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Viability of introducing milk futures contracts in Brazil: a multiple criteria decision analysis

Listed author(s):
  • Kennya B. Siqueira

    (Agribusiness Engineering Department, Fluminense Federal University, Av. dos Trabalhadores, 420, Vila Santa Cecília, 27255-125, Volta Redonda, Rio de Janeiro, Brazil)

  • Carlos Arthur B. da Silva

    (Food Technology Department, Federal University of Viçosa, 36570-000, Viçosa, Minas Gerais, Brazil)

  • Danilo R.D. Aguiar

    (Undergraduate Program in Economics, Federal University of Sao Carlos, Campus of Sorocaba, Rd. SP-264 km 110, Sorocaba, São Paulo, 18052-780, Brazil)

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    The viability of introducing milk futures contracts in Brazil was assessed through a combination of multiple criteria decision analysis and the application of traditional principles from the theory of success and failure of futures trading. Commodity-specific attributes and market-related aspects were analyzed for chilled raw milk, ultra high temperature (UHT) milk, and milk powder. The analytic hierarchy process methodology was used to rank the commodities in terms of their feasibility prospects. Among them, it was ascertained that chilled raw milk is the most suitable for futures trading. Major reasons for this result are the product's high price volatility, the competitive nature of its markets, the absence of competing risk-management tools, and the impossibility of cross-hedging. Complementing the analysis, interviews were conducted with the 100 largest milk producers in the country to assess their perceptions regarding futures trading. Approximately 92% of these farmers expressed an interest in adopting milk futures contracts as price risk management tools. In conclusion, the analysis indicated that the introduction of a milk futures contract in Brazil has a high probability of success. [EconLit citations: Q130, C610, 0220]. © 2008 Wiley Periodicals, Inc.

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    Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

    Volume (Year): 24 (2008)
    Issue (Month): 4 ()
    Pages: 491-509

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    Handle: RePEc:wly:agribz:v:24:y:2008:i:4:p:491-509
    DOI: 10.1002/agr.20175
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    1. Brorsen, B. Wade & Fofana, N'Zue F., 2001. "Success And Failure Of Agricultural Futures Contracts," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 19(2).
    2. Telser, Lester G & Higinbotham, Harlow N, 1977. "Organized Futures Markets: Costs and Benefits," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 969-1000, October.
    3. Kengpol, Athakorn & O'Brien, Christopher, 2001. "The development of a decision support tool for the selection of advanced technology to achieve rapid product development," International Journal of Production Economics, Elsevier, vol. 69(2), pages 177-191, January.
    4. Joost M.E. Pennings & Raymond M. Leuthold, 1999. "Commodity Futures Contract Viability: A Multidisciplinary Approach," Finance 9905002, EconWPA.
    5. Hanson, Darin K. & Pederson, Glenn D., 1998. "Minnesota Agricultural Economist 691," Minnesota Applied Economist/Minnesota Agricultural Economist 13167, University of Minnesota, Department of Applied Economics.
    6. Huang, Haixiao & Miller, Gay Y., 2003. "Evaluation Of Swine Odor Management Strategies In A Fuzzy Multi-Criteria Decision Environment," 2003 Annual meeting, July 27-30, Montreal, Canada 21966, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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