Ranking Major Crops in Terms of Risk and Return with Sharpe Ratio

Systematic and non-systematic risks have influence on decisions in agriculture sector. Evaluating the performance of different crops in terms of returns and risk using appropriate performance indices is important. Such evaluation provides the necessary information to change crop pattern to a pattern that meets the risk conditions of each region and help to reorganize the crop production. Accordingly, this study aims to evaluate the performance of major crops in different provinces of Iran based on Portfolio Performance Evaluation Indicators and then to develop a pattern corresponding to these indicators for different major production regions of the country, using data for 2001 to 2019 period. The results of this study show that there is no proportionality between the high Sharpe ratio and the share of cultivated area in the provinces of the country, i.e. that the largest share of cultivated area in a province does not belong to the crops that have the highest Sharpe ratio. This result indicates that farmers do not act correctly in taking into account the cost of risk in choosing the crops to produce. Accordingly, changes in crop pattern and increasing the knowledge of farmers on the risk consideration is recommended.