The pricing of community supported agriculture shares: evidence from New England
Abstract
Purpose
Community supported agriculture (CSA) programs allow consumers to buy a share of a farm’s production while providing working capital and risk management benefits for farmers. Several different types of CSA arrangements have emerged in the market with terms varying in the degree to which consumers share in the farm’s risk. No-arbitrage principles of futures and options pricing suggest that CSA shares should be priced to reflect the degree of risk transfer. The paper aims to discuss these issues.
Design/methodology/approach
The authors evaluate the three most common share types using a cross-sectional data set of 226 CSA farms from New England to determine if there is empirical evidence in support of the theoretical price relationship between share types.
Findings
The degree of risk transfer from farmers to consumers has a significant effect on the share price. There are statistically significant returns to scale and higher prices for organics. Farm characteristics and product offerings predict which type of shares is offered for sale.
Research limitations/implications
The data set does not contain information pertaining to actual deliveries, expected deliveries, variance of expected deliveries, or covariance information; thus differences in share prices could be due to differences in these uncontrolled factors.
Originality/value
This paper provides empirical evidence that CSA share prices reflect the degree of risk transferred from the producer to the consumer. It also highlights challenges in conducting empirical work pertaining to CSA contracting.
Keywords
Acknowledgements
JEL Classification—Q13, Q14
The authors would like to thank the editor, Calum Turvey, and Brian Roe, Joseph Cooper, and Charles Moss for their insightful comments and suggestions on earlier drafts of this work. The authors would also like to thank the participants of the SCC-76 Economics and Management of Risk in Agriculture and Natural Resources annual meetings, the Agricultural Finance and Management sessions of the 2014 AAEA annual meetings, and the AAEA sessions of the 2015 ASSA annual meetings. Dr Sproul is grateful for financial support from USDA National Institute of Food and Agriculture Hatch Project No. RI00H-108, Accession No. 229284 and USDA ERS Cooperative Research Agreement No. 58-3000-2-0063. Dr Kropp is grateful for financial support from USDA National Institute of Food and Agriculture, Multistate Research Coordination, Southern Region Accession No. 1006135. An earlier version of this paper was presented in the Finance Section of the 2014 annual meeting of the Agricultural and Applied Economics Association, Minneapolis Minnesota, July 27-29.
Citation
Sproul, T.W., Kropp, J.D. and Barr, K.D. (2015), "The pricing of community supported agriculture shares: evidence from New England", Agricultural Finance Review, Vol. 75 No. 3, pp. 313-329. https://doi.org/10.1108/AFR-04-2015-0020
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited