Abstract

Despite increased concerns about the risk of price fluctuations and interest in using price risk management tools (PRMT) to reduce this risk, many Australian farmers lack the knowledge and access to information to adopt them. This study looked at the sources of information available to learn to use price risk management tools as well as experienced tool users’ assessments of different types of information sources. Overall the most useful information sources were newsletters followed by brokers/advisers, courses/seminars, faxes, farm management consultants and web sites. Reasons for the use of each varied. Newsletters and faxes were more popular to keep up with the market. Courses, brokers/advisers and newsletters were more popular when initially learning about PRMT and building up the confidence to use them. There was some variation between the different PRMT with greater emphasis on richer media such as courses/seminars and brokers/advisers for more complex tools.

Problem

Australia seldom influences international wheat prices and is a price taker because although Australia exports approximately 11–12% of the world’s traded wheat, it produces only 3% of world wheat production (Agriculture Western Australia 1998). For 50 years Australian wheat growers enjoyed the benefit of a government guarantee of a minimum price but industry deregulation exposed the risk of an unprotected fall in the wheat prices and greater price volatility (Wise 1991). This is illustrated in a marked increase in wheat price volatility since 1989 (Tiller 2000). To manage the risk of price fluctuations, many marketing organisations offer a range of different price risk tools such as futures, options, basis pool and forward contracts to farmers.

Adoption of price risk management tools by farmers has been slow with adoption of options and futures ranging from 1% to 13% (Table 1). Adoption of forward contracts has been higher ranging from 16% to 51%. However Tiller (2000) found the use of price risk management tools in the next five years was expected to be much higher especially for options (46%), futures (37%) and the AWB basis pool (29%).

Table 1. Price risk management tool adoption

Price Risk Management Tool	TQA Research (1997) - Australia	Lubulwa, Lim-Applegate & Martin (1997) - Australia	Tiller (2000) Current year - West Australia	Tiller (2000) Last 5 years - West Australia	Tiller (2000) Next 5 years – West Australia
Forward Contracts	33%	25%	16%	51%	57%
Futures & Options	1%	4%
Options			5%	13%	46%
Futures			1%	6%	37%
Basis Pool			6%	0%	29%

Tiller (2000) and Roe (1998) both found that the slow adoption of PRMT was related to a lack of knowledge and understanding about them. In Roe’s study (1998 p44), most growers (67%) stated that they had poor knowledge of wool price risk management tools, with a third (33%) having an average knowledge. Tiller (2000) found that a lack of information was the main reason given by farmers for not using futures (47%) and options (43%) as price risk management tools. Neither Roe nor Tiller looked closely at the issue of information used by farmers in using price risk management tools. The purpose of this research was to do so, to assist industry provide information needed for farmers to achieve the expected price risk tool adoption.

The privatisation of extension has made it more difficult for farmers to find the information they need to learn about these tools as there have been many more potential information sources developed by private businesses (Marsh & Pannell 1998). This has made the traditional Agriculture Departments and Statutory Marketing Authorities role of advice on the range and relevance of these information sources much more difficult.

Therefore this research was initiated to explore:

• What information sources were available to learn about and use price risk management tools
• What criteria farmers used in evaluating different information sources
• What information sources about price risk management tools were considered most useful by farmers and why

Methodology

The first part of this research involved identifying how many different sources of information about price risk management tools (PRMT) were available for farmers and the criteria used to evaluate information sources. This was achieved by talking with experts in the industry using snowball sampling where each was asked to recommend others who could help further (Malhotra, Shaw & Crisp 1996). An extensive search of the Internet and libraries also led to the discovery of different products and sources of information available to farmers. A brief summary was written about each information source and then categorised into: Websites, seminars/courses, newsletters, magazines/newspapers, faxes, advice/face to face contact and books.

The second step was a focus group to explore the range of issues of concern (Malhotra, Shaw & Crisp 1996). Seven Kondinin Group members (four farmers, a banker, an accountant and a farm consultant) discussed a broad range of issues about PRMT and prioritised the set of criteria farmers used when selecting an information source about PRMT.

The final step was a survey faxed to Kondinin Group and Profarmer members (farmer information service providers) to determine farmers’ evaluation and ratings for specific information sources against set criteria. This sample frame while not necessarily being representative of the population as a whole (Australian farmers), was readily available and consisted of farmers with a greater potential interest in participating in this type of survey. The 171 who responded were generally younger and better educated than the population as a whole and had a much higher usage of price risk management tools. The response by experienced PRMT users was expected and necessary to provide the evaluation of information sources for different tools at different adoption stages. Therefore, while the results cannot be generalised to the population as a whole, the results have been presented to provide a discussion point for those working in this area.

