Back to Library

An Introduction to Market-Based Instruments for Agricultural Price Risk Management

Published by:
Document
Download
Publication date
07/06/2006
Number of Pages
53
Language:
English
Type of Publication:
Working Papers & Briefs
Focus Region:
Global
Focus Topic:
Market / Trade
Type of Risk:
Market-related
Type of Risk Managment Option:
Risk reduction/mitigation
Commodity:
Crops
Author
Myong Goo Kang, Nayana Mahajan
Organization
Food and Agriculture Organization of the United Nations (FAO)

This document presentsessential concepts and examples of key aspects of market-based price risk management instruments to replace the failure of international efforts like stabilization funds and international commodity agreements at reducing risk in agricultural supply chains, particularly in developing countries where risks carry very real consequences. The document touches on advantages and risks of different risk hedging mechanisms for both buyers and sellers and how each instrument is used. The key price risk management concepts covered include forward contracts (forwards), futures, swaps, options, and insurance, with concepts, examples and definitions provided for each instrument. In addition to providing examples and explanations of how these instruments can help hedge price risks and market volatility, there is also explanation of how the mechanisms interact and can be combined to hedge risks.