Risk management portfolios in New Zealand dairy farming : a dissertation presented in partial fulfilment of the requirements for the degree of PhD in Agribusiness at Massey University, Manawatu, New Zealand

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Massey University
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New Zealand’s dairy farming sector has changed dramatically over the last two decades. As a result of growth in global demand, dairy farms have become more intensive in production, more capital-intensive and have more debt. These changes increase the vulnerability of the dairy farmers to risks and uncertainties arising from various sources such as input prices, output prices, climatic conditions, and policy changes. In response to these uncertainties, dairy farmers utilise various sets of risk management strategies, henceforth known as portfolios of risk management strategies. Previous studies have created a solid foundation for understanding dairy farms’ responses to risk. In particular, they found that debt management and planning for capital spending are the two most important risk management strategies for New Zealand dairy farmers. However, little is known about what entails debt management and planning for capital spending from farmers’ perspective. Hence, little is known about the diversity of risk management portfolios that New Zealand dairy farmers utilise to manage risks. By extending the definition of portfolio of risk management strategies into the financial risk management space, this study was one of the first studies that provides a synthesis of farm business risk management and farm financial risk management through the perspective of a risk management portfolio. Six portfolios of risk management strategies were identified, each of which has a different mix of risk management strategies and implications for the overall business strategy. The results also showed that a range of farm and farmers characteristics shape NZ dairy farmers’ portfolio of risk management strategies. The range and complexity of financial management strategies identified in this study suggest that traditional financial management literature can benefit from insights gained from the empirical studies. The results provided the industry people such as rural consultants, policy makers, and banking sector much-needed insights into the risk management portfolios used by dairy farmers.
Dairy farming, Risk management, Financial risk management, New Zealand, debt management, liquidity management