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An exploration of commodity income stabilization options for coffee farmers - page 37 / 47

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4. Recommendations

For farmers’ associations28

  • Farmers’ associations, and in particular their organizations at the national level, should advocate the benefits of market-based price risk management instruments among government decision-makers, and lobby local banks to make such instruments available in the country

  • Farmers’ associations should help provide their members access to relevant commodity exchange prices.

  • Farmers’ associations can act as aggregator and broker, providing their members with access to futures and options.

  • Farmers’ associations should cooperate with expert entities to organize training workshops on market-based price risk management instruments.

  • Farmers’ associations that are actively involved in providing inputs or credit, or in the marketing or processing of their members’ produce, should evaluate their own exposure to price risk, and consider appropriate measures to manage it.

  • Farmers’ associations should give active support to the creation of local commodity exchanges wherever such initiatives are economically viable.

For coffee millers and roasters

  • Coffee millers and roasters should consider whether, by incorporating price risk management elements in their procurement policies, they can enhance their competitiveness.

For local traders

  • Often, local traders only operate hand-to-mouth—they try to manage all their price risks through back-to-back purchase and sales transactions. But this considerably reduces their flexibility and their opportunities to benefit from market developments. They should consider how price risk management instruments can help them become more competitive.

For local banks

  • Local banks should consider how they can reduce their financing costs by incorporating price risk management instruments into their credits (either side-by- side, or through the denomination of the principal and/or interest rate on their loans), and thus, both encourage and enable the use of risk management tools by the country’s producers.

  • Local banks should invest in enhancing their understanding of structured financing mechanisms, which can, among other things, facilitate price risk management by its clients by giving them access to long-term credit lines.29

28 For a detailed discussion and set of recommendations, see UNCTAD, Farmers and farmers’ associations in developing countries and their use of modern financial instruments, 2002.

29 For a detailed discussion and set of recommendations, see UNCTAD, Potential applications of structured commodity financing techniques for banks in developing countries, 2001.

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