Business Risk Management Program and risk-balancing in Ontario hog sector: An empirical analysis

Abstract

Business risk management (BRM) has been an important focus of Canadian agricultural policy in the New Millennium. Safety net payments received by farmers can alter their investment portfolio and lead to risk-balancing behavior in agriculture. Risk-balancing is an unintended consequence of the farm safety net program and has a direct implication for future growth and sustainability of farm business. Does risk-balancing exist in Ontario agriculture? This question is addressed in this paper using data for the hog sector in Ontario. While safety net programs were designed to address Business Risk (BR) for all farms, our empirical results indicate that CAIS/AgriStability payments reduced BR for small, medium, and large farms. The results from our fixed effect panel regression analysis demonstrate that there is a significant risk-balancing behavior among medium hog farms in Ontario. Our results also reveal that the presence of risk-balancing behavior in Ontario hog sector does not pose any problem for future growth of the hog sector or the long-term sustainability of the farm safety net program.