Small berry fruit farms and diversification potential on reduction of production risk

A significant number of small farms in Bosnia and Herzegovina (BiH) produce berry fruits. Some of them achieve good economic results, however many have significant potential for further improvement. Due to several beneficial factors, many farms decide for cultivation of a single berry fruit activity, however this decision implies a potential risk in case of unfavourable production or market conditions for that crop. The aim of this analysis is therefore to observe the extent of risk reduction by application of different diversification strategies, using two types of berry fruits; and the most efficient production plans for such a farm from a risk perspective. A linear program was utilized to prepare an optimal production plan, while quadratic risk programming served to analyse risk. Results show that diversification could be a significantly important possibility for risk reduction on such farm type. It is possible to reduce risk with capital and labour less intensive production activities. Production of the highly intensive strawberry variety Clery has highest Estimated Gross Margin (EGM), but is also associated with very high risk. If one includes raspberries or blueberries into the production plan, it is possible to significantly reduce risk while almost keeping EGM at the same level. On the other hand, if the farmer is risk averse, the highest opportunity cost for risk reduction on such a farm type is in production of raspberry and blueberry, where it is necessary to give up 3.25 EUR on average for decreasing risk for one EUR. In the other two scenarios, production of strawberry – blueberry and strawberry – raspberry, risk gradient values are almost the same with amount 2.57 EUR sand 2.56 EUR, respectively.