Information source evaluation

One research objective was to determine farmers’ evaluation of the sources of information. The survey asked farmers to select the most useful source of information and rate it using a Likert type scale (ranging from 1 very poor to 7 being very good). Based on a literature review, expert interviews and the focus group, evaluation criteria were cost, readability, relevance, balance view, depth of content, range of content, presentation, ease of access, ease of use, timeliness, accuracy, feedback, and back up service.

Overall the most useful information sources were newsletters followed by brokers/advisers, courses/seminars, faxes, farm management consultants and web sites (Table 1). These findings were consistent with McKinnon’s (1993) findings that the media, consultants, Agfacts and to a lesser extent field days were the main information sources used by farmers. Similarly Roe’s study (1998 p46) found that most growers (67%) said information and advice on PRMT was available from wool buyers and journals. Roe (1998) also found that wool growers were aware of stock firms and agricultural consultants as sources of information but only 15% of respondents mentioned commodity advisers.

Table 1. Number and percentage of ‘most useful’ information sources evaluated

Information Source	Count	%
Newsletter	75	44
Broker /Adviser	42	25
Course/Seminar	28	16
Fax	28	16
Farm Management Consultant	23	13
Web-site	23	13
Other	15	9
Newspaper	9	5
E-mail	5	3
Bank	5	3
Magazine	2	1
Radio	2	1

Table 2. Highest ranking criteria for selected ‘most useful’ information sources

Source	1st Criteria	2nd Criteria	3rd Criteria
Newsletter	Readability (5.68)	Presentation & Accessibility (5.60)	Accuracy (5.52)
Broker /Adviser	Accessibility (5.81)	Back up service (5.69)	= Content Range & Timeliness (5.67)
Course/Seminar	Accuracy (6.36)	Presentation (6.32)	Depth of content (6.29)
Fax	Ease of use (6.07)	Timeliness (5.96)	Accessibility (5.93)
Farm Consultant	Readability (5.61)	Relevance & Balance (5.48))	Back up service (5.30)
Web-site	Timeliness (5.74)	Accessibility (5.57)	Cost & Readability (5.52)

Most of respondents (44%) said that newsletters were the most useful source of information (Table 1). The criteria that ranked the highest for newsletters were their readability, presentation, accessibility and accuracy (Table 2). Some of the reasons cited included: because it is the best and most widely researched information, concise, up to date, credible, independent, timely, well written, and reliable. Other comments included “it comes automatically”, “information is credible”, “easy to find information I require”, and “market and price information and trends”.

A quarter of respondents (25%) said brokers/ advisers were most useful source of information because of their accessibility, back up service, content of information and timeliness, expertise and experience. Comments included they had a “finger on the pulse of the market”, “personal advice”, “knowledge and trust”, “experience”, “best available information immediately”, “always available, good knowledge and rapport”, and “helps with decision making”.

Training courses and seminars received a 16% response rate. Training courses and seminars were seen to be accurate, well presented and provided a greater depth of content as well as being better for learning and understanding price risk management tools and being more hands-on. They were also said to be useful because participants could work out real examples and not just read them. The ability to “learn more about the subject” and to “gain a better understanding than I otherwise would” was seen to be important aspect of training courses and seminars. One farmer commented on the increase in confidence after attending training courses.

Faxes also received a 16% response rate. Faxes were similar to newsletters as they were easy to use, timely and accessible as well as accurate and cheap. Comments about faxes included being “frequent, timely, easy to read and brief”, “one page and straight forward”, “easy as it arrived automatically on my fax”, “factual, concise and easy to read”, “an additional viewpoint”.

Other sources of information that were chosen by respondents to be the most useful for building confidence were farm management consultants (13%) and web-sites (13%). Farm management consultants were perceived to provide information that was easy to read, relevant and balanced as well as proving back up service. Comments included farm management consultants gave “independent information and advice, offered courses, were ‘down to earth’ and knew the farmers’ needs”. Web-sites were perceived to be timely, accessible, low cost and had good readability. Web-sites were seen to be useful because information was available and updated everyday, it was instant and there were no middlemen interpreting. Web-sites were also useful because farmers could follow daily trends in the US markets.

Information sources used by different adoption stages and product complexity

Following the adoption literature (eg Rogers 1983, Mortiss 1993), it was expected that farmers with different learning requirements would use different information sources. There would be sources that were especially useful for initially learning about the tools, likewise there would be other sources that would be more appropriate for keeping up with the market and building confidence to put the tools into practice.

Consequently stages of the learning process were categorised into:

• Initially learning about the tools;
• Keeping up with the market; and
• Building confidence to put tools into practice.

