A Portfolio Approach to Cooperative Price Risk Management

Agricultural producers face significant price risk. For some products, farmers may hedge this risk in well-functioning futures markets. For several products, however, no such risk management instrument is readily available. We suggest that farmers reduce price risk by organizing cooperatives where members diversify by creating "accounting" portfolios. The approach is illustrated with data from the Dutch flower market, and some practical problems connected to such cooperative risk pooling in agriculture are addressed.