Risk Aversion, Risk Preference and Farmers’ Decision to Participate in Broiler Contract Farming: A Case Study in Jember, Indonesia

Abstract

The demand for broiler is rising rapidly due to its capability as the main animal protein source. In contrast, the production of broiler meat is unstable due to the possibility of farm risk. Contract Farming (CF) is one of the risk management tools for farmers but has not been used effectively. The purpose of this study was to analyze the factors that influence farmers’ decision to participate in CF. The analysis used six independent variables, namely farmer’s age, farm size, household size, education, farmer’s risk preference and risk aversion level. This study used primary data from 70 broiler farmers in Jember, which were divided into two groups, contract farmer and independent farmer. Each group had the same number of respondents. The results show that five among six independent variables significantly affected farmers’ decision to take part in CF. Farmer’s age decreased farmer’s probability to participate in CF, while education, farm size, household size and risk preference had positive effects. Farmer’s risk aversion level did not have any significant effect. The results suggest that the effort to expand CF participation should focus on young and educated farmers with large farm size.