Why Farmers Ignore Price Protection Tools Even When Markets Rage
A comprehensive review of 101 studies reveals that farmers systematically avoid hedging tools like futures contracts and price insurance despite volatile markets, a puzzle that standard economics can't explain. The gap between rational theory and actual behavior suggests that psychological factors and non-traditional decision-making preferences—not just risk calculations—drive farm business strategy, offering a roadmap for agribusiness and policymakers to better design risk management programs.
Originaltitel: Behavioral Preferences and Price Risk Management in Agriculture: A Systematic Literature Review
Abstract Recent crises have increased price volatility, yet farmers’ adoption of forward contracts, futures, options, and price insurance remains low. Since this appears puzzling from a standard expected utility maximizing perspective, we systematically review the literature on the relation between behavioral factors and price hedging. We distinguish behavioral preferences, formally integrated into choice models, from psychological factors, lacking mathematical formalization. Most of the 101 reviewed studies focus on futures and rely on risk aversion assuming expected utility maximization, with limited evidence on behavioral economic drivers. Considering nonclassical preferences and psychological factors in choice models might better capture farmers’ risk management decisions.