Marketing contract choices in agriculture: The role of price expectation and price risk management

Abstract

We identify factors involved in the decision of farmers to use marketing contracts (pool, storage and forward contracts), and we explicitly account for the hedging and price-enhancement components of this decision. Using panel corner solution models (Tobit and double-hurdle) to represent farmers' contracting decision using a sample of French cereal producers, we find that both the hedging and the price-enhancement motives are important factors driving marketing choices. When risk aversion or exposure to price risk rises, the price-enhancement motive becomes less influential. Farmers appear to be more reluctant to base their marketing decisions on their price expectations in that case.

JEL codes

Reference

Arnaud Reynaud, and Aymeric Ricome, “Marketing contract choices in agriculture: The role of price expectation and price risk management”, Agricultural Economics, vol. 53, 2022, pp. 170–186.