Product Market Risk and ‘Thin’ Markets

Another type of risk faced by farmers is the risk that there may be no place to sell their crop once it is harvested. The farmers are then forced to pay substantial transportation costs to deliver to a distant market or they may have no outlet at all for a very specialized crop. The term ‘thin markets’ is used to describe the case where there are few buyers or few sellers. Two problems arise from thin markets. Firstly, there may be no one willing to buy or no one willing to sell at various times, such that both sellers and buyers may incur additional costs. Secondly, the loss of a buyer or seller due to financial failure or other causes may impose severe losses on other sellers or buyers. Such risks must be overcome when new markets are being established, as in the case of cellulosic feedstocks.