As climate change increases the frequency of droughts, excessive rainfall, and other extreme weather events, farmers face growing uncertainty about crop production. Understanding how they perceive and respond to this uncertainty can help inform agricultural policy and climate adaptation strategies. A new study from the University of Illinois Urbana-Champaign and Michigan State University explored farmers’ risk preferences in the context of climate-related challenges.

Lead author Natalie Loduca, clinical assistant professor in the Department of Agricultural and Consumer Economics at the University of Illinois, said the study sought to understand better how farmers perceive uncertainty under changing climate conditions. Because crop yields depend on both weather and management decisions, understanding risk attitudes is essential for designing effective adaptation measures.

The researchers surveyed Michigan crop producers, focusing on corn and soybean farmers operating at least 300 acres and relying on farming as a major source of income. Participants completed a series of choice experiments commonly used in economics to measure risk aversion, selecting between options with varying levels of uncertainty and potential returns.

Farmers first evaluated monetary lotteries that contrasted high-risk/high-reward outcomes with lower-risk/lower-reward alternatives. They then considered agricultural scenarios involving management decisions such as investing in drainage systems, irrigation, drought-tolerant seeds, or crop insurance. These options were presented as ways to reduce revenue losses from weather-related events affecting a 40-acre corn field.

The study found that farmers were generally risk-averse in both financial and agricultural contexts. However, attitudes toward uncertainty varied much more widely in the farming scenarios than in the general monetary lotteries, suggesting that a diverse range of perceptions and preferences influences climate-related decision-making.

The findings have important implications for policymakers. More risk-averse farmers may be more inclined to adopt technologies and practices that reduce climate-related yield risks, while farmers with a higher tolerance for risk may respond differently. The researchers are now examining how risk preferences influence actual investment and adaptation decisions, with the goal of better understanding what drives farmers’ responses to a changing climate.

More information: Natalie Loduca et al, Farmer risk preferences: Does context matter? Journal of the Agricultural and Applied Economics Association. DOI: 10.1002/jaa2.70038

Journal information: Journal of the Agricultural and Applied Economics Association Provided by University of Illinois College of Agricultural, Consumer and Environmental Sciences