Farmers are naturally reluctant to take risks, so I would assume that it would have a paralysing effect on public policies.

In my opinion, farmer's perception towards various risks would be important because perceptions would tell how would farmers respond to certain policy change. Like for example, in a locality farmers perceives market risk as a most important one (based on their subjective probability of the occurrence of an adverse event) and the policy change was focused on dealing with production side risks, in that scenario I think farmers will respond differently depending upon their characteristics. I am not sure about the nature of response but I believe it would possibly be a different response than that of the situation when they would have perceived production risk as most important. 

P.S. I am working on a similar kind of project too. Please correct me if I am wrong.

Although much theoretical research on risk in agriculture and its management has been done, useful practical insight for policymakers, advisers, and developers and sellers of risk management strategies is generally very limited.

A interesting study against this background is Meuwissen, Huirne, and Hardaker (2001).  The authors collected survey data relating to farmers’ perceptions of risk and risk management, and analyse whether characteristics of a farm and/or farmer can be identified that relate to these perceptions.  Relationships with the perceptions were explored by (multiple and logistic) multivariate regressions. Before the regressions were carried out, the number of variables was reduced; for risk attitude by means of aggregation, for sources of risk and risk management strategies by factor analyses. 

The application is for Dutch livestock farmers. With regard to sources of risks these farmers perceive policy uncertainty as very relevant and of the same importance as the uncertainty from production and markets. The respondents in this survey associated regulatory risks with environmental policy, animal welfare policy, and the value of production rights, in particular. 

The analysis revealed interesting differences with regard to risk management strategies by farmer categories. Dutch dairy farmers perceived ‘a certain income’ as an important risk management strategy. Advisers could anticipate on this by providing the needed education and infrastructure in this area. Pig farmers perceived diversification as a relevant risk management strategy; a helpful insight to policymakers in combating environmental problems in the pig sector (see also Wossink and Gardebroek, 2006).

The results also indicated a mismatch between farmers’ perceptions of price risks and the perceived importance of risk management strategies to deal with price risks. In particular, futures markets were not perceived to be relevant. 

http://dx.doi.org/10.1016/S0301-6226(00)00247-5

Article Environmental Policy Uncertainty and Marketable Permit Syste...

The study of Meuwissen, Huirne and Hardaker (2001) is very interesting.

Thank you very much to share your paper.

 I am also conducting research entitled "Smallholders perceptions of farming risks, management strategies and willingness to pay for crop insurance in Nepal". Would like to hear more like what is being discussed here. Thanks. 

Dear Cristian Rogério Foguesatto

I absolute agree with the idea of Muhammad Abid Shahzad, and to some extent others. Local knowledge has been increasingly important to integrate with scientific knowledge. Farmers are closer stakeholders to the environment. They are more connected than we have for a long time. Hence, their idea, their perception towards the point in discussion is paramount important. For this reason, we experience that farmers' risk perception contributes to the development of public policies in many mountainous regions of the globe.

With best regards,

Hailemariam 

Many papers have been published regarding farmer risk perceptions, but I would agree with Prof Wossink when she says that a lot of that research does not really influence policies or management directly.

I can contribute a bit based on our own research, published in, amongst others, Wauters et al. (2014) and van Winsen et al. (2013). We investigated risk perception of farmers, and how this relates to how they manage risk, or would want to manage risk, in several way, such as using a qualitative approach based on in-depth interviews, and qualitative approaches using econometrics and surveys. Here are a few things that I think are interesting

First, farmers seem to rarely consider a single risk source (e.g., weather) in isolation. We think this is because, first, it would require them to seriously simplify reality, in which this different risk sources are all present at the same time and, second, because the way these risk sources impact on the farm is very much interrelated, meaning they can't really judge the severity of one risk source without considering the other. Regarding the consequences of this: it may be (part of) an explanation for farmers' reluctance to apply available risk management instruments targeted to manage risk coming from a single risk source, such as futures or some types of insurance. Farmers have a larger preference for 'whole farm risk management instruments', regardless of the source of risk.

Second, when farmers are, regardless of what I explained above, are forced to score the severity of individual risk sources, e.g. in structured surveys, we also found that policy uncertainty was a big issue. In contrast to above  papers mentioned by previous commenters, we found that market risks were considered more important than production risks. Some farmers expressed a feeling which could be expressed as "market risk = bad luck; production risk = bad farmer", so the degree of a control seems to have an influence on how severe they judge a risk.

Third, I am always a bit sceptical when I hear someone say "farmers are very risk averse", especially since you see that statement often appearing in the same publications or reports as another statement, being "agriculture is a very risky business". Both at the same time seems contradictory. This is not to say that farmers are very risk loving, but our studies characterize them as risk neutral. This would suggest that designing risk instruments from a farmers' point of view, or designing risk instruments from a policy point of view is not necessarily better when it is done based on maximization of expected utility, compared to maximization of expected value.

Fourth, when farmers perceive some kinds of risk to decline, they may make of-setting adjustments elsewhere. In de Mey et al. (2014) for instance, we found that when farmers perceive changes in business risk, they may change the level of financial risk. This could lead to a risk management paradox, when policy measures that decrease the level of business risk induce farmers to allow more financial risk, leaving the overall vulnerability of the farm unchanged or even worse.

Fifth, when you would ask farmers whether they find, for instance, price volatility an important risk, you probably get a lot of positive answers. However, when you ask farmers to talk about risk and uncertainty and why this a problem for farm management, they rarely conceptualize "risk" as "volatility", something which is the common thing to do by researchers and policy makers, many of them use risk and volatility almost as synonyms. "Risk" for a farmer is the perception or observation that it becomes more and more difficult in the future to cover his expenses with the receipts. This explains why farmers are more willing to use risk management instruments such as "maintaining an additional income" over "futures to manage price volatility".

Erwin Wauters, thanks!

I'm reading the paper "Risk perception, Attitudes towards risk and  risk management: Evidence and implications".

Very  interesting