Production Diversification as a Tool for Agricultural Risk Management: The Case of Northern Kazakhstan

Abstract

This paper addresses the impacts of degree of risk aversion on optimal farm plans in Kazakh agriculture. The results obtained during the field research in the region of Northern Kazakhstan are presented. Calculations were carried out using data from 145 peasant farms in the region for 2017-2022 based on a risk model. It has been found that the choice of a portfolio is influenced not only by considerations of profitability and riskiness of crops, but also by grain production traditions deeply rooted among the farmers of the region, and the skills and knowledge associated with them, as well as the existing infrastructure. These circumstances constrain the wider spread of oilseed crops in the region. It seems that the size of the farm does not significantly affect the choice of portfolio, while the degree of risk aversion by the farmer affects the optimal farming plan. The potential benefits of the farming diversification are an empirical issue, and it should be addressed on a case-by-case basis. The question is to choose the utility function and its parameters that most accurately reflect the preferences of a particular farmer, the authors conclude.