Another factor that affected the information source used was the current level of understanding about PRMT that the farmer had. For example, farmers that have a basic understanding of the tools would select different sources of information to farmers that have a very good understanding of PRMT. The rational being that the varying complexity of the product would influence adoption rates (Rogers 1983) and therefore the type of information used (Richards 1985).

Information sources for initially learning about price risk management tools

Training courses and seminars were the most used source of information for first learning about futures (70%) and options (65%) (see Figure 1). For initially learning about forward contracts, over half (56%) chose newsletters as well as courses/seminars (54%). Newsletters were also used by half (50%) of respondents to initially learn about the AWB Basis Pool. Futures advisers/brokers were the second most used source of information for futures (42%) and options (38%) followed closely by newsletters.

Figure 1. Information sources used when initially learning about PRMT

Richards (1985) suggested people become aware of new ideas (such as PRMT) through mass media and evaluate it through the advice of family and friends. Therefore it may be that initial awareness would be raised through newspapers and newsletters with further learning gained through training courses and seminars due to their complexity. Transfer of tacit knowledge about how and when to use complex tools require the use of rich media such as face to face meetings or seminars/training courses with advisers (Daft and Lengel 1986; Cliffe 1998). Farmers can get instant feedback from a presenter or the person sitting next to them as well as multiple cues such as voice inflections and body gestures (Daft and Lengel 1986; Cliffe 1998).

Information sources for monitoring the market

When it came to monitoring the market, farmers who had forward contracts simply keep an eye on market prices by reading the newspaper (Figure 2). With futures, options and the AWB Basis Pool, farmers keep up with the market with newsletters and faxes as well through brokers/advisers and Websites. The Profarmer newsletter was the most used newsletter by farmers because it was seen to be easy to understand and read as well as being accurate and timely.

The use of newspapers was consistent with findings from Tiller’s survey of 100 WA farmers (2000 p147). However, Tiller’s lower response for faxes and newsletters (eg 24-31% AWB Grain Marketer & Profarmer compared to our 40-55%) may be explained by the bias in the sample frame to Profarmer subscribers in this research. Tiller’s lower response for marketing information from the Internet (15% compared to our 20-30%) may be explained by the passage of time, better Internet connections in the east of Australia as well as the younger and better educated sample.

Figure 2. Information sources used when keeping up with the market

Information sources for building confidence to put price risk management tools into practice

Across the board training courses/seminars and brokers/advisers were the most used source of information when building confidence to put the tools into practice (Figure 3). Newsletters, faxes and farm management consultants also rated highly as sources used for building confidence to put price risk management tools into practice.

Farmers prefer learning about content specific to their needs using a participatory approaches and flexible delivery (Bamberry, Dunn & Lamont 1997) and it may be that courses/seminars and brokers/advisers provide this better than other information sources. They would also meet farmers’ preference for learning directly from people (Bamberry, Dunn & Lamont 1997; Kilpatrick, Johns, Murray-Prior & Hart 1999)

Figure 3. Information sources used when building confidence to put into practice

Information sources that were used to build confidence and put tools into practice again varied with the type of tool being used. Since forward contracts were simple to understand, farmers used faxes and newsletters. Training courses/seminars and advisers/brokers were needed by farmers to build confidence to put futures and options into practice. Again this was perhaps because of their complex nature requiring more in-depth learning.

Conclusions

The call is often heard from farmers that they want more information. To those that can provide the information, the question is how should it be disseminated. This study of farmers who had experience in price risk management tools (PRMT) sought to explore some answers to this question.

Overall the most useful information sources were newsletters followed by brokers/advisers, courses/seminars, faxes, farm management consultants and web sites. Reasons for the use of each varied and important issues included accuracy, presentation, depth of content, ease of use, readability, accessibility, timeliness, cost and relevance.

Information sources used to keep up with the market were different from those used to initially learn about and gain confidence in using PRMT. More growers kept up with the market when using futures, options and the basis pool and preferred to use newsletters and faxes to do so.

Information sources used when initially learning about PRMT and building confidence to use them were similar with courses, brokers/advisers and newsletters the most popular. There was some variation between the different PRMT. Newsletters were more popular for initially learning about and building confidence to use forward contracts. By comparison courses/seminars were used more to initially learn about futures and options. In addition, brokers/advisers and courses were more popular to build confidence to use futures and options. The difference may be due to the greater complexity of futures and options requiring the use of ‘richer’ media to transfer tacit knowledge.

It is hoped that these results provide some insights into the different information dissemination media that may be appropriate in different PRMT learning stages and the assessment criteria farmers use. An avenue for further research would be to determine if these results can be generalised for all farmers and in a wider range of product/service categories as these results were based on a sample of farmers that did not necessarily represent the population of farmers as a whole.

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