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Title:Can crop yield risk be globally diversified? PDF Logo
Authors:Liu, Xiaoliang
Xu, Wei
Odening, Martin
Issue Date:2011
Series/Report no.:SFB 649 discussion paper 2011-018
Abstract:In 2007 and 2008 world food markets observed a significant price boom. Crop failures simultaneously occurring in some of the world's major production regions have been quoted as one factor among others for the price boom. Against this background, we analyse the stochasticity of crop yields in major production areas. The analysis is exemplified for wheat, which is one of the most important crops worldwide. Particular attention is given to the stochastic dependence of yields in different regions. Thereby we address the question of whether local fluctuations of yields can be smoothed by international agricultural trade, i.e. by global diversification. The analysis is based on the copula approach, which requires less restrictive assumptions compared with linear correlations. The use of copulas allows for a more reliable estimation of extreme yield shortfalls, which are of particular interest in this application. Our calculations reveal that a production shortfall, such as in 2007, is not a once in a lifetime event. Instead, from a statistical point of view, similar production conditions will occur every 15 years.
Subjects:crop yield risk
fully nested hierarchical Archimedean copulas (FNAC)
price boom
JEL:C14
Q19
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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