Weather derivatives in the South African agriculture sector

Dreyer, Andries (2002-12)

Thesis (MBA)--Stellenbosch University, 2002.


ENGLISH ABSTRACT: This study reviews the development and current status of the weather derivative market in the world. As technology has improved, man's potential to model the unpredictable has come to the fore. Changes in the macro economic environment have prompted business to diversify. Deregulation in the American energy market and the advent of weather phenomenon like EI Nino and La Nina enticed large business to hedge their risk exposure in a different way than traditional diversification. Risk for the agriculture sector can be divided into three categories: Price risk, event risk and yield risk. Price risk has been managed by the incorporation of options and futures in the marketing of produce and acquiring of requisites. In conclusion the research finds that the SA market has the potential to grow faster than its American and European counterparts partly because techniques developed can be "leap frogged", but mostly because the SA environment induces smaller contracts that will lead to more market participants and eventually to higher liquidity.

AFRIKAANSE OPSOMMING: Hierdie studie bespreek die ontwikkeling en huidige stand van die Weer afgeleide instrumente mark in die wêreld. Soos tegnology verbeter het, het die mens se vermoeë om die onsekere te voorspel na vore getree. Veranderings in die makro ekonomiese omgewing het besighede genoodsaak om te diversifiseer. Deregulasie van die Amerikaanse energy mark en weerverskynsels soos EI Nino en La Nina het groot besighede verplig om risiko te verskans deur middel van 'n ander metode as tradisionele diversifikasie. Risiko in die landbou sektor kan verdeel word in drie kategorie; prys risiko, gebeurtenis risiko en laastens opbrengs risiko. In die verlede is prys risiko bestuur deur die insluiting van afgeleide opsies in die bemarkingsaksie van kommoditeite. Gebeurtenis risiko is beheer deur oes versekering en die laaste word deesdae deur weer afgeleide instrumente bestuur. In samevatting bevind die navorsing dat die Suid Afrikaanse mark die potensiaal bevat om vinnig te groei. Deels omdat tegnieke wat ontwikkel is gebruik kan word en deels omdat die Suid Afrikaanse omgewing kleiner kontrakte, dog meer deelnemers in die mark stimuleer.

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