Risk Management Research On Agricultural Supply Chain Through Option Contracts

As the basic guarantee for human’s survival and development, the agricultural supply chain not only have some prominent characteristics, such as seasonal production and harvest, regional storage and transportation, scattered sales and consumption, but also have some disadvantages in its complicated members who are easily influenced by most risk factors. Agricultural supply chain management in our country is still in the infancy, for members in supply chain have different lever, the infrastructure is weak and brittle, the intermediate links are in messy, and the coordination mechanism is bad. These poor disadvantages give rise to the low efficiency of the agricultural supply chain, even increased the uncertainties like the imbalance between supply and demand, the blocked logistical channels, asymmetry information, etc. All these seriously restrict the agricultural modernization in China.Research on the risk management for agricultural supply chain is appearing. Both the natural disaster risk and the man-made risk factors have been taken into consideration in this dissertation. Option contract is an effective risk management tool, which can improve trading flexibility and cooperation depth. In option model, option buyer can get flexible order quantity by paying some premium while option seller obtain certain production fund accordingly, which is valid for people to reduce default behavior, deepen cooperation and promote the stability of agricultural supply chain.Option contract has been employed to improve the navel orange supply chain of Zigui county in this paper based on summarizing the previous literature and research. Firstly, the two-stage option model has been built and the optimal order strategies have then been discussed comprehensively considering the loss, which can bring better effects of the cooperation. Secondly, a supplementary option decision model has been established to enhance the application of option model. for the further study. By applying the theory of value at risk, it is concluded that the supplementary option decision model can work well for the best option quantity and best supplementary quantity. At the same time, risk factors between farming cooperative and agricultural company are discussed respectively in this paper. Four risk control methods including planting risk, pricing risk, default risk, finance risk are formulated. Finally, numerical analysis has been established, and some suggestions on the development of navel orange option in Zigui county has also been given.In this dissertation, option contract and agricultural product characteristic are considered in combination effectively in this paper. Based on that option ordering strategy, risk control strategy, policy recommendation, and numerical analysis all are widely studied for agricultural supply chain optimization, which will help to overcome the disadvantages of existing order agriculture in our country, and promote the construction of agriculture option market.