Epsilon Archive for Student Projects

Abstract

Agricultural businesses face risks and uncertainty, including human resources or price risk. There are multiple tools and strategies available to mitigate risk. Yet, farm-level adoption of risk management tools remains low. There has been an increase in research on farm managerial adoption behaviour towards different risk management strategies and instruments. This thesis aims to extend the literature on how farm and farmer characteristics, risk perception and risk attitude influence the adoption of price risk management tools to maintain a financially stable agricultural business. The study applies a Linear Probability Model (LPM) estimated via Ordinary Least Squares (OLS) to analyse survey data collected from agricultural enterprises across four European Union countries. The final sample consists of 529 agricultural businesses and provides information regarding farm and farmer characteristics, risk attitude, price risk perception and the use of financial risk management tools. The results indicate that highly educated farm managers and those without any household off-farm income were the most likely to adopt price risk management tools. High perceived output price risk was positively associated with adoption, while input price risk perception and risk aversion exhibited negative relationships. However, these findings were only marginally statistically significant and should be interpreted with caution. This thesis emphasises the possibility that there are more factors beyond farm and farmer characteristics, price risk perception and risk attitude that are vital for the strategic adoption of price risk management tools.