Price risk management using forward contracts: the case of farmers in Pakistan Online publication date: Wed, 08-Aug-2018
by Shahab E. Saqib; John K.M. Kuwornu; Ubaid Ali; Sanaullah Panezai; Irfan Ahmad Rana
International Journal of Value Chain Management (IJVCM), Vol. 9, No. 3, 2018
Abstract: Farmers have limited control over the market and commodity prices that cause price risks and uncertainties. To manage these risks, farmers adopt several risk management tools, and forward contract is one of them. The aim of this study is to find out the important factors that influence the adoption of forward contract as risk management strategy and problems associated with it. The selected study area is Mardan District in Pakistan. Primary data was collected from 168 farmers through survey and in-depth interviews. Probit model was used to determine the factors influencing farmers' adoption of forward contracting as a risk management strategy. The empirical results showed that age, education, landholding size, risk perception of price, risk attitude and access to formal sources were significant factors influencing the adoption of forward contracting. The results also revealed that medium and large subsistence farmers adopted forward contracting more than small subsistence farmers.
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