From "Reports on Agriculture", exercise book 2, August 2012

Prediction Markets – a promising tool for the agricultural sector?

By Friedrich Hedtrich, Jens-Peter Loy and Rolf A. E. Müller, Kiel

The price volatility of commodities has increased greatly in recent years. Information about the development of agricultural markets is disseminated among market participants to differing degrees. This information asymmetry is the basis for trading profits on markets. Different forecasting tools, especially statistical and econometrical methods, were developed in the agricultural sector in the past and did not achieve good forecasting accuracy, thereby resulting in a considerable price risk. The additional information held by market participants and other people in the agricultural sector are neglected by these tools. Methods using the “wisdom of crowds’” effect achieved better or equal forecasting accuracy in many forecasting applications than the standard approaches applied. The “wisdom of crowds’” effect indicates that groups reach better results than individuals or experts. A well-known example is the Ask the Audience lifeline in the TV show “Who wants to be a Millionaire?”.

In this paper we introduce prediction markets as a new forecasting method which has become practicable due to the World Wide Web. Prediction markets use a trading mechanism similar to a stock market to achieve the “wisdom of crowds”. The participants trade certificates relating to a future event. The transaction prices of the certificates are interpreted as the forecast of the participants. In the past 20 years the area of prediction markets has evolved and prediction markets have reached good forecasting accuracy, especially in election forecasts. Successful prediction markets need enough participants with diverse information about the forecasting object. A first implementation of prediction markets in the agricultural sector to forecast the future price of rapeseed and wheat achieved better or equal predictive accuracy than the futures market.

Extension services in Organic Farming in Germany and prospects for Saxony

By Günther Filler, Ulf Müller and Ute Baumbach, Dresden

The article provides results of a study commissioned by the Saxon State Ministry of Environment and Agriculture and conducted by the Gäa Saxony Association to develop a concept for advising companies in the organic farming and food industry in the Free State of Saxony in the period from September 2009 to September 2010.

First, the basic structures of the extension system in organic farming in Germany are outlined: they consist of a combination of official consultation, consultation with growers' associations, trade associations, ring advice, privately organized counselling and advising by representatives of corporate agribusiness. The composition of these extension approaches differs between the federal states.

Second, the main features of the extension services in Saxony are described on the basis of written and oral interviews with companies and consultants and experts. The results show only moderate satisfaction with the current services. Deficiencies exist, particularly in the areas of marketing and business management. The main reasons for dissatisfaction are the lack of specialization in the extension services, lack of practical experience of the consultants and an insufficient number of contact partners.

Third, concepts are presented for development of the Saxon extension services in organic farming, based on a private-sector advisory structure, as the extension services in Saxony are to be privatised: Private initiative and competition is the key for an efficient advisory service. Coordination and cooperation between the associations will improve the access to counselling. The administration of the federal state will also have important functions to perform in the future within the extension system. They should promote inter alia advisory and consulting elements that are not regulated by the market economy and the demand of farmers.

Personnel management in agriculture: Overview of the state of research

By Sören Henke, Carina Schmitt and Ludwig Theuvsen, Göttingen

Human resource management comprises all employee-related design and management tasks in a company. Since the end of the 19th century, human resources in agriculture have become of great relevance in academic studies. This trend had not been observed before, due to some peculiarities in the structure of personnel management at agricultural enterprises, as well as the complete lack of scientific attention for this subject until the end of the 1980s.

In the meantime, due to structural changes in agriculture, application-oriented research to identify human resource management issues in agricultural enterprises has significantly increased. However, a general overview on the status of scientific research on this subject is still lacking. This review assesses this issue, and provide an overview of the progress of application-oriented research on human resources management in agriculture. For this purpose, we present the results of a meta-analysis of relevant publications published between 1998 and 2010. A presentation of the results (divided into personnel management, staff motivation, recruitment, and personnel training) follows after a description of the related methodology and the study samples. Finally, a conclusion is drawn on the state of research on human resources management in agriculture.

Quality index insurance for wheat - An interesting risk management instrument for cash crop farms?

By Syster Christin Maart, Oliver Mußhoff, Arne Nölck, Göttingen

Due to rising price volatilities for products, the future sales of crops will become more and more important for cash crop farmers. However, the implementation of this risk management instrument may result in an increase of the quality risk as if contractually agreed quality parameters are not met, covering purchases might be required. This study therefore investigates how and to what extent crop quality risks can be insured by using indices. For this, a crop quality index insurance is developed. Subsequently, the effect of crop quality index insurance in respect of reducing the revenue risk is quantified on the basis of data from a large agricultural trader and six farms from northern Germany that are available over a six year period. Results show that quality index insurance might contribute to a reduction in the fluctuations of wheat revenues. Thus, index insurances based on futures are preferable to insurances based on options because the former have a higher hedging effectiveness.

