 13= (1.8) L8 15 (1.9) 2 .. 7 12 (L7) 2.9 ll (l.7} L6 17 (1~7) L7 16 {l:.lJ) 1.5 18 (L7)

2J) 13= :(1~8) 3J 1=

. '(1~{}

Sigd

N.s.e

N~S.e

***

***

N.S.

N.S,.

N.S.

***e

N:.S~e

***e

*c

Cropping

82

87

15

72

67

77

38

13

29

:S7

:s5

% Using Response

Vegetables Flowers S1~~

86 79 N~S ..

72 86 * 77 50 *** 61 34

70 59

57 70

30 27

19 4o ..

23

'74.

IMPLICaTIONS This study demonstrares that there is not un nutomntiQ lin!q~~e betwe<;n $peqipc rls.k sourge$;·ani;1Jlj~·y$~.~ · of particular risk strmegies .to nlleviute thut riskt ln New Zenhmd's <ler9g~Jl~te.ti enviro.omenk.f~inf!t§.:ar.id. · growers are most concerned nbour mnrket risk. However, obvious rnarketin~ str.~t~gi~$ whiqh:~~Il ·te.iJq¢~ , . this risk, such as forward contrucdng anc.t the use or .futu(e$, we~ not even· Gonsid~~d a~. <vi@.l:>l~:tr;i~J<; · · · responses by them. rvtom preretTed mtlrkedn~ str'~H~g(es were the U$e. of matk¢t intPtmittiQ~.c.:!n::' conjunction with shott~tenn fle:<ibility to enhnnc~ prices,. though in some ~qases. llP mur~etlng ;sti'~tSt.gl~s .. · · were important, with t1nnnchtl buffers to absorb downturns bein~ more wi<Jely U$eg~ ··.Wb~~fgr¢r,: researchers should be wary ·Of using concern about a pardoular ri~k sourc~ .ns :.a, :rafioriq:t~ fQt~UlQY~n~ ·th~· .. mechanics .of a specific strategy, since ~here may be impediments ·to the t;\4opdon of/this §~~t~gy whi~n ·. are not obvious to them, with fanners perceiving :other strategies whkh. an~ less diry9tl)' n;Jate9.'Jo:.,tb~,.rl$k·. · sources as more efficient risk strategies,

It was also concluded in this study that sQme risk stn\tc;:gie$ were ·\.miver~"lly pornilar with N~w.:zealancl · fnnners, some were universally unpopular and. some were mo~ importgnJ fot $Orn~J~:types.th.~>fp~· others. It would be interestin~ to !<now if this c.mn<,tlusion is ~tniversat :a.nd, ifs9J Wha.rih~ ph~~cte,ti~tl¢~ , are of rl$k strategies which are widyly used. and tare!y usedl It \vouUi be. us~fyl to 1$olate: th~ ·~<mqitjgqs. .. under which particular risk strnt~gies nr~ lik~ly to be wid~ly ~dPpt~cl by .farm~T$• '$h~s~gqqJQ.;. :in?l."~~· produc~ charaat~ristics, the climtuic realities uncier different f~unio~, ~yste,m$~ th~ ·.s.ta$e Qe. ~p~u~n¥ · development and structural adjustment. · · · · · · :··

Over the years, lisk research~rs hav~ maqe a con$ldenlble inv.esunent ·in ·th¢ d~velP~VJ~nt ·Of: tl¢ci~j9n· · ntodels and aids which oan be used to ~ns~re arisk,.~ffiqiem·omcomefn1m.;thF:·pst;'Qt'il.Pi!IU!J\llm:·~$W'!t~~· or related strategies •. There is a. relntiv~ly rnpid transmission ofinformation •Qe~we¢n,r~k#nr~h¢,!~'tQtQQ~b: · the literature and profession~l eomact$~ A dnn~er .~sSo9jnteQ. with lh'i~ l~· to~~ ,Ji~k· 'Tr~e~rnli ggn; l?et:Qm~i . technique d,rivcn leading to an unconsciotg~ bins .on .p~rdcYl~ st.rategi~s· whiqh ·b~Y~· q;JQW pr9b~b;H~y )~f , adoption bec.ause product, mark~ting ~nd clim~d¢.·¢QneJHi9ns.ln m9r~· r~m9t~;~SPAt9h\,9~nu:ps 'Q9"l~P~~:< ~on:esponQ. to those in rnore central locations whe~ 'm~9h. •of ~he :9.~.velopmpnt. '~nit ·hifjhem·~n~' of 'lli9 ·" techniqpes takes place. · ' · · ·

