Beyond the Climate: Multiple Sources of Risk in Agriculture in the United States, Brazil and Argentina

This report presents the results of a survey on farmers’ perceptions in the U.S. Midwest, the Argentine Pampas, and southern Brazil regarding the main sources of risk facing their businesses. Conducted in 2022 and 2023, the survey included 475 crop producers from the United States (137), Argentina (158), and Brazil (180), the main grain production areas in the world. Farmers across all three regions identified multiple sources of business risk, with significant differences observed among the countries in the frequency of selected risk sources.

Types of Risk in Agricultural Production

In economic activities, agriculture has specific characteristics that lead to high levels of risk: production processes are highly dependent on climatic conditions, there is a prevalence of small and family-owned businesses, and governments frequently intervene in production and trade activities. Therefore, agricultural production occupies a central place in the study of risk. Agricultural risks can be classified into five main types (USDA, 2024; Komarek et al., 2020):

• Production risks arise from uncertainty in crop and animal growth processes. Typical sources of these risks include climate variability, pests, and diseases.
• Market risk is related to uncertainties in prices, costs, and market access. Price volatility mainly depends on weather conditions in major production areas or changes in consumer demand.
• Institutional risks are linked to unpredictable changes in policies and regulations that affect agriculture.
• Personal risks are related to human health issues or personal relationships that impact family-run farms.
• Financial risk is associated with changes in interest rates and credit conditions. It is defined as the additional variability in the farm’s operating cash flow due to fixed financial obligations inherent in the use of credit.

Figure 1 illustrates that all types of risk have been studied in the academic literature, but with very different levels of attention. Production risk has received the most attention, followed by market risk (Komarek et al., 2020). The most frequently studied combination of risks includes production and market risks, while very few studies cover all five types of risk.

Risk Perception for Crop Farming in the United States, Brazil and Argentina

A survey was conducted with 475 farmers from the U.S. Midwest (n=137), the Argentine Pampas (n=158), and southern Brazil (n=180) in 2022 and 2023 (see Figure 2). These regions are among the most important in the world for rainfed grain production, with specific characteristics unique to each area. The characterization of the surveyed crop producers in the three regions is detailed in Cabrini et al. (2023a).

The survey is part of a study on access to climate information and the influence of seasonal climate forecasts on agricultural decision-making. The questionnaire survey employed was based on a review of literature and previous research focused on the use of climate and weather information in agribusiness decisions. One section of the survey examined perceptions of the main sources of risk in agriculture. The specific question analyzed in this study was: What are the main sources of risk in agricultural production? (Please list between 3 and 10 sources of risk). This question was open-ended, and the responses were categorized as shown in Table 1.

Climate-related production risk was identified as the primary source of risk for most producers surveyed across the three regions. In Argentina, the three most frequently identified types of risks were: climate, government interventions, and product price. In the United States and Brazil, the three most mentioned risks were: climate, production price, and input price.

Climate was identified as the primary source of risk for most farmers surveyed in the U.S. Midwest, southern Brazil, and the Argentine Pampas. This result reinforces the relevance of climate in crop production, as documented in previous research (Cohn et al., 2016; D’Agostino et al., 2016; Lesk et al., 2016; Ray et al., 2015; Thomasz et al., 2019; Cabrini et al., 2023b).

Other sources of risk frequently mentioned by farmers in the three regions include price of outputs and the prices/availability of inputs. Grains, fertilizers, pesticides, and fuel are globally traded, and prices fluctuate based on changing conditions in global supply and demand. A recent global event brought these market risks into focus: the Russian invasion of Ukraine caused disruptions in the global fertilizer trade and had significant impacts on grain and fertilizer prices (Colussi et al., 2022). It is likely that respondents were influenced by this event when assigning importance to this type of risk. A significantly higher proportion of US farmers indicated output price as an important source of risk.

Another source of risk frequently identified by farmers was government intervention. This source of risk was mentioned by most Argentine farmers. In Argentina, export taxes impose a high tax burden on the agricultural sector. Since 2020, export taxes have been set at a rate of 12% for corn and wheat, 33% for soybean grain, and 31% for soybean oil and soybean meal. Over the last 10 years, these rates have undergone significant changes, ranging from a minimum of 0% for wheat and corn and 27% for soybeans, to a maximum of 20%, 23%, and 35% for corn, wheat, and soybeans, respectively.

