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Reallocation of price risk among members

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  • Pedersen, Michael Friis

Abstract

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
    DOI: 10.22004/ag.econ.122529
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    References listed on IDEAS

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    Keywords

    Agribusiness; Risk and Uncertainty;

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