I am ~xtrernel¥ gftlt~fulto the 1384 New Zenl~ng ·~'.~.H"~H· my survey· nnd 'to the Ministry .of .Agd¢Ult~re, a,ntl l-'tst1erH~ir resetitcht · ·

I n.lso thnnk Neil Oow, l\1nrtdy Cnlm, Righp.rd Stevens, John<Lny, all ofL.incolh University, for shnring thelr extensive knqwJegg~ horticulturalindusmes. ·

REFERENCES Anderson J;R. (1994): Risk mann~(!mem in. Aus~rttUan tl~ri~ulture: An overvi~w. l?~pet'PJF~~n~~(;i t9 tm~

OQnference on Risk tvtanngement in Al1stralinn Agrloulture; OARE, J'he Unive~~i~YofN~viiJingl.~nd, Armidale, N.S.W., Austrnlit\, l$,.16 June 1994. · ·

Barry, P.J. and Fraser, D.R. (1976)! Risk munngement in primary 't~doulmral :propuotion: /Mt:!thpq~, distribution, rewnrds, and stru~tural implio~Hions. Amerlatm Journttl of AgriaultL#nzl Qaa!i'Qmlr;:t; $8~· U6~~ .

Boggess, \V.G.; Anaman, K.A.: Hunson, 0.0. (1985): lmponnnce, ~.:uuses and mannge.mem;r~~p~m~~~ w fann risks~ evidence from Florida and Alabnmo.. Southern J. Ag. Baoti. ))eccmbe.r 1985: .1Q5•·:11(j\

Eidman, V.R. (!.994): Risk management in ugriculture. . Paper presented to the Conference .Pn 1~:~~~ Management in Austrnlinn Agriculture, CARE, The University of New England, Atmictql~, N~S~W, Australia, 15 .. 16 June 1994. · ·

Gabriel, S.C. and Baker, C.B. (1980): Concepts of business and flnnncial risk. American Journal pf Agricultural Economlcs 62: 560-.564.

Jolly, R.W. (1983): Risk mnnagement in agricult~u·e. American Journal of Agriaulmral Economics 6S: 1107~1113.

Malcolm, B. (1994): Managing farm risk: There may be less to it than is m~lde ~fit Paper presemeQ. to ~he Conference on Risk Mnnagement in Australian Agriculture, CARE, The Univ~r~ity ofN¢w ·. England, Armidale, N.S.W., Australia, 15-16 June 1994.

New Zealand Department of Statistics (199l): Agricultural stutistics 1991. Pepartmem of Stati~tlG~; \Vellington, New Zealand.

Patrick, G.R.; Wilson, P.N.; Barry, PJ.; Boggess, W.O.; Young, D.L. (1985)t Risk perceptions itn4 management responses: producer generated hypotheses for risk modelling. South~JrtJ~ I~ Ag~ 'Sgon. December 1985: 231-238.

Scott, B.J. (1994): Fanners' risk mamtgement attitudes, percepdonsar.d practioes~ Pqpt'rpr~$~JH!!dJothe Conference on Risk Management in Australian Agriculture, CARE, The .Univ~rs,hy ofNewEngland:~ Annidale, N.S.W., Australia, 15-16 June 1994. ·

Sonka, S.T. and Pa~rick, G.F. (1984): Risk management and decision maktng i.n agripultural 'fi.J:mS• lh Barry, P.J. (ed) (1984): Risk mana,gemcnt in agriculture .• Jowa State Unlv¢t~hy Press, Ames. Jowa.

