Market-Based Price-Risk Management: Welfare Gains for Coffee Producers from Efficient Allocation of Resources

F. Gemech, S. Mohan, A. Reeves, J. Struthers

    Research output: Contribution to journalArticlepeer-review

    6 Citations (Scopus)

    Abstract

    The volatility of coffee prices exposes coffee producers to price risk. Price risk is one of many risks faced by commodity producers in developing countries. Coffee is widely traded in the international commodity derivative markets. This offers scope for coffee producers to manage their price risk by hedging on these markets. The hedging mechanism recommended is based on the use of coffee futures and options. The mechanism involves costs, so the benefits of hedging need to be evaluated in order to assess its usefulness for producers. It emerges that the main benefit lies in producers being able to allocate resources more efficiently in the production of coffee. An analysis of theoretical and field evidence shows that this benefit can potentially be quite high, especially for risk-averse producers. This underlines the need to provide producers with access to suitable price-risk hedging mechanisms. ©2011 Oxford Department of International Development.
    Original languageEnglish
    Pages (from-to)49-68
    Number of pages20
    JournalOxford Development Studies
    Volume39
    Issue number1
    DOIs
    Publication statusPublished - 2011

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