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Creating a market for price swaps: Case study of an innovative risk management instrument in the Belgian-Dutch pear market

Author

Listed:
  • Eewoud Lievens
  • Kobe Tielens

    (Department of Earth and Environmental Sciences, KU Leuven, Leuven, Belgium)

  • Erik Mathijs

    (Department of Earth and Environmental Sciences, KU Leuven, Leuven, Belgium)

Abstract

While the benefits of using futures to manage price risk are widely recognised, only certain groups of farmers have suitable futures at their disposal. This paper discusses an innovative instrument, developed in the Belgian-Dutch pear market, that provides an alternative to futures markets by creating a market for price swaps. Thus, the instrument provides some benefits of market-traded derivatives (like futures) while remaining a relatively simple instrument, which requires fewer market transactions. The paper describes key properties of the swap contracts and the platform used to trade them. In addition, it compares the conditions required for establishing price swap markets and futures markets. Thus, our study informs the design of similar risk management instruments for commodities and contexts where futures are absent.

Suggested Citation

  • Eewoud Lievens & Kobe Tielens & Erik Mathijs, 2021. "Creating a market for price swaps: Case study of an innovative risk management instrument in the Belgian-Dutch pear market," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 67(1), pages 33-40.
    • Handle: RePEc:caa:jnlage:v:67:y:2021:i:1:id:373-2020-agricecon
    DOI: 10.17221/373/2020-AGRICECON
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    References listed on IDEAS

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    1. Josef TAUŠER & Radek ČAJKA, 2014. "Hedging techniques in commodity risk management," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 60(4), pages 174-182.
    2. Philipp Adämmer & Martin T. Bohl & Christian Gross, 2016. "Price Discovery in Thinly Traded Futures Markets: How Thin is Too Thin?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(9), pages 851-869, September.
    3. Kennya B. Siqueira & Carlos Arthur B. da Silva & Danilo R.D. Aguiar, 2008. "Viability of introducing milk futures contracts in Brazil: a multiple criteria decision analysis," Agribusiness, John Wiley & Sons, Ltd., vol. 24(4), pages 491-509.
    4. Martin ZIEGELBÄCK & Gregor KASTNER, 2013. "Arbitrage hedging in markets for the US lean hogs and the EU live pigs," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 59(11), pages 505-511.
    5. Marius Michels & Johannes Möllmann & Oliver Musshoff, 2019. "Understanding the intention to use commodity futures contracts," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 79(5), pages 582-597, August.
    Full references (including those not matched with items on IDEAS)

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