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

Sushil Mohan, Firdu Gemech, Alan Reeves, John Struthers

    Research output: Contribution to journalArticlepeer-review

    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 riskaverse
    producers. This underlines the need to provide producers with access to suitable price-risk
    hedging mechanisms
    Original languageEnglish
    Pages (from-to)49-68
    JournalOxford Development Studies
    Volume39
    Issue number1
    DOIs
    Publication statusPublished - 17 Mar 2011

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