Investigation of Risk Compensation for Apple Producers in Iranian Provinces: Application of Capital Asset Pricing Model (CAPM)

When producer price and consequently, generated revenue for a product is proportional to its relative risk, its production is expected to be continued, and otherwise the product will be gradually eliminated from production plan by producers. The purpose of this study was to investigate the risk compensation situation of apple production in Iranian provinces using the Capital Asset Pricing Model (CAPM). To this end, according to the available information, a portfolio consists of apple production in different provinces has been formed and the systematic risk of apple production in each of the provinces was calculated relative to the risk of overall portfolio. Results revealed that Ilam province with the beta coefficient of 0.21 was the least risky and Semnan and Tehran provinces with the beta coefficient of 1.92 and 1.88 were the riskiest apple producing provinces, respectively. In terms of risk compensation, the prices of this product compensate the risk of apple production in all the provinces except Ilam, Alborz, Yazd, Kermanshah, Fars, Khorasan Razavi, Gilan, Kerman, Isfahan, Kohglouieh and Boyer Ahmad and Semnan provinces. Results also indicated that the main reason for not compensating risk in some regions is the relative low level of land productivity, and consequently high level of average cost of production in these provinces. Accordingly, focus on improving land productivity is recommended for those provinces.