African Coffee Market Efficiency and International Hedging Viability: Evidence from Uganda

Abstract

Several African nations rely heavily on coffee exports as a source of national income. Given coffee’s importance to many African economies and the risk that price instability poses to coffee exporters, the World Bank and others have promoted price risk management strategies relying on international futures markets. We test the efficiency of Ugandan coffee markets with respect to international futures markets and test the viability of hedging strategies using these markets. We find evidence of a close relationship between the movements of Ugandan coffee producer prices and futures market prices, supporting the feasibility of hedging price risk in international markets.

Keywords: Efficient Markets, Commodities, Futures Markets

JEL Classification: G14, G15