In recent years, there has been an increasing amount of literature published on risk management. However, there are several different definitions of “risk management” according to different research fields. One definition in relation to the process of decision making notes that:
“Risk management is the making of decisions regarding risks and their subsequent implementation, and flows from risk estimation and risk evaluation” (The Royal Society, 1992, p. 3).
Other definitions are related to particular fields of studies, such as software (Wiegers, 1998), construction (Eskesen et al., 2004) and supply chain analysis (Zsidisin, 2003; Ellis, Henry and Shockley, 2010). Ho et al.’s (2015) comprehensive review of supply chain risk management defines the process as:
“An inter-organisational collaborative endeavour utilising quantitative and qualitative risk management methodologies to identify, evaluate, mitigate and monitor unexpected macro and micro level events or conditions, which might adversely impact any part of a supply chain” (Ho et al., 2015, p. 6).
According to Ho et al. (2015), supply chain risk can be classified into five types of risks: macro, demand, supply, manufacturing, and infrastructural. “Price risk”, the main focus of this research, belongs to financial risk in the infrastructural category. Therefore, the process of PRM in this research refers to supply chain risk management, which can be divided into four stages: identification, assessment, mitigation, and monitoring. The supply chain risk management process is used as a conceptual framework to review the relevant literature and to identify the focus of this research.
Regarding risk identification, a considerable amount of literature emphasises the importance of price risk in commodity supply chains. Banterle and Vandone (2013) note that the agricultural commodity prices have become volatile in recent years, resulting in market participants experiencing difficulties in their trading activities. Berling and Rosling (2005) point out that in inventory management, though the degree of impact on a particular product is unclear, price risk is considered to be the main risk. Deng, Zhang and Zhao (2009) add that price risk is not only considered the major risk for investors, it is also the main focus of global investment regulators. Tang (2015) indicates that price risk is now one of the major recognised risks in the restaurant industry.
In terms of risk assessment, literature focusing on commodity prices has significantly increased in recent years. Perhaps this is the consequence of the uncertain business climate following the financial crisis in 2008. For instance, Sainidis, Robson and Heron (2013) note that manufacturers located in the UK and classified as SMEs are the most negatively affected by the increasing cost of production compared to the flexibility of production, performance of product delivery and quality of products. These negative effects originate partly from the input costs of raw materials that have risen since 2008. A considerable amount of literature has been published on price risk modelling based on quantitative methods (Ni et al., 2012). Moreover, there is no consensus on the quantitative-based measurement of price risk, for example, the method that focuses on both negative and positive aspects (Capitani and Mattos, 2012).
This research does not seek to quantitatively measure price risk. It aims instead to explore price risk qualitatively in terms of price risk implications, market structures, factors and players influencing price movements, PRM tools, market channels, price information accessibility and transmission, pricing and price forecasting methods adopted in the market and the futures market and Information and Communication Technologies (ICTs) use. As a result, a clearer picture of price risk in the market will be shown based on this qualitative research.
With regard to risk mitigation, there are four major risk mitigation measures: risk avoidance, risk reduction, risk transfer, and risk retention (Aven and Kristensen, 2005; Hlaing et al., 2008; Matulevicius, Mayer and Heymans, 2008). In agricultural commodity markets, much of the current literature on price risk mitigation pays particular attention to risk transfer using market-based tools e.g. Tomek and Peterson (2001), Schaffnit- Chatterjee et al. (2010), Gemech et al. (2011), Yaganti and Kamaiah (2012) and Revoredo-Giha and Zuppiroli (2013). Though there have been questions about some tools’ performance (such as the use of futures contracts) in terms of profitability, Gemech et al. (2011) argue that using such tools results in other non-financial benefits, such as the enhanced capabilities available in resource allocation. Moreover, there is an issue concerning the futures market’s efficiency regarding the hedging purpose. In her detailed study, Newman (2009) finds that a variety of strategies of PRM, such as forward contracting and back-to-back selling, have been adopted by coffee supply chains in Uganda and Tanzania, and she raises the issue of inequality of access to PRM tools between players in the supply chains. The current research focuses mainly on the risk mitigation stage in relation to PRM strategy in the Thailand NR industry in the context of RBIs. The PRM strategy is, later, divided into the stages of formation and implementation (risk-taking decisions and market channel selection).
As pointed out above, the final stage of the risk management process is risk monitoring. “Risk monitoring can be used to make sure that risk management practices are in line with desired practices” (Al-Tamimi and Al-Mazrooei, 2007, p. 402). A salient example of the common use of risk monitoring can be found in banking. Rosman (2009) notes that risk monitoring is a vital process that helps banks guarantee that effective risk management is implemented. Butt, Nazir and Daniel (2012) also find that risk monitoring is considered a crucial instrument of practical use in Pakistan’s banking sector. Although risk monitoring is an important component of risk management, this research does not seek to study this process, as the majority of rubber intermediary businesses are independent and are categorised as small businesses.