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Dealing with commodity price uncertainty

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Author Info

  • Varangis, Panos
  • Larson, Don

Abstract

Liberalization in commodity markets has brought profound changes in the way price risks are allocated and managed in commodity subsectors. Price risks are increasingly allocated to private traders and farmers rather than absorbed by the government. The success of market reform depends on the ability of the emerging private sector to make full use of the available range of modern commodity marketing, price risk management and financing instruments. Because farmers do not generally have access to these instruments, intermediaries must be developed. Larger private traders and banks are in the best position to become these intermediaries. Preconditions needed for accessing modern commodity marketing, price risk management, and financing instruments are: a) creating an appropriate legal, regulatory, and institutional framework; b) reducing government intervention; c) providing training and raising awareness; and d) improving creditworthiness and reducing performance risk. The use of commodity derivative instruments to hedge commodity price risk is not new. The private sectors in many Asian and Latin American countries have been using commodity futures and options for some time. More recently, commodity derivative instruments are being used increasingly in several African countries and many economies in transition. And several developing and transition economies have sought to establish commodity derivative exchanges.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1667.

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Date of creation: 31 Oct 1996
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Handle: RePEc:wbk:wbrwps:1667

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Keywords: Markets and Market Access; Payment Systems&Infrastructure; Environmental Economics&Policies; Commodities; International Terrorism&Counterterrorism; Access to Markets; Crops&Crop Management Systems; Commodities; Environmental Economics&Policies; Markets and Market Access;

References

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  1. Larson, Donald F. & Coleman, Jonathan, 1991. "The effects of option hedging on the costs of domestic price stabilization schemes," Policy Research Working Paper Series 653, The World Bank.
  2. Deaton, A.S., 1992. "Commodity Prices, Stabilization, and Growth in Africa," Papers 166, Princeton, Woodrow Wilson School - Development Studies.
  3. Gilbert, Christopher L., 1987. "International commodity agreements: Design and performance," World Development, Elsevier, vol. 15(5), pages 591-616, May.
  4. Gemmill, Gordon, 1985. "Optimal hedging on futures markets for commodity-exporting nations," European Economic Review, Elsevier, vol. 27(2), pages 243-261, March.
  5. Akiyama, Takamasa & Larson, Donald F. & DEC, 1994. "The adding-up problem : strategies for primary commodity exports in sub-Saharan Africa," Policy Research Working Paper Series 1245, The World Bank.
  6. Claessens, S., 1993. "Risk Management in Developing Countries," Papers 235, World Bank - Technical Papers.
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Citations

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Cited by:
  1. Larson, Donald F. & Varangis, Panos & Yabuki, Nanae, 1998. "Commodity risk management and development," Policy Research Working Paper Series 1963, The World Bank.
  2. Hélène Ehrhart & Samuel Guerineau, 2012. "Commodity price volatility and Tax revenues: Evidence from developing countries," Working Papers halshs-00658210, HAL.
  3. Samuel Guerineau & Hélène Ehrhart, 2012. "The impact of high and volatile commodity prices on public finances: Evidence from developing countries," Working Papers halshs-00659100, HAL.
  4. Larson, Donald F. & Parks, Paul, 1999. "Risks, lessons learned, and secondary markets for greenhouse gas reductions," Policy Research Working Paper Series 2090, The World Bank.
  5. repec:idb:brikps:50218 is not listed on IDEAS
  6. World Bank, 2003. "India : Promoting Agricultural Growth in Maharashtra, Volume 1. Main Report," World Bank Other Operational Studies 14620, The World Bank.
  7. Samuel Guerineau & Hélène Ehrhart, 2012. "The impact of high and volatile commodity prices on public finances: Evidence from developing countries," Working Papers halshs-00659098, HAL.
  8. Diego Arias & Katia Covarrubias, 2006. "Agricultural Insurance in Mesoamerica: An Opportunity to Deepen Rural Financial Markets," IDB Publications 36538, Inter-American Development Bank.
  9. Patrick de Fontenay & Suiwah Leung, 2002. "Managing commodity price fluctuations in Vietnam's Coffee Industry," International and Development Economics Working Papers idec02-4, International and Development Economics.
  10. Kannapiran, Chinna A., 2000. "Commodity price stabilisation: macroeconomic impacts and policy options," Agricultural Economics, Blackwell, vol. 23(1), pages 17-30, June.
  11. Everhart, Stephen & Duval-Hernandez, Robert, 2001. "Management of oil windfalls in Mexico : historical experience and policy options for the future," Policy Research Working Paper Series 2592, The World Bank.
  12. C. W. Morgan & A. J. Rayner & C. Vaillant, 1999. "Agricultural futures markets in LDCs: a policy response to price volatility?," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(6), pages 893-910.
  13. Anderson, Jock R., 2003. "Risk in rural development: challenges for managers and policy makers," Agricultural Systems, Elsevier, vol. 75(2-3), pages 161-197.
  14. Baffes, John & Meerman, Jacob, 1998. "From Prices to Incomes: Agricultural Subsidization without Protection?," World Bank Research Observer, World Bank Group, vol. 13(2), pages 191-211, August.
  15. Figiel, Szczepan & Scott, Tom & Varangis, Panos, 1997. "How government policies affect the relationship between Polish and world wheat prices," Policy Research Working Paper Series 1778, The World Bank.
  16. James Daniel, 2001. "Hedging Government Oil Price Risk," IMF Working Papers 01/185, International Monetary Fund.
  17. Ricardo Caballero & Kevin Cowan, 2006. "Financial Integration Without the Volatility," Working Papers Central Bank of Chile 387, Central Bank of Chile.
  18. Budnevich L., Carlos, 2002. "Countercyclical Fiscal Policy, A Review of the Literature, Empirical Evidence and some Policy Proposals," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  19. Coulter, J. & Onumah, G., 2002. "The role of warehouse receipt systems in enhanced commodity marketing and rural livelihoods in Africa," Food Policy, Elsevier, vol. 27(4), pages 319-337, August.
  20. Karlan, Dean & Kutsoati, Ed & McMillan, Margaret & Udry, Chris, 2010. "Crop price indemnified loans for farmers," IFPRI discussion papers 1021, International Food Policy Research Institute (IFPRI).

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