Dairy Farmers' Valuation of Cooperative Market Security

This paper presents a methodology for quantifying the value of market security to an individual farmer. The income distribution associated with belonging to a cooperative is considered to have a lower variance than when selling to a proprietary handler. A farmer makes the choice between the cooperative and the proprietary handler based on individual risk preference. The amount a risk-averse farmer is willing to accept as compensation for facing a more risky distribution was calculated by employing Meyer’s technique for choosing between two stochastic functions. Several simulations were presented to demonstrate the magnitude and sensitivity of the measure