Subjective preferences, liquidity constraints and price risk management under large-scale farm management
China Agricultural Economic Review
ISSN: 1756-137X
Article publication date: 26 December 2023
Issue publication date: 22 March 2024
Abstract
Purpose
Large-scale farm management in China has developed rapidly in recent years. Large-scale farmers face substantial operating risks, requiring extensive price risk management. However, the agricultural insurance and futures markets in China are incomplete. This study aims to analyze the price-risk-management behaviors of large-scale farmers under incomplete market conditions, with a focus on the interconnections between large scale farmers' subjective preferences (risk preferences, time preferences), liquidity constraints and their price risk management.
Design/methodology/approach
The authors construct an analysis framework to reveal the impact of large-scale farmers' risk preferences, time preferences and liquidity conditions on their price-risk-management behaviors under incomplete market conditions. Using data from field surveys and subjective preference experiments involving 409 large-scale grain farmers in China, an empirical analysis was conducted using the bivariate probit model.
Findings
The results show that risk-averse farmers will use risk transfer (such as contract farming) and risk diversification (such as multi-period sales) to avoid price risk. However, farmers subject to liquidity constraints and strong time preferences will not choose risk diversification, and the interaction between time preferences and liquidity constraints will strengthen this decision. The larger the farm-management scale, the greater the impact.
Originality/value
The authors focus on rapidly developed large-scale farm management in China. Appropriate price risk management is required by large-scale farmers due to their substantial operating risks. Considering the incomplete conditions of agricultural insurance and futures markets, the results of this study will help identify behavioral characteristics of large-scale farmers and optimize their price-risk-management strategies, further stabilizing large-scale farm management.
Keywords
Acknowledgements
Funding: This research was funded by the National Natural Science Foundation of China, Grant/Award Number: 71803083; China Postdoctoral Science Foundation, Grant/Award Number: 2018M632322; National Social Science Fund of China, Grant/Award Number: 20&ZD094; Social Science Fund of Jiangsu Province, Grant/Award Number: 21ZD004; and Center for Cooperative Innovation of Modern Grain Circulation and Security of Jiangsu Province.
Citation
Peng, P. and Xu, Z. (2024), "Subjective preferences, liquidity constraints and price risk management under large-scale farm management", China Agricultural Economic Review, Vol. 16 No. 1, pp. 76-96. https://doi.org/10.1108/CAER-12-2022-0287
Publisher
:Emerald Publishing Limited
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