Forward Trading as Strategy for Farmers in South Africa to Mitigate the Risks associated with Climate Change

Abstract

It is widely acknowledged that the ongoing changes in climatic conditions will have an adverse effect on agricultural production in Africa. This also holds for South Africa, where the country’s food supply is heavily dependent on farming. With the current climate changes, sustainable food production is affected. Forward trading is a strategy used in various industries to hedge against risk. The problem of this study therefore relates to whether forward trading can be used as a possible strategy to minimise risk and protect farmers’ income in the agriculture sector of South Africa. The methodology used within this study was a qualitative case study design investigating the use of forward trading in the agricultural sector in South Africa. Data was collected by a set of semi-structured interviews with farmers in the Western Cape. It was found that climate change does impact on farming in South Africa through changing weather patterns and the unpredictability of rainfall. It was also found that forward trading can be used as a strategy to hedge against the risks associated with climate change. However, forward trading as strategy was found to be more applicable to larger farms.