Survey Probability and Factors affecting Farmers Participation in Future and Option Markets Case Study: Cotton product in Gonbad kavos city

Document Type : Research Article

Authors

• F. Sakhi ¹
• H. Mohammadi ²
• M. Sabuhi ²

¹ Ferdowsi University of Mashhad

² University Ferdowsi of Mashhad

https://doi.org/10.22067/jead2.v0i0.43215

Abstract

Introduction: Farmers are facing with a variety of natural and unnatural risks in agricultural activities, and thus their income is unstable. A wide range of risks such as risks of production, price risk, financial and human risks, influence the income of agricultural products. One of the major risks that farmers faced is the risk of price volatility of agricultural products. Cotton is one of the agricultural products with high real price volatility. Numerous tools for marketing and risk management for agricultural products in the face of price risks are available. Futures and options contracts may be the most important available tools (to reduce price volatility) in agricultural products. The purpose of the current study was to look at the possibility of farmers participations in the future and option markets that presented as a means to reduce the cotton prices volatility. The dependent variable for this purpose had four categories and these included: participate in both the market, participation in the future market, participation in the option market and participation in both future and option markets.
Materials and Methods: data gathered with interview and completing 200 questionnaires of cotton growers using simple random sampling. Multinomial Logit Regression Model was used for data analysis.
Results and Discussion: To measure content validity of the preliminary study the validity of confirmatory factor analysis were used. For calculating reliability, the pre-test done with 30 questionnaires and reliability, coefficient Cronbach alpha was 0.79. The independence of dependent variables categories was confirmed by Hausman test results. The Likelihood ratio and Wald showed these categories are not combinable. Results indicated into period 2014 -2015 and the sample under study, 35% of cotton growers unwilling to participate in future and option markets. Farmers willingness to participate in future and option market was 19% and %21.5 respectively. Multinomial Logit model estimation results for the probability of participation in the future and option markets showed that variables of the level of education, farm ownership, cotton acreage, and non-farm income, work experience in agriculture, the index of willing to use new technologies, the index of risk perception cotton market and risk aversion index are statistically significant. The variables of farm ownership, non-farm income and work experience in agriculture, showed negative effects and the other variables showed positive effects on the probability of participation in these markets. The results are in line with previous studies.
Conclusion: The purpose of the current study was to look at the possibility of farmers participations in the future and option markets that presented as a means to reduce the cotton prices volatility. The dependent variable for this purpose, have four categories: participation in both market, and future market, participation in option market and participation in both future and option markets. Multinomial Legit Regression Model was used for data analysis. Results indicated that during the period of 2014 -2015 and the sample under study 35% of cotton growers unwilling to participate in the future and option markets. Farmers willingness to participate in the future and option market was 19% and %21.5, respectively. Multinomial Legit model estimation results for the probability of participation in the future and option markets showed that the variables of the level of education, farm ownership, cotton acreage, and non-farm income, work experience in agriculture, the index of willing to use new technologies, the index of risk perception cotton market and risk aversion index were statistically significant. The variables of farm ownership, non-farm income and work experience in agriculture, showed negative effects and the other variables positive effects on the probability of participation in these markets. The results are in line with previous studies. Given the positive relationship between level of education and participation of farmers in the future and option markets can be suggested that the training seminars would be provided. The content of the seminars could be about how these markets as a means of reducing the risk of price and performance, and informing farmers of the role of research, education and extension services. Given the positive relationship between risk aversion and risk perceptions which tend to use the new technology on the market, cotton farmers are likely to participate in these markets. Therefore it is proposed to develop a more farmers markets.

Keywords

• Cotton, Future market
• Multinomial logit
• Option Market
• Participation

20.1001.1.20084722.1394.29.3.3.5

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