Miscanthus and poplar plantations in short rotation as an alternative to classical crop husbandry - a risk analysis by means of Monte Carlo simulation

By Matthias Wolbert-Haverkamp, Göttingen

Short-rotation coppices (SRC) and Miscanthus are increasingly being considered as important alternatives for generating renewable energies. Nevertheless, farmers and possible cultivators are often cautious about converting from traditional crops to SRC or Miscanthus. This article describes the economic efficiency and the risk profile of these crops and compares them with those of traditional land use. The main target of this article is to provide recommendations for the activity of farmers and possible cultivators who have to decide between a crop rotation with wheat, barley and rape or setting up SRC or Miscanthus. Regarding the recommendations, we thereby distinguish between risk-neutral and risk-averse decision makers. The calculation for the economic efficiency and the determination of the risk profile is carried out by using the Monte-Carlo Simulation. We interpret and select the results in accordance with the concept of stochastic dominance. Calculations show that crop rotations are economically advantageous over SRC. Miscanthus has the potential to be advantageous over SRC and crop rotation if the stock is well established in the first years of cultivation.

Activities of non-agricultural and supraregional investors on the agricultural land market in Germany

By Bernhard Forstner, Andreas Tietz, Peter Weingarten, Braunschweig

Investments in agricultural land have gained particular public attention both internationally and in Germany. The aim of this study is to take stock of these activities on the agricultural land market in Germany. Their relevance is explored, as well as their influencing factors and impacts on the availability of land, on agricultural production, and on local and regional development. The main part of the study consists of four regional case studies, three of them in the new ‘Länder’ (former GDR). In each region covered by a case study, structured interviews were conducted with about ten farm managers and ten regional experts.

The group of ‘non-agricultural investors’ is very heterogeneous and cannot be delimited by clear indicators. There are many investors who buy single plots (for the purpose of renting) or single agricultural holdings (especially in the new ‘Länder’), but there are few large supra-regionally oriented investors. As a whole, activities of non-agricultural investors have obviously not increased in recent times. The judgement on their impacts depends highly on the selection of the regional case studies, the interviewees and their own interests. While local farmers mainly have a critical attitude towards investors, local officials have a much less negative or even positive view in this regard. The enormous variety of non-agricultural and supra-regional investors and of their characteristics and behaviour prohibit over-simplified answers.

Multifunctional agriculture through creative diversification - a taxonomic study in the middle and south of Germany

By Lars Steiner and Volker Hoffmann, Stuttgart-Hohenheim

This study records the plenitude of entrepreneurial creativity in agriculture and illustrates it in a structured taxonomy with a view to allocating types of diversification to individual categories via an identification key. The study includes established types as well as unusual diversification models, thus providing a comprehensive overview.

The taxonomy shows a wide range of creative niches and income combinations; many of these are, however, run in a classical manner such as farm holidays, renewable energy or direct marketing. The usual feature is the inventive implementation by means of which the farms try to set themselves apart from one another. There is greater potential for diversification in the upstream and downstream sectors than in the primary-production sector. It is conspicuous that many farms have several creative business lines. This may be caused by a committed farm operator but may also be interpreted as an automatical process resulting from advantageous synergy effects between the different business lines.

Establishing diversification depends not only on having an active, creative and motivated manager but also on the respective location factors, which make particular untertakings promising in the first place. To asses and use this study in its entirety, it would be necessary, in a further step, to determine the economic efficiency of the different forms of diversification.

Farmers’ decision behaviour regarding investments in biogas production

By Karol Granoszewski and Achim Spiller, Göttingen

Among the renewable energies, biogas production has expanded greatly in the German agricultural sector in the last few years. For farmers, the improved financial incentives and legal framework give rise to attractive investment opportunities. To estimate more accurately farmers’ willingness to invest, the decision-making process is crucial. This paper examines the factors which determine farmers’ decision behaviour regarding investments in biogas production. Based on a survey the results have shown that the social environment and the perceived intensity of competition between farmers are most relevant for their investment decision. The most important conclusion relates to the forecast of future expansion potential of agricultural biogas production. This would need to be extended to include social patterns of farmers’ investment confidence in order to be able to make reliable predictions.

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