Proceedings

PR – Investigating Factors Affecting The Forward Pricing Behaviour Of Vaalharts Maize Producers: A Two-step Econometric Approach

A two-step econometric approach is employed to investigate the factors that influence the forward pricing behaviour of Vaalharts maize producers. The first step is to analyse the adoption decision with a binary sub-model, while the second step is to model the quantity decision, conditional of the adoption decision, in a linear sub-model. Based on the results, two distinct sets of variables influence the two decisions. The adoption of forward pricing is associated with higher levels of human capital, while the quantity decision is mainly driven by farmers’ risk attitudes and their perceptions of forward pricing in price risk management. Since two sets of variables influence the two decisions, it is insufficient to educate farmers only on the benefit of using forward pricing methods. Such education does not empower farmers to use these tools. Future research and education should emphasise on how much to contract, which type of contract to use, and the frequency of contracting.

Keywords: forward pricing, risk management, regression.

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Author(s): Grové, B., Jordaan, H.

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Organizations(s): Department of Agricultural Economics, University of the Free State, Bloemfontein