An enquiry into risk aspects of beef farming in Crop District Number Three, Manitoba

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Stonehouse, D. P.
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The study investigates the impact of risk on enterprise choice and resource allocation decisions in a farm firm growth situation. Interest is focussed on comparative risk levels in beef cattle and the five major cash-cropping enterprises in southern Manitoba, and the influence of these risk levels on farmers' decisions to allocate resources to beef cattle operations over time. Portfolio selection theory is used as the foundation for a theoretical farm decision-making model. As adapted to farm decision problems, this theory shows how a farmer can select a portfolio of farm enterprises by simultaneous evaluation of the expected return and variance in return for each enterprise, and the stochastic relationship (or covariance) between enterprises. Most relevant to decision-making is the subset of alternative efficient portfolios (those lying on a Markowitz E-V frontier)... It is concluded that with further research to improve enterprise risk estimates by using primary (farm) data, and by including a survey of farmers' attitudes to risk, portfolio selection theory may find useful applications in models to assist decision-makers and policy advisors.