Tyler, L.; Lattimore, R. (1990): Assistance to agriculture, pp 60 .. 79 in S~:ndrey, R~; Reynolds; R, ,~:;qt (1990); Fanning without subsidies, M.A!F., G.P. Books,

23

APPENDIX TABLE AI: A Comparison of the Importance Attnchcd to Business and Financial Risks by the Pastor~l Farm Types

Level of Risk Business Risk Financial Risk

Dairy Sheep/ Deer Dairy Sheep/ Deer Beer Beef

% % % % % %

Minimal 6.5 3.6 1.9 33.7 33.5 34.0 Some 25.5 14.9 11.3 28.2 19.4 28.3 Moderate 39.8 40.8 35.8 26.3 26.5 20.8 Large 20.5 3). 1 34.0 7.4 14.7 9.4 Very Large 7.8 9.5 17.0 4.3 5.9 7.5

(N=322) (N=495) (N=53) (N=323) (N=495) (N=53)

:e=3ton. "'** x2=18.259.'*

TAULE A2: A Comparison of the Importunce Attached to Business ~md Financial Risks by Pipfruitand Kiwifruit Orchardists

Level of Risk

Minimal Some Moderate Large Very Large

Business Risk

Pip fruit %

2.2 16.1 39.8 28.0 14.0

(N=93)

xl=23.4,*"'

Kiwifruit %

0.0 0.0

23.1 50.8 26.2

(N=65)

Financial Risk

Pipfruil Kiwifruit % %

34.4 26.2 25.8 23.1 26.9 35.4 9.7 12.3 3.2 3.1

(N=93) (N=65)

X2=2.l, N.S.

TABLE A3: A Compartson of the Importance Attached to Business und Fimmciu.l Risks by Cropping, Vegetable and Flower Respondents

Level of Risk

Minimal Some Moderate Large Very Large

Cropping %

0.8 13.5 43.7 23.8 18.3

{N=I26)

Business Risk

Vegetables %

0.0 8.3

18.8 43.8 29.2

(N=48)

x2=19A.*

Flowers %

1.7 15.0 30.0 41.7 11.7

(N=60)

24

Financial Risk

Cropping Vegetables FlowerS % % %

27,8 25.0 48.3 21.4 27,1 11.7 30,7 37.5 2S.O 16.7 4.2 15.0 4~0 6.3 '0.0

(N=l26) (N=48) (N=60)

x2=.la.s.*

TABLE A4: A comp~dson of .the imporwnce attached to different ris~ sources. by pa.'it()ratfarm ·types"·

Risk Source Pastoral Farm Type Dairy Sheep&. Beef Deer

(N=325) (N=SOO) (N:::S3) Mean Rank Mean Rank Mean ~nnk Sig.s

Market Risks: Changes in Product Prices 4.21> 4.3 1 4.3 N.S."

(0.9)" (0.8) (0.7) Change$ in World Economic 3.8 3 3.7 2= 3.9 2 N.S.

and Political Situation (l,O) {LO) (1.0) Changes .in New Zealand's 3.7 4 3.7 2= 3.3 6= N.S,

Economic Situation (1.0) (1.0) (~.1)

Changes in Lrtput Costs 3.6 5 3.7 2= 3.2 8 ** (1.0) (1.0) (1.2)

Financial Risks: Changes in Interest Rates 3.4 8= 3.3 8 .3.1 9 N.S.

(1.3) (1.4) (1.4) Changes in Land Prices 2.7 13= 2.6 14 2.3 15 N.S.

{1.7} (l.2) (1.2)

Production Risks: Rainfall Variability 3.9 2 3.6 5= 2.9 10 ***

(1.1) {1.2) (1.3)

Other Weather Factors 2.9 11 3.0 11 2.5 13= * (1.2) (1.2) (1.2)

Diseases or Pests 3.2 10 3.2 9= 3.5 4 N.S. (1.2) (1.2) (1.2)

Disasters 2.5 15= 2.2 16 1.8 17 *"' (1.5) (1.2) (0.9)

Regulatorv Risks: Changes in Government Laws 3.4 8= 3.4 7 3.8 3 •

and Policies (1.1) (1.1) (1.1) Changes in Local Body 2.8 12 2.8 13 2.6 12 N.S.

