Attitudes towards hedging by diversified and non-diversified farmers : a comparative qualitative study

Sammanfattning: Deregulation on the market for agricultural products leads to a more globalised market with increasing price fluctuations. This, in turn, places the farmer in positions influenced by new risks but also improved opportunities. The farmers are faced by uncertainty in terms of financial outcome. To be able to utilise these new market conditions it becomes increasingly important for farmers to continuously follow the price trend, and to develop strategies how to manage the risks exposed by a volatile market. Farmers with different conditions perceive risk in different ways. Hence, their risk management behaviour will vary. The aim of this study is to investigate differences in selling strategies of grain between diversified farmer (crop and livestock producers) and non-diversified farmers (crop producers). The diversified farmers use a major quantity of their grain as feed, while the non-diversified farmers are forced to manage a greater quantity of cash crop. Thus, the selling strategies will obviously vary. Therefore, a further investigation is to realise the farmers’ attitudes and preferences towards risk, which is made through the theoretical framework of decision-making theory, expected utility theory and portfolio theory. The study is conducted as a qualitative research study. The empirical material is gathered through in depth-interviews with 12 farmers, where 5 of the farmers are diversified and 7 are non-diversified. The farmers are located in the southern part of Sweden, from Mälardalen in the north to Scania in the south. The following 6 conclusions can be distinguished in the study: - Diversified farmers are more intuitive in their decision making approaches than non-diversified farmers. - Diversified farmers are generally more risk averse than non-diversified farmers. - Non-diversified farmers tend to sell a larger share on the spot market. - Both diversified and non-diversified farmers reveal a weak knowledge about the value of their production cost for crops. - Farmers that rent a greater acreage are more likely to use hedging tools. - Diversified farmers are more likely to have storage capacity for a total harvest. Those are the major differences that separate the two groups. The differences are due to several factors. A particularly important factor is found to be the farm’s geographic location, that is, if the farm can utilise comparative advantages. Comparative advantages that occur due to farm location in relation to nearest crop company.