ANALYSIS OF LEGAL AND ECONOMIC ASPECTS OF PRECIPITATION WEATHER DERIVATIVES FOR SERBIAN AGRICULTURAL SECTOR

Authors

  • Janko Veselinovi?, PhD University of Novi Sad, Faculty of Agriculture, Department of Agricultural Economics and Rural Sociology, Novi Sad
  • Todor Markovi?, PhD University of Novi Sad, Faculty of Agriculture, Department of Agricultural Economics and Rural Sociology, Novi Sad
  • Stanimir ?uki?, M.A., Ph.D. student EDUCONS University, Faculty of Business Economy, Sremska Kamenica

DOI:

https://doi.org/10.5937/ekoPolj1404053V

Keywords:

hedging strategies, precipitation quantity, weather derivatives.

Abstract

Weather derivatives are not present in Serbia nor in the neighboring countries and have no significant application in the European Union, either. Weather derivatives originated in the USA, where the market for these instruments is most developed, in terms of both economy and law. However, positive effects of their application, through the decrease of influence of unfavorable weather conditions on agricultural crops, are a good basis for their further study. The most common reasons for their absence from our financial market are their complexity and the inexistence of prerequisites for their introduction. This paper analyses legal and economic aspects of weather derivatives, as forms of financial derivatives, as well as weather derivative contracts concluded with the aim of hedging against precipitation exposure. The goal of the analysis is to find an optimal contract structure, but also the conditions that have to be met in order for its signing to be economically justified for both contractual parties, as well as the creation of preconditions for this weather derivative contract to be the instrument of trade on the financial market. The paper also analyses normative frameworks for the conclusion of these derivative contracts, as well as the necessity to educate market participants, which refers both to agricultural producers and financial institutions. Furthermore, it emphasizes the difference in relation to the classical contract of insurance against drought risk.

Downloads

Download data is not yet available.

References

1. Ali, P. U. (2000): Weather Derivatives, Hedging Volumetric Risk and Directors Duties, Company and Securities Law Journal, University of Melbourne – Low School, vol. 18, pp. 151-155.
2. Battley, N. (1999): The world´s futures and options markets, Second Edition, John Wiley & Sons, LTD, Chichester.
3. Benson, K., Oliver, B. (2004): Management Motivation for Using Financial Derivatives in Australia, Australian Journal of Management, vol. 29, no. 2, pp. 225-242.
4. Carić, S., Vitez, M., Raičević, V., Veselinović, J. (2011): Privredno pravo, Fakultet za ekonomiju i inženjerski menadžment, Novi Sad.
5. Fender, I. (2000): Corprate Hedging: The Impact of Financial Derivatives on the Broad Credit Channel of Monetary Policy, BIS working papers, no.94, Basel, Swizerland, pp. 1-26, available at: http://www.bis.org/publ/work94.pdf
6. Gardner, L. (2003): New Options for Managing Agricultural Weather Risk, CPCU eJournal, 56(8):1-23.
7. Generali Insurance Serbia a.d.o. (2014): Posebni uslovi za osiguranje useva i plodova od rizika suše, TN-U-09-OU-14-03.
8. Janković, V. (2014): Klima i fnansijski proizvodi: Kome je vreme uzelo meru. Biznis&fnansije, available at: http://bif.rs/2014/07/klima-i-fnansijski-proizvodi-komeje-vreme-uzelo-meru/
9. Karl, T. R., Trenberth, K. E. (2003): Modern Global Climate Change, Science, vol. 302, pp. 1719-1723.
10.Leggio, K. B. (2007): Using weather derivatives to hedge precipitation exposure, Managerial Finance, University of Missouri at Kansas City, 33(4):246-252.
11. Marković, T. (2013): Vremenski derivati i upravljanje rizikom u poljoprivredi, Univerzitet u Novom Sadu, Poljoprivredni fakultet, Novi Sad.
12.Marković, T., Jovanović, M. (2011a): Risk Management in Plant Production with Weather Derivatives, Contermporary Agriculture, Novi Sad, 60(1-2):1-6.
13.Marković, T., Jovanović, M. (2011b): Rainfall insurance in wheat production with weather derivatives, Economics of Agriculture, IAE, Belgrade, 58(2):179-189.
14.Veselinović, J. (2011): Privredno pravo, Univerzitet u Novom Sadu, Poljoprivredni fakultet, Novi Sad.
15.Veselinović, J., Marković, T., Ivanović, S., Vasiljević, Z., Uçar, K. (2014): Economic and Legal Analysis of Financial Derivatives in terms of Increasing Certainty in Agricultural Production in Serbia, Book of Abstracts of 25th International ScientifcExpert Congress on Agriculture and Food Industry, Izmir, Turkey, September 25-27th, p. 228.
Legislation
16.Law of Contract and Torts, Offcial Gazette of Republic of Serbia, no. 29/78, 39/85, 45/89 - decision USJ and 57/89, Offcial Gazette of SRY, no. 31/93 and Offcial Gazette of SCG, no. 1/2003 - constitution, article 897.
17.Law on Banks, Offcial Gazette of Republic of Serbia, no. 107/05, 91/ 2005.
18.Law on Investment Funds, Offcial Gazette of Republic of Serbia, no. 46/2006, 51/2009, 31/2011.
19.Law on the Market Capital, Offcial Gazette of Republic of Serbia, no. 31/2011.
20.Securities Act, Offcial Gazette of Republic of Serbia, no. 47/2006.

Downloads

Published

2014-12-31

How to Cite

Veselinović, J., Marković, T., & Đukić, S. (2014). ANALYSIS OF LEGAL AND ECONOMIC ASPECTS OF PRECIPITATION WEATHER DERIVATIVES FOR SERBIAN AGRICULTURAL SECTOR. Ekonomika Poljoprivrede, 61(4), 1053–1067. https://doi.org/10.5937/ekoPolj1404053V