Use Of Maize Marketing Alternatives And Price Risk Management Tools By Commercial Maize Farmers In South Africa

The demise of the Maize Board in South Africa in 1997 placed responsibility for maize marketing in the hands of individual producers. Given the inelastic nature of maize supply and demand, these farmers now face considerable price risk. In the absence of the Maize Board, price risk management mechanisms have evolved to serve maize farmers. Results of a postal survey of commercial maize producers in 1998 indicate that maize farmers are making increased use of the forward contracting market relative to the spot market. The percentage of respondents using SAFEX increased markedly over a three-year period, the hedging ratio rising from 27 percent in 1997/98 to reach 49 percent for 1998/99 and 1999/2000. Survey respondents were divided into lower- and higher- level users of price risk management tools, based on their scores for an index of price risk management. Higher-level users tended to operate larger farms, and be younger, less experienced, but more educated, computeradopting operators who were less likely to individually own their operations. Farmers perceived their marketing management skills to be relatively weak. Maize marketing education seminars and magazine articles explaining available marketing alternatives could increase farmers’ use of price risk management tools. Further research opportunities lie in the estimation of optimal hedging ratios in a South African context and the monitoring of farmers’ marketing activities as the maize market matures.