Wool Industry Stakeholder Opinions on the Pros and Cons of Forward Contracts

It has been suggested in the literature that forward selling is one method available to farmers to reduce price risk and stabilise income. If this is the case, why do 85 per cent of producers continue to sell their wool on the highly volatile, open-cry auction system despite being aware of increases in wool auction price fluctuations? This research is a qualitative analysis that reports on, from wool industry stakeholders perspective, the low adoption of price-risk management strategies; despite the presence of high price variability and risk aversion. Focus groups were conducted in Western Australia to gather the opinions of wool industry stakeholders to assess why forward selling, despite its advantages, is eclipsed by the auction system. Results suggest that income stabilisation and price risk management were the two major \'pros\' of the forward contract method of selling raw wool although these were strongly overshadowed by the list of \'cons\': pricing, complexity, dominance of the auction system and production risks.