Coherent quantitative analysis of risks in agribusiness: Case of Ukraine

Abstract

Modern methods of quantitative risk analysis, specifically value-at-risk and expected shortfall approach, provide comprehensive and coherent risk evaluation throughout entire distribution of outcomes and can take agricultural business from the realm of uncertainty to specific, quantified risks. Monte Carlo simulation with autocorrelation of standard deviation shows the best results in risk modeling and is used for this research. The analysis showed that production risk is systemic within climatic regions of Ukraine with coefficients of correlation ranging from 0.25 to 0.85. Yield correlation among crops in several oblasts is low to negative, creating opportunities for diversification. However, positive price-yield correlation is dominant for agricultural products in Ukraine due to high dependency on global prices and a large share of export. It is hypothesized that price-yield correlation is directly proportional to the share of country's international trade in that agricultural product.