Title:
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Futures markets and coffee prices
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This thesis constitutes an empirical critique of neoclassical economic theory as applied
to the study of commodity markets. It is argued that the liberalisation of coffee
marketing systems in producing countries, the collapse of the International Coffee
Agreements, and the consequent restructuring of international coffee markets has had
profound effects on the relationship between futures and physical markets for
commodities in the context of liberalised capital flows and a world economy
increasingly shaped by finance.
Using evidence from the New York Coffee Exchange on trading activities and futures
prices, together with a study of price formation and price risk management practices
along coffee chains in Tanzania and Uganda, this thesis refutes the neoclassical
assertions that futures markets facilitate efficient price discovery, that futures markets
reduce price risks by providing effective hedging instruments and by stabilising prices,
and that liberalisation enhances market integration and efficient price transmission
along the chain.
It is shown that the liberalisation of coffee markets and an emphasis on the wide spread
use of hedging instruments for price risk management has facilitated their
financialisation rather than enhancing their efficiency. Prices have increasingly been
formed on the basis of supply and demand for coffee derivatives that has become in
many ways divorced from the supply and demand for physical coffee. The ability for
certain large coffee traders to derive enormous incomes from their engagement in
derivatives trading to the exclusion of the majority of coffee chain actors in producing
countries from engaging in such activities has serious implications in terms of the
exacerbation of international inequalities along international supply chains.
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