Behavioural determinants of the adoption of Financial Price Risk Management Tools by wheat ...

382 Pages·2016·3.03 MB·English

University of Reading
School of Agriculture, Policy & Development

Behavioural determinants of the adoption of Financial Price
Risk Management Tools by wheat farmers in England

Jeremy Michael Gregory Cole

This thesis is presented for the Degree of
Doctor of Philosophy

February 2014
‘Declaration

I confirm that this is my own work and the use of all material from other sources has been
properly and fully acknowledged’

…………………………………..

Jeremy Michael Gregory Cole

February 2014

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Abstract

Wheat farmers in England have little experience of Financial Price Risk Management
(FPRM) strategies to stabilize income. On-farm advice and research is limited and adoption
rates remain slow. Selling crops at prevailing market prices exposes farmers to volatile price
movements that have increased in recent years. This research examines the behavioural
intentions towards adoption of FPRM using a mixed method approach combining
interviews, focus groups and a survey of 2273 farmers in England. Interviews and focus
groups informed the national questionnaire which was based on the Theory of Planned
Behaviour (TPB). Of the 802 responses there were 673 usable, giving a response rate of
29.6%. Constructs in the TPB model of attitude, social norm and perceived behavioural
control were decomposed into sub-constructs and farmer specific data was collected. The
results showed that whilst farmers were aware and concerned about volatility few had used
FPRM tools. All three major constructs of TPB were significant as were the decomposed
sub-constructs except risk and academic advice. Some Internal Farm Factors were also
significant predictors of intention to adopt; age, education, size of arable area and whether
the respondent had children. To provide further inference factor and cluster analyses were
conducted and provided four categories of farmers (Strategic strategists, Passive strategists,
Weakly insular, Strongly insular) each with distinctive characteristics and behavioural
intent. This study has contributed to the literature by confirming the significance of the three
major constructs of TPB as well as the sub-constructs. Post-hoc analysis contributes as it
shows how such data can be further used in explaining behaviour. The study has contributed
to agriculture in general by confirming farmers’ perceptions of volatility and negative
attitudes towards the grain trade, in particular merchants. It also provides evidence to
effectively target resources to increase adoption rates.

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Acknowledgements

This thesis could not have been written without the support and help of many people. I
would like to especially thank the following people and institutions for their help over the
past five years.

My supervisors, Professor Richard Bennett and Mr Richard Tranter, for guiding me through
both the concepts and technicalities of this research project and dragging a 30 year out of
date academic mind screaming into the 21st century.

Professor N. Wareham, Dr. S. Horrell and Dr. M. Vaudin, for initially encouraging my PhD
proposal, without whom this journey of discovery would not have begun. Joanna my then
long-suffering partner for foregoing her free time while I studied. Thanks to the members of
my staff at work for covering for me in my many hours of commuting between Cambridge
and Reading. Dr C. Yates for advice concerning TPB questionnaire construction and Teresa
Hicks for administrating the questionnaire replies. A special thank you to all in-depth
interview and Focus Groups participants, questionnaire triallists and respondents for their
time and enthusiasm. Thanks to the HGCA/AHDB for part-funding this research, the use of
their national database and mailing the questionnaire.

Sally Ward for assisting with the focus groups and Hannah Kershaw for helping with
questionnaire data entry and diagrams. Jack Watts at the HGCA for market research, Sam
Tyler at the University of Reading library for his reference detective work and other library
staff, especially Tim Chapman, for EndNote help. Members of Cambridge University Maths
department, University of Reading ITS department, various individuals with practical SPSS
suggestions.

I am extremely appreciative of friends and family that have helped in some positive way by
providing their time, information and moral support to encourage and convince me at times
that I could fulfil this life long goal of mine.