Additionally, in Argentina, there have been periods of varying levels of regulation on export quotas for agricultural products. In the U.S. and Brazil, as in most countries, there is significant support for the agricultural sector (BID, Agrimonitor).

It is interesting to note that inflation was mentioned as a source of risk by 8% of U.S. farmers and only 1% of Argentine farmers. This could be explained by the fact that, despite Argentina’s higher inflation rate (at the time of the survey, the 2022 inflation rate in Argentina was around 100%), U.S. inflation was more variable in relative terms over the five years prior to the survey (higher coefficient of variation).

Another noteworthy difference lies in the perception of risk due to changes in environmental regulations across the regions. Among U.S. producers, concerns about these changes are much more frequent and are largely attributed to shifts in public attitudes in the country.

Final Remarks

The main sources of risk identified by crop producers in the U.S. Midwest, Southern Brazil,
and Argentina’s Pampas varies across regions. Understanding the different sources of risk affecting agricultural activities is valuable for improving policy design, facilitating the adoption of innovations, and evaluating the sustainability of production systems. Governments, non-governmental organizations (NGOs), and other stakeholders can allocate resources more efficiently when they understand which risks are of greatest concern to farmers.

Farmers identify multiple sources of risk for their businesses. Therefore, it is essential to consider multiple risks simultaneously when evaluating the risk levels of production systems. This can be achieved by integrating risk assessment tools, such as stochastic simulation models and scenario analyses.

Data Source and References

BID. Agromonitor. Agricultural Policies Monitoring System. https://agrimonitor.iadb.org/es

Cabrini, S. M.; Schnitkey, G. D.; Irwin, Scott H.; Colussi, Joana; Zucchini, Cristian; Rossetti, Marcelo; & Elustondo, Luciana. 2023a. “A Comparative Study of the Use of Climate Information in Agriculture. in the U.S. Midwest, Argentine Pampas, and Southern Brazil.”  Paper prepared for presentation at the 2023 Agricultural & Applied Economics Association Annual Meeting, Washington DC. https://ageconsearch.umn.edu/record/335987

Cabrini, S. M., Gattinoni, N. N. Gastaldi, L. B., & Barberis, N. A. (2023b) “El Niño Southern Oscillation and the economic value of agricultural production in Argentine Pampas”. IAAE Interconference Symposium. Congreso Regional Montevideo. April 2023. 1^st Latin American Conference in Productivity and Efficiency.

Cohn, A. S., VanWey, L. K., Spera, S. A., & Mustard, J. F. (2016). Cropping frequency and area response to climate variability can exceed yield response. Nature Climate Change, 6(6), 601-604’

Colussi, J., G. Schnitkey and C. Zulauf. “War in Ukraine and its Effect on Fertilizer Exports to Brazil and the U.S.” farmdoc daily (12):34, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, March 17, 2022.

D’Agostino, A. L., & Schlenker, W. (2016). Recent weather fluctuations and agricultural yields: implications for climate change. Agricultural economics, 47(S1), 159-171.

Komarek, A. M., Pinto, A. De, & Smith, V. H. (2020). A review of types of risks in agriculture: What we know and what we need to know. Agricultural Systems, 178(November 2019), 102738. https://doi.org/10.1016/j.agsy.2019.102738

Lesk, C., Pedram R. & Navin R. “Influence of extreme weather disasters on global crop production.” Nature 529.7584 (2016): 84-87.

Ray, D. K., Gerber, J. S., Macdonald, G. K., & West, P. C. (2015). Climate variation explains a third of global crop yield variability. Nature Communications, 6, 1–9. https://doi.org/10.1038/ncomms6989

Thomasz, E. O., Vilker, A. S., & Rondinone, G. (2019). The economic cost of extreme and severe droughts in soybean production in Argentina. Contaduria y Administracion, 64(1), 1–24. https://doi.org/10.22201/fca.24488410e.2018.1422

USDA, United States Department of Agriculture. Risk in Agriculture. 2024 https://www.ers.usda.gov/topics/farm-practices-management/risk-management/risk-in-agriculture/