Factors affecting the hedging decision of farmers : the case of maize farmers in Gauteng province

Mofokeng, Maine Jonas (2012-12)

Thesis (MScAgric)--Stellenbosch University, 2012.

Thesis

ENGLISH ABSTRACT: Maize is the most important field crop in South Africa. It is used for both animal feeds and human consumption. It is also used by many industries as an input, is a source of foreign exchange and of employment opportunities for many people in the country. It is an important component of the agricultural sector, plays an important role in the economy and presents opportunities in terms of agricultural investment and employment creation. The maize industry in South Africa has long history of government intervention where the price of maize was set by government through the office of the Minister of Agriculture. This was fuelled by the two Marketing Acts (of 1937 and 1968). During the period of these Acts, farmers were not exposed to international markets. However after the introduction of the Marketing of Agricultural Products Act (Act 47 of 1996), farmers have been exposed to international maize prices, i.e. to the forces of supply and demand. Farmers are no longer guaranteed a maize price during the beginning of the production season, and now have to use different methods to protect their income against a volatile maize price. Through forward contracting (hedging) their maize, farmers can minimize the price risk that they are facing. A number of instruments have been developed to assist farmers to protect themselves against price risk. In South Africa, SAFEX is used to reflect the expected future price of maize and it can be used by farmers as a reference for the expected price. Different factors affect the hedging decisions of farmers. The main objective of this study was to identify factors affecting the hedging decision of maize farmers in Gauteng, and hence their rate of adoption of hedging strategies. The study employed a number of methods in an effort to answer this question. Data analysis relating to factors affecting the hedging decision of the farmers was carried out using Excel and the SPSS statistical package and took the form of multiple cross tabulation. A Probit regression equation was estimated using the SPSS 20 statistical software package. In the case of the adoption rate of hedging by maize farmers in Gauteng, it was found that only 35 per cent of the maize farmers forward contract their maize against price risk. This implies that they are not protecting their income against price volatility through forward contracting. The results show that the factors that have the most influence on the decision whether to hedge are: the gender, age, and agricultural qualification of the principal decision maker; whether the decision maker is a member of a grain association and the size of that grain association; the length of period that the decision maker has been producing grain; the size of the farm; whether the farmer rents in land; the proportion of off-farm income earned and whether the farmer takes out insurance. These variables are all statistically significant at the 5 per cent level.

AFRIKAANSE OPSOMMING: Mielies is die belangrikste akkerbougewas in Suid-Afrika. Dit word gebruik vir beide dierevoere en menslike verbruik. Dit word ook in baie bedrywe as ’n inset gebruik, vorm ’n bron van buitelandse valuta en verskaf werksgeleenthede aan baie mense in die land. Dit is ’n belangrike komponent van die landbousektor, speel ’n belangrike rol in die ekonomie en verskaf geleenthede in terme van landboubelegging en werkskepping. Die mieliebedryf in Suid-Afrika het ’n lang geskiedenis van regeringsingryping waardeur die prys van mielies deur die regering, by name van die kantoor van die Minister van Landbou, vasgestel is. Dit is aangevuur deur twee Bemarkingswette (van 1937 en 1968). Gedurende die tydperk van hierdie wette is boere nie aan internasionale markte blootgestel nie. Met die aanvang van die Wet op die Bemarking van Landbouprodukte (Wet 47 van 1996) is boere aan internasionale mieliepryse blootgestel, m.a.w. aan die kragte van vraag en aanbod. Boere word nie meer aan die begin van die produksieseisoen ’n mielieprys gewaarborg nie, en moet nou ander maniere vind om hulle inkomste teen ’n onbestendige mielieprys te beskerm. Deur die koop van termynkontrakte op hulle mielies (verskansing) kan boere die prysrisiko’s wat hulle in die gesig staar, minimaliseer. ’n Aantal instrumente is ontwikkel om boere te help om hulleself teen prysrisiko te beskerm. In Suid-Afrika word SAFEX gebruik om die verwagte toekomstige prys van mielies te weerspieël en dit kan deur boere as ’n verwysing na die verwagte prys gebruik word. Verskeie faktore beïnvloed die verskansingsbesluite van boere. Die belangrikste doelwit van hierdie studie was om faktore te identifiseer wat die verskansingsbesluit van mielieboere in Gauteng beïnvloed, en dus die tempo waarteen hulle verskansingstrategieë in gebruik neem. Die studie het ’n aantal metodes gebruik in ’n poging om hierdie vraag te beantwoord. Data-analise m.b.t. die faktore wat die verskansingsbesluit van die boere beïnvloed, is met Excel en die SPSS statistiese pakket uitgevoer en het die vorm van meervoudige kruistabellering aangeneem. ’n Probitregressievergelyking is met behulp van SPSS 20 statistiese sagteware beraam. In die geval van die tempo van aanneming van verskansing deur mielieboere in Gauteng is daar gevind dat net 35 persent van die mielieboere termynkontrakte op hulle mielies gebruik om hulle teen prysrisiko te beskerm. Dit impliseer dat hulle nie hulle inkomste teen onbestendige pryse beskerm nie. Die resultate toon dat die faktore wat die grootste invloed het op die besluit om te verskans die volgende is: die geslag, ouderdom en landboukwalifikasie van die hoof besluitnemer; of die besluitnemer ’n lid van ’n graanvereniging is, en die grootte van dié graanvereniging; hoe lank die besluitnemer reeds graan produseer; die grootte van die plaas; of die boer grond inhuur; die proporsie van inkomste wat weg van die plaas af verdien word; en of die boer versekering uitneem. Hierdie veranderlikes is almal statisties betekenisvol by die 5 persent vlak.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/71750
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