Laws and Regulations (1.1) (1.1) (1.2)

Changes in Producer 3.5 6= 3.2 10= 3.3 6= * Board Policies (1.2) (1.1) (1.2)

Human Risks: Accidents or Health Problems 3.5 6= 3.6 5= 3.4 5 N.S.

(1.2) (1.2) (1.2) Changes in Family Situation 2.7 13= 2.9 12 2.5 13= N.S.

(1.3) (1.3) (1.3)

Miscellaneous Risks: Theft 2.5 15= 2.4 15 2.7 11 N.S.

(1.2) (1.2) (1.2) Problems with Hired 2.3 17 1.9 18 1.7 18= ***

Labour and Contractors (1.1) (1.0) (1.1) Changes in Technology 2.2 18 2.0 17 1.9 16 ••

and Breeding (1.2) (1.0) (1.0) Being unable to Meet 1.8 19 1.7 19 1.7 18= N.S.

Contracting Obligations (l.O) (1.0) (LO)

a. Ranking on a scale of 1 to 5 with 1 =Not Important tO 5 = Extrcmet~ Importqnt~ b. Mean ranking. c. Standard deviations in parentheses. d. ,cz tests on the distributions underlying r.he means were conductecL e, '<2 may not be a valid test.

TABLE !\5: A cnnw~lrismt of the intpoi'btnce ntt:.t¢hed to different risk: Ort:llardis~

Risk Source Orahnrd Typ~ Pip fruit KiWifruit (N=:92) (N=65)·

Mean Rank Mean ~~rtk. s·· d tg.

Market Risks: Changes in Product Prices 4.0" 3 4.7 **

(0.9)c (0.6) Changes in \Vorld Economic 3.8 5 4.0 4 N.S.

and PoliticAl Situatiun (1.1) (1.1) Changes in New Zealand's 3.3 9 3.4 7 N.S.

Economic Situation (LO) (1.1) Changes in Input Costs 3.5 7 3.6 6 N.s.

(1.0) (1.0)

Financial Risks: Changes in Interest Rates 3.1 lO 3.2 9 N.s.

(1.4) (1.3) Changes in Land Prices 2.2 18= 2.5 14= N.S.

(0.9) (1.2)

Production Risks: Rainfall Variability 3.0 11 3.0 10= N.S.

(1.1) (1.2) Other Weather Factors 4.7 4.4 2 N~s.

(0.6) (0.8) o•seases or Pests 3.9 4 3.8 5 N.S.

(1.2) (1.2) Disasters 2.3 17 2.0 18= N.S.

(1.5) (1.2)

Reeulatory Risks: Changes in Government Laws 3.6 6 3,3 8 N.S.

and Policies (1.2) (1.1) Changes in Local Body 2.8 12 2.5 14= N.S.

Laws And Regulations (1.1) (1.1) Changes in Producer 4.1 2 4.2 3 N.S.

Board Policies (1.1) (0.9)

Human Risks: Accidents or Health Problems 3.4 8 3.0 10:; N.S.

{1.3) (1.3) Changes in Family Situation 2.7 13= 2.5 14= N.S.

(1.3) (1.3) Problems with Hired 2.7 13= 2.8 12 N.S.

Labour and Contractors (1.0) (1.1)

'Miscellaneous Risks: Theft 2.4 16 2.0 18= N.S.

(1.0) (1.1) Changes in Technology 2.5 15 2.G 13 N~s~

and Breeding {l.I) (1,0) N.S. Being unable tO Meet 2.2 18= 2.1 1?

