Marketing contracts and risk management for cereal producers

Abstract

French specialized durum wheat farmers are subject to market risks (price volatility), production risks (fluctuating quality and yields), and an increasingly restrictive regulatory environment (limits on inputs).The purpose of this paper is to gain a more in-depth understanding of the strategies used by those farmers to manage these risks by analysing portfolio strategies in marketing methods and in production decisions. The findings show that three main categories of marketing methods can be adopted in different proportions: forward contracts, average price contracts and spot market selling. A hundred farmers are surveyed in South-West France. An empirical analysis of the determinants of their marketing methods show that risk perceptions and the farmer's level of education influence the choice to sign a preharvest contract for part of their production. In addition, agricultural diversification is negatively correlated with the choice to use forward contracts to hedge against market risk. [EconLit citations: Q13, L24, C24].

The contractual relationships in the Italian durum wheat chain: empirical survey evidence

“…The main problem of the empirical analysis on contracts concerns the difficulty of access to contract information. Many empirical studies investigating contracts in agri-food supply chains have employed direct survey procedure, often associated with other methodologies (among others, Fischer et al, 2009;Vavra, 2009;Franken et al, 2012;Viaggi and Zanni, 2012;Carillo, 2016;Roussy et al, 2017).…”

“…The latter establish a base price and a given quantity to be delivered within a specified time. Forward contracts are usually linked to the concepts of the uncertainty related to price risk management, and income stabilisation (Barnard and Nix, 1980;Fraser, 1997;Jackson et al, 2008;Wilson and Dahl, 2011;Roussy et al, 2017).…”

Contracts to Govern the Transition towards Sustainable Production: Evidence from a Discrete Choice Analysis in the Durum Wheat Sector in Italy

“…Technological uncertainty relates to the inability to predict and precisely control and, therefore, forecast practices and techniques used in the production process as well as the volume of production, because of the biological nature of production [15]. Moreover, it is well-known that agricultural products are themselves subject to climatic conditions and environmental accidents that are exacerbated by the intensive use of inputs [40]. In the presence of such heightened risks, the adoption of sustainable techniques combined with reduced use of chemical inputs in farming practices -aimed at conciliating biosphere regeneration capacity and productivity-brings more technological uncertainty related to the ability to manage a transition characterized by lower use of agrochemicals and monoculture [1].…”

Vertical coordination mechanisms and farm performance amongst smallholder rice farmers in northern Ghana

“…Smallholder farmers enter into contractual agreements with downstream buyers to reduce transaction costs and obtain other benefits associated with using contracts (Barrett et al, 2012). Such agreements can involve specification about the transaction only, such as product quality, delivery times, as well as sales price (marketing contract), or specifications related to production process, product quality, seed variety, chemicals used among others (production contract; Maertens & Vande Velde, 2017; Roussy, Ridier, Chaib, & Boyet, 2018). Contracting is important in facilitating farmers’ access to inputs, credit, and technology, as well as reduces risks associated with prices and markets (Kariuki & Loy, 2016; Mishra, Kumar, Joshi, & Dsouza, 2018).…”