Analysis of Risk Behavior in the U.S. Farm-raised Catfish Market

The purpose of this research is to assess any risk-shifting behavior in the catfish market between processors and farmers. Over 93% of farm-raised catfish are sold through fish processing companies, and processors largely dictate the terms of trade, particularly size requirements. The classic agency theory model was used to investigate the relationship between catfish processors (principals) and catfish farmers (agents). The study used time-series regression techniques, incorporated into the classic principal-agent model, to examine the risk behavior of catfish processors. Results indicate that catfish processors do not shift risk, but bear all market risk. It appears that catfish processors maximize expected payoff by paying lower price to farmers and extract trade gains from bearing the market risks. Farmers may implicitly be paying high premiums by receiving lower prices. Delivery rights offered to catfish farmers as incentives for them to meet certain delivery conditions do not appear to have shifted risk.