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1! UK$WHEAT$MARKET$HISTORY$ 20!
1.1! RESEARCH!AIMS!AND!OBJECTIVES! 25!
1.2! AN!OVERVIEW!OF!THE!THEORETICAL!BACKGROUND! 27!
1.3! OUTCOME! 29!
2! OVERVIEW$OF$WHEAT$PRODUCTION,$MARKETING$AND$RISK$IN$ENGLAND$ 30!
INTRODUCTION! 30!
2.1! OVERVIEW!OF!THE!WHEAT!MARKET!IN!ENGLAND! 30!
2.1.1! The'world'wheat'market' 30!
2.1.2! An'overview'of'the'wheat'industry'in'England' 33!
2.1.3! Price'volatility'in'the'English'wheat'market' 39!
2.2! FACTORS!AFFECTING!WHEAT!PRICES,!VOLATILITY!AND!RISK! 40!
2.2.1! External'factors' 40!
2.2.2! Internal'factors'that'mitigate'the'effects'of'price'volatility'and'risk' 60!
2.3! FARMERS’!ATTITUDE!TO!RISK! 65!
2.3.1! Attitudes,'values,'goals'and'behaviour.' 65!
2.3.2! Attitude,'risk'and'risk'management'strategies' 69!
2.3.3! Attitudes'towards'new'‘technology’'adoption' 76!
2.4! UK!WHEAT!SELLING!METHODS! 79!
2.4.1! Introduction' 79!
2.4.2! Spot'Sales' 80!
2.4.3! Forward'sales' 81!
2.4.4! Futures'and'Options' 86!
2.4.5! Pools' 89!
2.4.6! Other'contracts' 90!
3! FUTURES$AND$OPTIONS$ 92!
3.1! BACKGROUND! 92!
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3.2! FUTURES!CONTRACTS! 94!
3.3! OPTION!CONTRACTS! 96!
3.4! FUTURES!AND!OPTIONS!IN!PRACTICE!IN!ENGLAND! 97!
3.4.1! Exchange'traded'futures' 99!
3.4.2! Exchange'traded'options:' 99!
3.4.3! Merchant'‘futures’' 104!
3.4.4! Merchant'‘options’' 104!
3.5! FUTURES!AND!OPTION!USE!IN!BY!FARMERS!IN!ENGLAND! 106!
3.6! SUMMARY! 106!
4! THEORETICAL$BACKGROUND$AND$REVIEW$OF$STUDIES$ 107!
4.1! THEORETICAL!BACKGROUND! 107!
4.1.1! Theory'of'Reasoned'Action' 108!
4.1.2! Theory'of'Planned'Behaviour'(TPB)' 113!
4.1.3! Diffusion'of'Innovations' 120!
4.1.4! Decomposed'TRB' 126!
4.2! REVIEW!OF!EMPIRICAL!STUDIES! 129!
4.2.1! Theory'of'Reasoned'Action' 129!
4.2.2! Theory'of'Planned'Behaviour' 131!
4.2.3! Diffusion'of'innovations' 134!
4.2.4! Decomposed'TPB'(DTPB)' 139!
4.3! SUMMARY! 140!
5! RESEARCH$QUESTIONS,$OBJECTIVES$AND$METHODOLOGY$ 142!
5.1! INTRODUCTION! 142!
5.2! RESEARCH!QUESTIONS!AND!PRELIMINARY!MODEL! 142!
5.2.1! Research'questions' 142!
5.2.2! Research'objectives' 142!
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5.2.3! The'preliminary'research'model' 143!
5.3! RESEARCH!METHODOLOGY!AND!DESIGN! 144!
5.3.1! Introduction' 144!
5.3.2! Research'methodology' 144!
5.3.3! Research'process' 147!
5.4! SUMMARY! 149!
6! QUALITATIVE$FIELD$STUDY$ANALYSIS$AND$RESEARCH$MODEL$ 150!
6.1! INTRODUCTION! 150!
6.1.1! InXdepth'interviews' 150!
6.1.2! Focus'Groups' 153!
6.2! RESEARCH!MODEL! 156!
6.2.1! Factor'relationships' 164!
6.3! CONCLUSION! 171!
7! HYPOTHESIS$AND$NATIONAL$QUESTIONNAIRE$DEVELOPMENT$ 173!
7.1! HYPOTHESES!DEVELOPMENT! 173!
7.1.1! Hypothesis'1''X'Attitude'hypothesis' 173!
7.1.2! Hypothesis'2'X'PBC'hypothesis' 173!
7.1.3! Hypothesis'3'X'SN'hypothesis' 174!
7.1.4! Hypothesis'4'X'Interactive'hypothesis' 174!
7.2! NATIONAL!QUESTIONNAIRE!DEVELOPMENT! 174!
7.2.1! Developing'the'questionnaire' 174!
7.2.2! National'survey' 177!
7.3! SUMMARY! 184!
