Should Farmers Invest In Financial Assets As A Risk Management Strategy? Some Evidence From New Zealand
Off-farm investment as a risk management strategy is not widespread among New Zealand sheep and beef farmers. This study
explores the potential for risk reduction by the diversification of farm asset portfolios to include financial investments such as
industrial equities and government bonds of various types. Results show that the negative correlations between long-run rates of
return on farm assets and financial investments could result in a significant reduction of risk if equities and bonds were included
in farm investment portfolios. However, when combined with information about attitudes to risks, it does not seem likely that
farmers would adopt such strategies purely in order to stabilise incomes. Deregulation of the New Zealand economy in the mid
1980’s had little impact on farmers’ optimal allocation of their assets.