Contracting Obligations (1.1) n.~>

a. Ranking on a scale of I to 5 with l :; Notlmportnnt to 5 :; 'Ex~rerociYJmp<>rtWJL b. Mean ranking. c. Stnrtd~d. peviations in parenUteses. J.i. y} tests on the distributions l!ndcrtying the mean$ were con!;Iuctcd~

RiskS~urce

Market Risks: Changes in Product Prices

Changes in World Economic and Political Situation

Change,.~ in New Zealand's Economic Situation

Changes in Input Costs

Financial Risks: Changes in !merest .Rates

Changes. in Land Prices

Production .Risks:. Rainfall Variability

Other Weather FacLors

Diseases or Pests

Disasters

Rel!ulatOQt Risks: Changes in Government Laws

and Policies Changes in Local Body

Laws and Regulations Changes in Producer

Board Policies

Human Risks: Accidents or Heallh Problems

Changes in Family Situation

Problems wilh Hired Labour and Contractors

Miscellaneous Risks: Theft

Changes in Technology <1nd ·Breeding

B~ing unable to Meet Cqntrn<:ting Obligations

.a. 'Ranking on a scule .or 1 to S with 1 b. ;M¢an rooking.

Cropplog (N=:cl26)

Mc.mn R;lnk

4.0" (Q;9y 3.5 7=

(l.O) 3~6 5=

(1.1) 3.7 4

(1.1)

3.3 9= (1.4) 2.7 13= (1.~)

3.9 2 (l.2) 3.8 3

(1.0) 3.5 7=

(1.2) 2.7 13=

(1.3)

3.4 9= (Ll) 2.7 13=

(1.1) 2.8 12

(1.2)

3.6 5= (1.'4) 2~9 11

(1.3) 2.1 19

(LO)

2.3 16= (lJ) 2,3 '16:: (l.l) 2.2 18 ·

(1:.1)

'Propeqy:<rypc VcMtntite ~:;4$)

Mean Rank

4,6 (0;6) 2.8 ll=

(1.3) 3.6 6

{l/l} ·3.8 4;:; (1.1)

3.1 8 {1.4) 2.5 15

(1.2)

3.4 7 (1.4) 3.9 3

(1.3) 4.0 2

(1.2) 2.7 :t3=

(1.6)

3.0 9= (1.2) 2,8 ll=

(1.2) 2.3 18

(t2)

3.8 4= (1.3) 3;0 9:::

0·5) 2A 16=

(1.3)

13::

J6=

19

== NotlmiJQfU\I)t to S>¥ Exticinclt·trl.l}X)ria.nt •.

c. SmndMd deviations in parenmeses. .. . ·.·. .. . . · · · .... ·· .•••. '. · ··d. x.: ~est$ on. the .Qistribul}ons underlying the means w~re>.~9~<ho~ctQq,.

4.2 i '** (1!0) 3.4 6 **

(lA) 3.2 7 N:S.

(1.3) 3.6 s N~s ..

(1.2)

2.8 9 •• (1.5) 2.0 19 ** (l.~)

2.5 12 ** (1.4) 3.8 3:: N~s.

(1.1) 4,0 2 '* (LO) 2.2 l4 ~

(t3)

3.1 8 * (1.4) 2.1 .tO= .N~St

(1.3) 2J ts::: *:jo

(1.3)

3;8 ~? N.s. {l.p) ''2.7 10= ,N.s. (L~ 2;0 17::: :r-ts~

(l;Q)

2~l l5:;::' ·~·$, (lJ))

'N·~~ 2$ 13': {L~) 'i.d 17::;.•, * ·U4J '-'·-

Min1maJ Some MQ9¢rale Lar~e Very L:irgc

(N=322)

TABLE AS A Comparison or the Assessment of S-.:ale Risk by Piptr-..n and .l<twt(ruit Orch~rpis~-;

Risk that property will be too small in future

Minimal Some Moderate LUl'ge Very Large

Risk Uutt propeny will .be too small in

Minimal Some Mo<lcrat¢ t;a,rge. Very l..aJ"ge

Pipfn.tit Respondent$

%

43.8 25.8 13.5 11.2 5.6

(N=89)

Cropping Respondents

%

22.1 27.1 32.8 12.3 5.7

l<iWifnilt R¢$por.d~n~

ffd

•28.1 37~ ~1,9 i~~s 0;0

(N=@)