Market-Based Price-Risk Management for Coffee Producers

22 Pages Posted: 11 May 2007

See all articles by Sushil Mohan

Sushil Mohan

University of Dundee - Department of Economic Studies

Abstract

Coffee is characterised by high levels of price fluctuation, which exposes producers to price risk. Its wide trading in international commodity futures markets offers scope for producers to manage the risk by hedging on these markets, the mechanism for which is based on the use of put options. This article uses historical data of actual put-options contracts to estimate the costs of the mechanism, the benefits being inferred from field evidence. It emerges that the costs are relatively low and outweighed by the benefits for most producers. The article then looks at the operational feasibility of the mechanism for producers and compares it with other hedging mechanisms.

Suggested Citation

Mohan, Sushil, Market-Based Price-Risk Management for Coffee Producers. Development Policy Review, Vol. 25, No. 3, pp. 333-354, May 2007, Available at SSRN: https://ssrn.com/abstract=984705 or http://dx.doi.org/10.1111/j.1467-7679.2007.00373.x

Sushil Mohan (Contact Author)

University of Dundee - Department of Economic Studies ( email )

Dundee, Scotland DD1 4HN
United Kingdom

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