Risks Perceptions and Risk Management Instruments in the European Union: do farmers have a clear idea of what they need?

This paper explores and analyzes farmers’risk perceptions, risk management instruments’ demandand usage in five Member States (Hungary, Spain, theNetherlands, Germany and Poland). A survey completedby 1047 representative farmers of these EU MemberStatus collected information that allowed us to set aparttwo focus areas: the first looks at the declaredimportance of several sources of farms’ risk and incomeinstability, and at the actual means that farmers pursueto manage and face them. The second area focuses onthe demand for risk management instruments.The paper’s objective is to determine the factors thatexplain farmers’ responses in the first area, and basedon those factors, analyse the demands for twoinstruments (insurance, and future & option markets).After carrying out basic descriptive statistic analyses, weperform factor analysis in order to establish the linkagesbetween the perceptions and ranking of risks with thedeclared strategies to manage them. Logit models werefit to determine potential demand of insurance, andfutures & options based on the three factors, and othervariables like activity types and other controls, likenationality. Results from the factor analysis show thatthe perception of risk and actual use of riskmanagement are very diverse. Logit models show thatinsurance is clearly an alternative instrument todiversification, but its demand is poorly explained by theother factors. Furthermore the demand for the use offutures and options is explained by the three factors,with the volatility factor, positively linked; marketaccess /contractual risks; and diversification, negativelylinked. In conclusion, policy makers should proceedwith caution selecting the most adequate riskmanagement instruments for farmers. It appears thatthe expected demand of risk management tools does notfit perfectly with the stated perception of risks.