8! DATA$ANALYSIS$ 185!
8.1! INTRODUCTION! 185!
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8.1.1! Response'rate' 185!
8.2! DESCRIPTIVE!STATISTICS! 186!
8.2.1! Gender' 186!
8.2.2! Age' 186!
8.2.3! Principal'farm'location' 187!
8.2.4! Children'in'family' 188!
8.2.5! Successor'to'business'identified' 188!
8.2.6! Position'in'the'family'business' 188!
8.2.7! Years'in'the'business' 189!
8.2.8! Level'of'education' 189!
8.2.9! Cropped'arable'area' 189!
8.2.10! Farm'business'type' 190!
8.2.11! Area'of'wheat'grown' 190!
8.2.12! Tonnage'of'wheat'produced' 191!
8.2.13! Category'of'wheat'grown' 191!
8.2.14! Proportion'of'annual'farm'income'from'the'sale'of'wheat' 192!
8.3! CURRENT!BEHAVIOUR! 192!
8.3.1! Which'members'of'the'‘grain'trade’'are'used'to'market'wheat?' 192!
8.3.2! Attitudes'towards'the'advice'given/feelings'about'the'grain'trade' 193!
8.3.3! Use'of'hedging'tools,'futures'and'options,'when'marketing'wheat' 194!
8.3.4! How'do'you'set'a'price'for'your'wheat'to'achieve'an'acceptable'return?' 195!
8.3.5! How'many'times'per'year,'over'the'past'five'years'was'each'marketing'method'used?
' 196!
8.3.6! Importance'of'wheat'production'to'the'farm'business' 197!
8.3.7! Farmers’'attitudes'towards'marketing'of'the'wheat'crop' 197!
8.4! RELIABILITY!ANALYSIS! 198!
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8.5! TPB!ANALYSIS! 199!
8.5.1! Exploring'differences'between'TPB'constructs'and'IFFs' 200!
8.5.2! Exploring'the'relationships'between'variables' 230!
8.5.3! Prediction'of'Intent'using'GLM' 233!
8.5.4! Conclusion' 245!
8.6! FACTOR!ANALYSIS! 246!
8.6.1! Introduction' 246!
8.6.2! Analysis'of'data,'SPSS20' 249!
8.6.3! Building'a'model'using'new'FA'factors' 263!
8.7! CLUSTER!ANALYSIS! 265!
8.7.1! Introduction' 265!
8.7.2! Analysis'and'results' 266!
8.8! SUMMARY! 274!
9! DISCUSSION$AND$CONCLUSION$ 276!
9.1! INTRODUCTION! 276!
9.2! SUMMARY!OF!RESEARCH! 276!
9.3! CONTRIBUTIONS! 277!
9.3.1! To'the'literature' 277!
9.3.2! Agribusiness'in'England' 281!
9.4! RESEARCH!LIMITATIONS! 284!
9.5! FUTURE!RESEARCH! 285!
9.6! SUMMARY! 286!
10! BIBLIOGRAPHY$ 288!
11! APPENDICES$ 331!
11.1! APPENDIX!1.!THE!FOUR!LARGEST!GRAIN!TRADING!BUSINESSES!IN!ENGLAND! 331!
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11.2! APPENDIX!2.!INHDEPTH!INTERVIEW!QUESTIONNAIRE! 334!
11.3! APPENDIX!3.!WORD!ASSOCIATION!RESPONSES!FOR!INHDEPTH!INTERVIEWS!H!FARMERS! 337!
11.4! APPENDIX!4.!WORD!ASSOCIATION!RESPONSES!FOR!INHDEPTH!INTERVIEWS!H!GRAIN!TRADE! 340!
11.5! APPENDIX!5.!!FOCUS!GROUP!QUESTIONNAIRE!RESPONSES! 342!
11.6! APPENDIX!6.!WORD!ASSOCIATION!RESPONSES!FOR!H!FOCUS!GROUPS! 345!
11.7! APPENDIX!7.!FOCUS!GROUP!DISCUSSION!WRITE!UP! 346!
11.8! APPENDIX!8.!EXAMPLE!OF!THE!NATIONAL!QUESTIONNAIRE;!THE!COVERING!LETTER!AND!
INFORMATION!SHEET;!AND!THE!REMINDER!LETTER! 367!
11.9! APPENDIX!9.!THE!INDIVIDUAL!COMPONENTS!OF!ATT,!SN!AND!PBC! 378!
11.10.! APPENDIX!10.!INHDEPTH!RESPONSES!FROM!FARMERS,!GRAIN!TRADE!AND!LAND!AGENTS.! 382!
ON!A!CD.! 382!

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