RISK PREFERENCES OF KWAZULU-NATAL COMMERCIAL SUGAR CANE FARMERS / RISIKOVOORKEURE KOMMERSIËLE SUIKERBOERE IN VAN KWAZULU-NATAL

Abstract

A direct elicitation of utility approach is used to measure risk preferences of commercial sugar cane farmers in the Mzimkulu, Sezela and Eston sugarmill areas of KwaZulu-Natal. Arrow-Pratt absolute risk aversion coefficients are elicited, adjusted for both range and scale of the data, to allow both inter and intra study comparisons of risk preferences. Of 53 farmers surveyed, two refused to participate in lottery games for religious or moral reasons. Of the remainder 57.2 percent were risk averse, 29.6 percent risk neutral and 13.2 percent risk preferring. On average they were risk averse although risk preferences vary significantly amongst individuals. Regression analysis indicates that on average sugar cane farmers are averse to a possible loss in wealth relative to initial wealth and they exhibit increasing absolute risk aversion although at a decreasing rate with increasing gamble range.

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