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Prices and price risk management along coffee chains

Prices and price risk management along coffee chains. Susan Newman “ Challenges and Prospects for Commodity Markets in the Global Economy ” A Workshop in Memory of Alfred Maizels 19th September 2008 SOAS, University of London. Background.

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Prices and price risk management along coffee chains

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  1. Prices and price risk management along coffee chains Susan Newman “Challenges and Prospects for Commodity Markets in the Global Economy” A Workshop in Memory of Alfred Maizels 19th September 2008 SOAS, University of London

  2. Background Policy shifts and the debate around commodity issues • Breakdown of Bretton Woods • Collapse of multilateral price stabilisation schemes for commodities • Liberalisation of agricultural markets in agro-commodity exporting LDCs under SAPs • Emphasis on private risk management (PRM) strategies for the stabilisation of incomes Theoretical justifications for liberalisation and PRM-strategies • Neoclassical economics: • on derivatives markets: • Efficient Market Hypothesis • Arrow-Debrau • Implicit theory of price determination according to supply and demand. • on commodity markets: • Horizontal conception of the market • Competitive markets • Prices governed by the interaction of supply and demand • Assumed relationship between the derivatives and physical markets for commodities

  3. Financialisation of commodity markets • Financialisation can be broadly defined as “the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies” (Epstein 2005, p3). • Dimensions of financialisation in the international commodity systems: • Increasing portfolio investment in commodities as an asset class • Increase in the volume of derivatives trading by physical traders for hedging as well as non-hedging purposes • Changes in the distribution of income along commodity chains that depends upon the ways in which heterogeneous chain actors engage with futures markets

  4. Prices, price risk and price risk management in commodity chains

  5. Case study The green coffee system

  6. The structure of international green coffee system • Coffee production • fragmented across a large number of countries across the tropics. • Diversity of production and marketing systems between producing countries • The major share of world coffee is produced by small holders • International trading companies • Highly concentrated sector • Coffee roasting companies • Highly concentrated sector

  7. Proportion of total exports of green coffee from the top 10 coffee exporting countries in 2007(Data Source: ICO 2008)

  8. Market shares of the 5 top trading companies for green coffee in 2006 (Data source: ED&F Man Coffee Division, 2007 and ICO, 2006)

  9. Market shares of the 5 top coffee roasting and/or manufacturing groups in 2006 (data source: ED&F Man Coffee Division, 2007 and ICO, 2006)

  10. prior to liberalisation in 1990/1 after liberalisation The structure of the Ugandan coffee marketing system

  11. Market shares of the top 10 coffee exporters in Uganda - Oct/Sept 2005/06 (adapted from UCDA annual report, 2005/6)

  12. prior to liberalisation in 1994/5 between 1994/5 and 2003 since 2003 The structure of the Tanzanian coffee marketing system

  13. Market shares of the top 10 coffee exporters in Tanzania –Oct/Sep 2005/06 (Data source: TCB 2007)

  14. An investigation of prices and price risk management along coffee chains • How do the prevailing market structures mediate the processes of price transmission along coffee chains? • To what extent are the structures of different segments along coffee chains shaped by the processes of price risk management? • What are the implications of this restructuring of coffee markets in terms of income generation of different market actors along the chain? • What are the implications of this restructuring on the sustainability of the coffee system?

  15. Private coffee marketing chains in Uganda

  16. Annual coffee production in Uganda 1977-2006 (Data Source: ICO 2007)

  17. Auction Auction Auction International Exporter Small holder coffee producer Small holder coffee producer Small holder coffee producer Primary society Farmers group Farmers group Cooperative Union Farmers group alliance International Exporter International Exporter Cooperative coffee marketing chains in Tanzania

  18. Annual production of arabica coffee in Kilimanjaro region, Tanzania, since liberalisation in 1994/5 (Data source: Tanzania Coffee Board, 2007)

  19. Annual coffee production in Tanzania 1977-2006 (Data Source: ICO 2007)

  20. Thank you for your attention

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