Farm-level risk analysis of German apple production

Abstract

In Germany, apples are the most relevant fruit with respect to both, domestic production and consumption. Weather events and volatile prices make commercial apple production a risky business. Since apple production with an orchard lifetime of around 20 years is a long-term investment, future-oriented risk management is a prerequisite for economic success. In Germany, quality and yield are at risk from adverse weather events such as late frosts and hail. Especially in the south there is an increasing demand for appropriate frost insurance solutions, which were previously only available in neighboring countries. Besides weather-dependent risks, the effects of market risks, i.e. fluctuating sales prices, have to be considered when developing strategies. There are currently no studies on the development of an integrated cultivation strategy for German apple production that take the influence of risks into account. This thesis provides new insights into the risk attitudes and risk perceptions of apple growers – the two determinants of risk behavior. Based on data collected from 134 apple growers in the two main production regions in Germany, a normative analysis is carried out by developing a utility-efficient decision model that indicates how apple growers should protect themselves against risks from a rational point of view. The model reveals which apple varieties and risk management instruments provide the most efficient combinations in apple production for a rational but risk-averse decision maker. The results of the risk attitude analysis show that apple growers in Germany are less risk averse than anticipated. The stochastic dominance analysis is carried out on one hectare level and shows that frost irrigation and subsidized hail insurance are the most efficient instruments in the North, but the common practice of using hail nets remains the most favorable risk management strategy in the South. The results of the whole farm model are in line with these findings and show that the degree of risk aversion has only a minor influence on the portfolio of optimal cultivation strategies. In detail, apple production without frost irrigation may lead to high yield losses in northern Germany and subsidies do not compensate for the monetary loss that can occur in the South due to the lack of hail protection nets.