Epsilon Archive for Student Projects

Abstract

The last years’ financial situation has contributed to an increased willingness from the banks to handle risks. The most important risk to cope with is a risk that is related to a customer’s ability to repay loans. Forecasts indicate that in the future, Swedish farmers will be facing profitability challenges, which points to a need to reconsider the banks procedures considering risk management in credit granting for agricultural businesses.

Today’s risk management will be given two complements in this study. The first is a general risk assessment of two different branches of production. The second complement is an estimation of which factors that affect a farmer’s risk assessment and how these factors affect a farmer’s repayment ability. The aim of this study is to gather information from the risk analysis, which will form the basis of future credit granting.

The empirical data is gathered from four different case farms and from a group interview. These methods are selected to make sure that the problem is thoroughly investigated and also to be a basis for comparisons in the analysis chapter. The theories in this study are classical theories on risk, risk management and risk analysis. The study also sorts out which types of risks that affect agricultural business and which risk management tools a farmer can use. A conceptual model has been made to show how certain factors affect a farmer’s risk proclivity, in order to describe how the perception of risk and the ability to repay loans are related.

Conclusions are categorized according to the questions in the opening chapter. The conclusions are based on the case studies about how grain businesses and dairy farms are exposed differently by different risks. Grain businesses have a difficult time predicting the weather, and therefore this risk is a serious source of problem. Dairy farms, on the other hand, have a difficult time predicting changes in the transfer price and therefore these farmers estimate this source of risk as more serious.

Farmers’ risk proclivity and risk assessment is affected by different factors. Another conclusion is that it is almost impossible to see which factors that will affect the farmer’s attitude to risk and to what degree, since the factors are closely related to each other. The experts’ opinions about farmers’ risk proclivity mostly correspond with the result from the case farms, which show that they know how the farmer’s values and attitudes to risk have been created.

One main point of this study is to investigate risk profiles of different branches of production. Grain businesses and dairy farms certainly have different risk profiles, since they are affected by different sources of risks. However, the principal reason for differences between farmers is probably not which branch of production that they work in, but rather it is about the farmer’s personality and mainly about the financial situation of the business.