Increase in milk price volatility experieced by Flemish dairy farmers: A change in risk profile

This paper reports on the increased volatility in the milk price received by Flemish dairyfarmers and its consequence on the risk profile of selected Flemish dairy farms. Thevolatility of the milk price has doubled since January 2007. It is suggested that thisincreasing volatility could have a significant impact on the risk profile of dairy farms.Indeed our results show that the risk profile is changing depending on the volatility andaverage price for milk. However this change is not very substantial compared to someother subsectors. Also we show that in our case study of selected farms that if the milkprice volatility doubles an average milk price increase of about 12% compensates for theincreased volatility on return on assets. Finally this paper demonstrated the importance ofregarding risk and return together when making normative statements on theconsequences of milk price volatility.