Cooperative risk management, rationale, and effectiveness: the case of dairy cooperatives
AbstractNumerical simulation of several typical risk management strategies using pro forma financial statements from representative U.S. dairy cooperatives shows that combinations of forwards, swaps, and cash marketing strategies for output (cheese), along with various forward contracts offered to cooperative members to manage the variability of milk revenues, have the potential to improve cooperative-, and ultimately member-level risk-return performance. Because most cooperatives have limited access to equity capital, effective use of available risk management tools can increase cooperative value by increasing debt capacity, avoiding bankruptcy costs, and preventing the distortion of capital budgeting decisions. Moreover, the offering of risk management tools to individual members as a service may prove valuable in the retention of these members in the cooperative.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Agricultural Finance Review.
Volume (Year): 67 (2007)
Issue (Month): 2 (September)
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Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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