The Use of Weather Derivatives by Small- and Medium-Sized Enterprises: Reasons and Obstacles

Bank, Matthias; Wiesner, Robert

doi:10.1080/08276331.2010.10593503

Cited by 10 publications

(23 citation statements)

References 45 publications

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“…This was despite the fact that 85 percent of the respondents who agreed that they used weather derivatives found them to be helpful in mitigating the weather risk (CME Group, Storm Exchange Inc., 2008). Our result is also consistent with that of Bank and Wiesner (2010) who found very low usage of weather derivatives by Austrian SMEs in industries subject to weather risk.…”

Section: Factors Influencing the Weather-risk Management Practicessupporting

confidence: 95%

“…This result is consistent with the Bank and Wiesner (2010) results where this issue is categorized as a component of participation costs. 36.7 percent of our respondents stated that they never considered using weather derivatives.…”

Section: Factors Influencing the Weather-risk Management Practicessupporting

confidence: 94%

“…This finding is also consistent with the Bank and Wiesner (2010) finding that costs were not perceived by SMEs as a major hurdle in the decision to use weather derivatives. However, they suggest that this perception may be due to the fact that the SMEs may not have been aware of the actual costs related to weather derivatives.…”

Section: Factors Influencing the Weather-risk Management Practicessupporting

confidence: 94%

“…This observation is consistent with the events of last year when a wetter than normal summer caused significant economic impact to the agriculture sector and the overall provincial economy. Bank and Wiesner (2010) identify reduction in income volatility and risk of bankruptcy as major reasons for hedging. We asked our respondents that had used weather derivatives about the significance of these factors.…”

Section: Factors Influencing the Weather-risk Management Practicesmentioning

confidence: 98%

“…The findings of that study indicate that the majority of managers believe that their businesses are exposed to significant weather-related risks and that global climate change would require changes to their business model but that relatively little use is made of weather derivatives to hedge theses risks (CME Group, Storm Exchange Inc., 2008). Bank and Wiesner (2010) study the obstacles that may prevent small and medium enterprises (SMEs) from using weather derivatives. Their findings in terms of weather derivative usage corroborate the CME Group study (CME Group, Storm Exchange Inc., 2008).…”

Section: Weather Risk Managementmentioning

confidence: 99%

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Weather risk management by Saskatchewan agriculture producers

Khan

Rennie

Charlebois

2013

Agricultural Finance Review

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Purpose -The purpose of this research is to study the weather risk management practices of agriculture producers. In particular, the authors look at the extent to which farmers use weather derivatives to complement insurance. Unlike insurance, weather derivatives mitigate risk associated with low intensity, high probability events and therefore offer the potential of a more complete hedge than insurance alone. Design/methodology/approach -The authors conducted a survey of grain farmers in the province of Saskatchewan, Canada, a typical jurisdiction in which farmers tend to face weather events that are high in frequency but low in severity, to study the usage of weather derivatives compared to insurance and identify the hurdles to their usage. Findings -The authors find that fewer than 10 percent of their respondents use weather derivatives. Consistent with previous literature in other contexts, they identify participation costs, especially lack of awareness, to be the most significant hurdle to their usage. Research limitations/implications -A limitation of this study is that the data were collected using a survey methodology and are therefore subject to the usual risks of bias associated with that approach. Moreover, because the authors' survey was delivered online, it may have favoured the participation of farmers that were more comfortable with technology and some bias may have also been introduced into the data as a result. Practical implications -The authors' findings suggest that there is significant potential to improve farmers' ability to hedge weather risk and thereby improve economic outcomes if the major barriers to the usage of weather derivatives can be overcome. The study paves the way for further research to support the development of public policy strategies that could help farmers take advantage of weather derivatives as part of their inventory of risk management tools. Originality/value -To the authors' knowledge this is the first study that quantifies the usage of weather derivatives by agriculture producers and identifies the hurdles.

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Section: Factors Influencing the Weather-risk Management Practicessupporting

confidence: 95%

Section: Factors Influencing the Weather-risk Management Practicessupporting

confidence: 94%

Section: Factors Influencing the Weather-risk Management Practicessupporting

confidence: 94%

Section: Factors Influencing the Weather-risk Management Practicesmentioning

confidence: 98%

Section: Weather Risk Managementmentioning

confidence: 99%

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