Measuring the Financial Risks of New York Dairy Producers

¹ Cornell University, Department of Applied Economics and Management, Warren Hall, Ithaca, NY 14853

The financial risks of a group of New York dairy producers were measured from 1988 through 1997 and were decomposed by source of risk by two procedures. Decomposition of the variance suggested major contributors to variability in returns to New York dairy farms were variabilities in purchased feed quantities and milk production; milk price variability contributed substantially less. Similarly, decomposing the Gini measure of income dispersion indicated that milk revenues and purchased feed expenditures contributed most to farm return inequality over time. Controlling feed costs and maintaining high and stable milk production appear to be the principal approaches that dairy producers can use to control their financial risks.

Key Words: variance decomposition • Gini income inequality • dairy farm net returns

Submitted on May 1, 2000
Accepted on October 9, 2000