Epsilon Archive for Student Projects

Abstract

This thesis evaluates whether behaviourally adjusted fertiliser price contracts are attractive risk-management tools for Swedish farmers growing winter wheat. The analysis combines simulated regional yield data with wheat and calcium ammonium nitrate price data to compare different fertiliser procurement strategies. Contract attractiveness is evaluated under Expected Utility Theory and Cumulative Prospect Theory and under both broad and narrow framing. The results suggest that regional differences in Sweden affect expected profit levels and production risk, but do not substantially change the relative ranking of the contract alternatives. Instead, contract attractiveness appears to be shaped by the decision framework and framing assumption. Under Expected Utility Theory broad framing, the forward contract performs best across regions. This suggests that the flexibility of the adjusted contracts does not compensate for the premium paid when the fertiliser decision is evaluated as part of total farm profit. Under narrow framing, adjusted contracts become more favourable relative to the forward contract. This is likely because they allow farmers to benefit from lower fertiliser prices while limiting exposure to high prices. However, this relative advantage does not necessarily imply that adjusted contracts are attractive in absolute terms. Under Cumulative Prospect Theory, adjusted contracts are generally unattractive under broad framing but are preferred under narrow framing. However, the sensitivity analysis shows that their performance remains sensitive to the assumed behavioural parameters. The findings suggest that behaviourally adjusted fertiliser price contracts are not consistently superior risk-management tools for Swedish winter wheat farmers. Their attractiveness depends more on behavioural assumptions and decision framing than on regional production conditions.