Does risk preference influence farm level adaptation strategies? – Survey evidence from Denmark

Abstract

Farmers’ decisions to adopt new technology or measures for agricultural production processes are crucial for adapting to climate change. Meanwhile, risk preference has received great attention over the years in agriculture-related studies as it has been identified as a strong driver for agricultural production decisions. However, empirical studies on the relationship between farmers' risk preferences and adaptation choices in response to climate change remain scant. The present study, utilizing data from a farmer survey in Denmark, aims to examine farmer risk attitude and determine to what extent it influences crop choice decisions, such as crop changes, as an important part of farm level adaptation strategies. Applying a logit regression method, our study finds that: (1) the majority of farmers in the survey were identified as risk tolerant; (2) several demographic and socio-economic factors, such as work experience and farmland tenure were significantly related with farmer risk preference; (3) actual adoption of the majority of farm level adaptation strategies through crop changes and management was found to be significantly less likely for risk averse farmers compared to risk tolerant farmers. Therefore, policy development to promote successful adaptation measures in the agricultural sector should take into account farmers' risk preferences. To this end, risk averse farmers may need better targeting strategies. Future studies could further investigate the role of farmers' risk preferences on the adoption of a wider range of climate change adaptation and mitigation measures and technologies.