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Reallocation of price risk among members


  • Pedersen, Michael Friis


Marketing of milk and meat in Denmark is dominated by two large cooperatives, Arla Foods in the dairy sector and Danish Crown in the pork sector. Members in these cooperatives practically have no possibility for price risk management on their main product. Futures markets for dairy and pork are not utilised, and it is suggested that the reason is prohibitively large basis risk. The events following the global financial crisis suggest increased need for price risk management in Danish agriculture. Since futures markets do not seem to be a viable solution, the paper explores an alternative. Reallocation of price risk among members in marketing cooperatives. Endowing members with a forward contracted share of delivery, and allowing for transfer at a market price will lead to reallocation gains if member heterogeneity in cost of risk is great enough and transaction costs are low enough.

Suggested Citation

  • Pedersen, Michael Friis, 2012. "Reallocation of price risk among members," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122529, European Association of Agricultural Economists.
  • Handle: RePEc:ags:eaa123:122529

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    References listed on IDEAS

    1. Philip Garcia, 2004. "A selected review of agricultural commodity futures and options markets," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(3), pages 235-272, September.
    2. Jean-Paul Chavas, 2011. "Agricultural policy in an uncertain world," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 38(3), pages 383-407, August.
    3. Pennings, Joost M. E. & Garcia, Philip, 2004. "Hedging behavior in small and medium-sized enterprises: The role of unobserved heterogeneity," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 951-978, May.
    4. Hans-Ulrich Derlien & B. Guy Peters, 2008. "Introduction," Chapters,in: The State at Work, Volume 2, chapter 1 Edward Elgar Publishing.
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    More about this item


    futures; hedging; risk management; marketing cooperatives; Agribusiness; Risk and Uncertainty; G13; G32; Q13; D61; D8;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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