Western Safflower Contracting Strategies

Abstract

Safflower grown in the western U.S. is often produced for birdseed mixes. Increasing demand for birdseed products, combined with regional drought, has shrunk western safflower availability. To satisfy the growing demand, processors may look to contracting strategies to incentivize production. We compare expected risk and corresponding certainty equivalents both from the processor and producer viewpoints under various contracting mechanisms and risk aversion levels. Results suggest that contracts containing a combination of lump sum acreage payments and fixed price performance payments would incentivize producer adoption of safflower while maintaining processor profitability and limiting the risk exposure of both parties.