Risk and Returns of Diversified Cropping Systems under Nonnormal, Cross-, and Autocorrelated Commodity Price Structures

Abstract

This study analyzes the risks of diversified tropical cropping systems that combine cocoa, plantain, and tree-crop components in different proportions versus traditional monocultures. A technique for modeling the expected values, variances, and covariances of correlated time-series variables that are autocorrelated and nonnormal (right or left skewed and kurtotic) is applied to simulate commodity prices. The importance of using simulated cumulative density functions (CDFs) which reflect the most important characteristics of the stochastic behavior of prices for analyzing risk and returns of diversified agricultural systems is demonstrated. The analysis provides evidence in favor of diversified cocoa-plantain-Cordia agroforestry system technologies versus the traditional monocultures.

Keywords

• agricultural risk analysis
• autocorrelation
• cross-correlation
• diversified tropical cropping systems
• multivariate nonnormal simulation