TY - JOUR
T1 - Market-Based Price-Risk Management
T2 - Welfare Gains for Coffee Producers from Efficient Allocation of Resources
AU - Gemech, F.
AU - Mohan, S.
AU - Reeves, A.
AU - Struthers, J.
PY - 2011
Y1 - 2011
N2 - 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.
AB - 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.
U2 - 10.1080/13600818.2010.550399
DO - 10.1080/13600818.2010.550399
M3 - Article
SN - 1469-9966
VL - 39
SP - 49
EP - 68
JO - Oxford Development Studies
JF - Oxford Development Studies
IS - 1
ER -