Development of Instruments for Income Stabilization for Milk and Wheat Producing Farms in Austria

Income in agriculture is highly volatile, as it is partly determined by natural fluctuations in yields and highly fluctuating world market prices of agricultural commodities. Many farmers are financially hurt when product prices are too low to cover variable production costs. In Austria, 78 percent of farmers surveyed on their attitude towards risk showed interest in insurance or a similar instrument to avoid such losses. Digital information systems can make relevant market information rapidly available. This study analyses a novel financial instrument for reducing price risk on European agricultural commodity markets that guarantees a minimum price for wheat, rapeseed, and corn crops. For bundles of potential minimum prices, the evaluation shows how likely a loss can occur.