This empirical information is used to calibrate a microeconomic model to simulate farmers’ responses to different risk environments and policy changes in the UK and Australia. This stochastic simulation allows for estimates to be made of the policy impacts on the distribution of farm income, farm welfare and farming risk management behaviour. The yield risk at the farm level tends to be greater than at the aggregated level and is comparable with price risk. In many cases, farmers benefit from the negative price-yield correlation and imperfect correlation of yields and prices of different crops through output diversification.