This study shows that the economic feasibility of
improved AW-systems predominantly depends on the
prices that farmers receive, prices over which they have
little control. Moreover, this study demonstrates the
importance of accounting for both the level and the
variation of the price premium, particularly during the
first 5 yr of production. The economic feasibility of the
farm increased with AW requirements, provided that
farmers captured a high price level for broiler meat and
faced relatively low volatility in producer prices. If this
was not the case, differences in farmers’ risk attitudes
became important and, in turn, the use of potential risk
management instruments should be considered. Price
risks are largely determined outside the farm. Hence,
part of these risks could be managed outside the farm,
such as by vertical coordination including contracts
(Harwood et al., 1999; Hardaker et al., 2004). The
terms of a contract can establish a minimum price level
or a minimum price premium for AW products that fulfill
certain quality requirements. In this way, part of a
farmer’s price risks are eliminated, but farmers are still
be left with considerable freedom in management decisions.
Stronger forms of vertical coordination include
production contracts and vertical integration, in which
the type of resources (for example, feed and antibiotics)
that farmers can use are usually regulated and the integrator
or buyer makes some of the production decisions.
All such instruments focus on reducing price volatility
and, in turn, decrease downside risk at the farm level.
However, these instruments also limit entrepreneurial
freedom to a smaller or a larger extent. The AW concepts
currently present in the Netherlands already use
particular forms of vertical coordination. For example,
one of the concepts guarantees a feed profit for farmers;
in other words, if the feed price increases producer
price increases accordingly, and vice versa, sets requirements
on flock size among others, and integrates the
process from transportation through slaughter to selling
products to the retail channel (KemperKip, 2013).
Such risk management instruments could increase the
willingness of farmers to convert to AW improving production
systems. However, in addition to farmers possibly
expressing of some degree of risk aversion, Dutch
farmers consider themselves entrepreneurs and want to
keep their freedom of choice (Van Horne, 2007). The
extent to which farmers perceive these instruments as a
motivation to join a concept and from what point these
instruments become a limiting factor for farmers could
differ at an individual level and needs to be further
studied.