|
 Essay - may/june 2008
Risks, rewards and loses
James C. Delouche
Professor Emeritus Mississippi State University
In most economic activities and endeavors some of the participants - individuals, institutions, companies - will be risk takers, others will be risk averters and still others will be prognosticators. Risk takers pursue rewards or advantages, risk averters seek to avoid losses or penalties while the prognosticators simply delay making choices or remain indecisive. During my first year in high school (age 12) I became a risk taker. As a member of the 4-H Club, an agricultural club for youths, I was persuaded by the extension advisor of our club to plant about 2 ha of hybrid maize for the county-wide crop production contest. None of the farmers in our area had planted or seen hybrid maize and only a few had even heard of it. Although the extension advisor had only seen hybrid maize during a tour of Iowa and other states in the U. S. Midwestern maize belt the previous growing season, he had been tremendously impressed and assured my father, a very conservative risk averter, that hybrid maize would be a good choice for me. The results of my first experience as a risk taker and hybrid maize grower in central Louisiana have been related in a previous essay in a different context. The news at first was fantastically good. My planting of hybrid maize was so vigorous, uniform and productive that it attracted the attention of neighbors and farmers from other areas and even a reporter from the local newspaper. My initial vision of first place in the county-wide contest expanded to include a trip to the state capitol for the state-wide contest and winning one of the three top prizes there with loads of ribbons, prize monies, and maybe my picture in the paper. Then one afternoon after I had returned from school I saw my father and the extension advisor looking at my hybrid maize crop. I ran to meet them and was floored by the bad news. The hybrid maize was so infested and damaged by grain insects, weevils, that it was not worth harvesting. So, father decided to allow cattle and hogs into the planting to scavenge what they could and made arrangements with neighbors for maize grain to replace that lost in my hybrid maize venture. He never completely trusted the advice of the extension advisor again, and I did not develop into a big time risk taker. But, I must hasten to add that the problem was lack of adaptation of the hybrid maize variety to the hot, humid environment of central Louisiana. When adapted hybrid varieties were developed and released a few years later my father and all the neighboring farmers switched to them and reaped the rewards of bountiful harvests.
Risk Assessment and Management
Risk taking seems to be one of the crucial requisites for progress. Risk takers are usually, but not always, the leaders while risk averters are nearly always followers. Risk is so ubiquitous and multi-dimensioned in the complex global economic activities of the present time that risk management has become a strong and increasingly important economic discipline and consultation specialty Agriculture has more than its share of risks. Even the earliest farmers had to be risk takers to some extent because of uncertainties associated with climate and pests.
Today's farmers, however, confronted with additional and exceeding complex issues related to markets, prices, new technologies, labor and regulations have to be big-time risk takers and devote as much or more time and effort to assessing and managing risks as to managing the technical operations involved in crop agriculture. Consider the situation of Kerry, a more-or-less typical farmer I know.
Kerry owns and manages a sizeable crop agriculture operation with soybeans, maize and sorghum as the main cropping possibilities. Last year (2007) he planted about equal portions of the land in soybeans and maize using transgenic varieties for both crops and did not book any on the futures market. Crop yields were very good, prices rose sharply and he made big profits. For 2008 he decided to increase the soybean area to about 75% of the total because of some troubles with drying maize, substantially lower costs of production compared to maize, and a very good futures market. He made arrangements for seed supplies needed and contracted about 70% of his expected crop of soybeans in the futures market at a good price. But, a severe seed supply crisis has developed for soybeans especially for the Group 4 varieties he needs because of quality problems and his supplier has substantially reduced both the quantity and quality that will be available to him. This forced him to reduce the soybean area from 75% as planned to only about 60% which will be planted with seeds that have quality problems. Kerry recognizes that there is the possibility that the quality level of the seeds could interact with unfavorable climatic conditions to cause poor stand establishment and/or stand failures. This would force him to switch even more of the soybean area to another crop since there are no assured seed supplies for replanting. Understandably, this possibility is of great concern to Kerry and the cause of a lot of sleepless nights. A further reduction in the soybean area and less than average yields as a result of sub-optimal plant populations could reduce his production to substantially less than he contracted on the futures market and he might have to purchase some very high priced soybeans to fulfill his contractual obligations. This little story lacks an ending because it is being written several weeks before the planting season. It is also filled with conditional terms such as "would," "could,", "might" and "possibility" but they are representative of the conditions that modern farmers and other risk takers have to deal with in assessing and managing risks. It should be noted that farmers in this seed supply crisis do not have the option of using grain from their storage or neighbors as seeds for planting. The soybeans are almost 100% transgenic and the use of the production of transgenic varieties for planting is prohibited.
Multiple Opportunities
The current focus on biofuels, multiple environmental issues, economic improvements in countries that import food and feed, production shortfalls related to climate change and other situations provide great opportunities for farmers in both the major and lesser agricultural countries to recover from the meager profits and occasional losses of previous years. Those that recognize, fully assess and manage the risks involved should achieve farm incomes sufficient to take care of long neglected maintenance, improve and increase the crop lands, replace worn and obsolete equipment and facilities with more effective and efficient types, and finance more leisure time and activities for the family. The big decisions will relate to the area allocated to crops, the specific crops and crop mixes planted, e.g., maize, soybeans, wheat, sugarcane, sorghum, rice, peanuts, cotton, organic crops, investments in more effective, fuel and labor efficient equipment and facilities, new technologies such as GPS devices, and the use of crop consultants well versed in risk assessment and management. While there is and will be a lot of big and difficult decisions to make, many farmers will echo these words of farmer Kerry, "I like it. I thrive on it. I wouldn't want things to be different."
Risk Reduction
The exploitation of complex biotechnologies to develop crops with novel and very effective production related traits provided farmers with unique opportunities to reduce risks. As expected the leaders were the risk takers. They seized the opportunities offered and found that they were able to reduce losses from pests, simplify pest management, reduce reliance on chemical pesticides and benefit the environment. And, as usual the risk averters and most of the other skeptics became followers after observing the huge benefits and miniscule losses associated with the new biotechnologies. Some countries, however, have resisted the use of transgenic crop varieties and restricted or prohibited the importation of products produced by transgenic crops. Their resistance, however, seems to be lessening with the passage of time, increasing acceptance of the transgenics by both people and countries, the lack of significant problems associated with the use and consumption of transgenic products, the greater efficiency and lesser environmental impact of the transgenic crops, the increasing pressure on food and feed supplies, and rising commodity prices. The release of transgenic varieties with tolerance to environmental stresses, e.g., drought, cold or heat, and traits for products with enhanced nutritive or industrial value will surely further lessen resistance to and increase the acceptance and use of transgenic crops and their products.
Agriculture is in the midst of a truly extraordinary convergence of the addition of biofuels to the traditional food, feed, shelter and fiber uses of crops, development of more fuel and labor efficient equipment and cropping systems, advances in logistics and information management, exploitation of biotechnologies, and globalization.. Crop agriculture, especially, has been and is being relieved of significant portions of the heavy burden of risks it has long borne. But, the longevity of this trend is not clear and certainly is not guaranteed. There are still some significant risks and others will surely develop become evident even in the short term. Some of the risks remaining and some that are emerging will be examined in the next essay.
|
|
............
|
