Weather derivatives are considered a promising agricultural risk management tool. Station-based meteorological indices typically provide the data underlying these instruments. However, the main shortcoming of these weather derivatives is an imperfect correlation between the weather index and the yield of the insured crop, called basis risk. This paper considers three available remotely sensed vegetation health (VH) indices, namely, the vegetation condition index (VCI), the temperature condition index (TCI), and the vegetation health index (VHI), as indices for weather derivatives in a German case study. We investigated the correlation and period of highest correlation with winter wheat yield. Moreover, we analyzed whether the use of remotely sensed VH indices for weather derivatives can reduce basis risk and thus improve the performance of weather derivatives. The two commonly used meteorological indices, precipitation and temperature sums, were employed as benchmarks. Quantile regression and index value simulation were used for the design and pricing of the weather derivatives. The analysis for the selected farms and corresponding counties in northeastern Germany revealed that, on average, the VHI resulted in the highest correlation with winter wheat yield, and VHI-based weather derivatives were also superior in terms of the hedging effectiveness. The total periods of the highest correlations ranged from the beginning of April to the end of July. VHI- and VCI-based weather derivatives led to statistically significant reductions of basis risk, compared to the benchmarks. Our results indicate that the VHI-based weather derivatives can be useful alternatives to meteorological indices, especially in regions with sparser weather station networks.

Purpose Adoption rates of commodity futures contracts among farmers are rather low in Europe despite their political support. The purpose of this paper is to examine whether the Technology Acceptance Model (TAM) can contribute to the understanding of farmers’ intention to use commodity futures contracts. Here, the authors explicitly distinguish between usage motives for price risk reduction and speculation. Design/methodology/approach The study is based on an online survey with 134 German farmers using partial least squares structural equation modeling to estimate the TAM. Findings The intention to use commodity futures contracts is mostly driven by farmers’ motivation for speculation rather than price risk reduction. Assuming risk averse farmers, this result could explain low adoption rates. Furthermore, perceived ease of use has a positive effect on the intention to use commodity futures contracts. Practical implications Handling of price hedging instruments should be facilitated to increase farmers’ adoption. Effective marketing trainings, which can demonstrate the ability of commodity futures contracts to reduce price risk, could increase farmers’ motivation to use them for their risk management instead of speculation. Originality/value This study analyzes path relationships between constructs expected to influence the intention to use commodity futures contracts which are allowed to be estimated by the TAM in one model. Here, the authors explicitly distinguish between usage motives for price risk reduction and speculation. This is the first study applying the TAM to price risk management tools.

Purpose The outstanding reform of the Common Agriculture Policy allows for changes regarding its most criticized component, the direct payment scheme. The purpose of this paper is to investigate farmers’ acceptance of subsidized whole farm income insurance (WFI) and single-crop, multi-peril revenue insurance (RI) that are associated with a reduction of direct payments. Design/methodology/approach By applying a generalized multinomial logit model on data of a discrete choice experiment, German farmers’ preferences, expressed as their willingness to pay (WTP), for WFI and RI are revealed. Findings The results show a positive WTP for WFI and RI. The average farmer has a higher WTP for WFI than for RI. By increasing the coverage level, the negative influence of a reduction of direct payments on WTP for insurance can be compensated. Individual risk attitude and assessed importance of direct payments for the farm business show a statistically significant influence on the WTP. Practical implications The results suggest that, even if direct payments were abolished in order to subsidize WFI or RI, German farmers’ WTP for both insurance products would remain positive. However, to finally assess whether subsidizing insurance is the right means of providing public support, it is necessary to assess whether farmers’ WTP meets the costs for such an insurance scheme. Originality/value To the authors’ knowledge, this is the first study investigating German farmers’ WTP for WFI and RI using an experimental approach by explicitly considering the partial to complete replacement of direct payments by subsidized insurance.

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Summary After several reforms of the Common Agricultural Policy and gradual liberalisation, direct payments that serve to stabilise farm incomes remain highly pertinent for EU farmers in that they continue to contribute a high share of total farm income. This was also reflected in our survey of German farmers’ perspectives on direct payments, which showed the importance that these payments play in their financial situation. However, several economists have pointed to the lack of justification for poorly targeted direct payments in achieving societal goals, namely the delivery of valued public goods. In particular, the surveyed German farmers also recognised societal disapproval of the direct payment scheme. However, without direct payments, an accelerated structural change in German agriculture is very likely, leading to larger, less diversified farms and more intensive farming; which contrasts with the expectations of the German society for the agriculture sector. As German tax payers contribute substantially to financing the CAP, societal approval in terms of animal welfare and environmental services should receive greater priority in the direct payment scheme. The latter could be achieved by a well‐aimed targeting of direct payments, providing compensation for farmers producing agri‐environmental public goods and/or clearly contributing to improved animal welfare.