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Abstract
This paper explores and analyzes farmers’
risk perceptions, risk management instruments’ demand
and usage in five Member States (Hungary, Spain, the
Netherlands, Germany and Poland). A survey completed
by 1047 representative farmers of these EU Member
Status collected information that allowed us to set apart
two focus areas: the first looks at the declared
importance of several sources of farms’ risk and income
instability, and at the actual means that farmers pursue
to manage and face them. The second area focuses on
the demand for risk management instruments.
The paper’s objective is to determine the factors that
explain farmers’ responses in the first area, and based
on those factors, analyse the demands for two
instruments (insurance, and future & option markets).
After carrying out basic descriptive statistic analyses, we
perform factor analysis in order to establish the linkages
between the perceptions and ranking of risks with the
declared strategies to manage them. Logit models were
fit to determine potential demand of insurance, and
futures & options based on the three factors, and other
variables like activity types and other controls, like
nationality. Results from the factor analysis show that
the perception of risk and actual use of risk
management are very diverse. Logit models show that
insurance is clearly an alternative instrument to
diversification, but its demand is poorly explained by the
other factors. Furthermore the demand for the use of
futures and options is explained by the three factors,
with the volatility factor, positively linked; market
access /contractual risks; and diversification, negatively
linked. In conclusion, policy makers should proceed
with caution selecting the most adequate risk
management instruments for farmers. It appears that
the expected demand of risk management tools does not
fit perfectly with the stated perception of risks.