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An exploration of commodity income stabilization options for coffee farmers - page 38 / 47





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  • Local banks should use their access to the international banking system to provide a pass-through to the international risk management markets for those in their countries who, for various reasons, are unable to access these markets directly.

  • Local banks should consider setting up risk management advisory services.

  • Local banks should help organize training and awareness-raising programs on market-based price risk management, targeting all those involved in the commodity sector (including government agencies and the donor community)

For international traders

  • International traders already commonly offer futures-price-referenced contracts to their suppliers in developing countries. They should consider enlarging the range of such offerings, e.g., to replicate the wide choice that is available to a typical U.S. farmer.

For international commodity exchanges

  • International commodity exchanges should work with their regulatory agencies to lighten the burden of Know Your Customer and anti-money laundering rules for developing country farmers’ associations, particularly for such agencies to accept self- certification by the banks or brokers who set up risk management credit lines for such associations, and certification by reputable bodies such as Fair Trade organizations.

  • They should allow and perhaps even encourage national and regional exchanges to host localized versions of their contracts; the latter exchange then acts as aggregator and pass-through for those unable to use the international market.

For governments

Governments need to review their own rules, regulations, policies and practices with a view of modifying those which unduly restrict the ability of their coffee sector to manage price risk—including those which unnecessarily complicate commodity sector financing. These various issues have been extensively analyzed by UNCTAD, and concrete, detailed policy recommendations are readily available.


Government should encourage the development of local commodity exchanges with spot and forward trading, and warehouse receipts systems.

Government can consider whether they can act as a portal for commodity price risk management—in the case of the coffee sector, this could be through the creation of a program such as Mexico’s Aserca, which as part of its support services, sells options to Mexican farmers.

Where a government is directly exposed to price risk (e.g., through its tax revenue, or its underwriting of a price stabilization program) it should consider how market- based instruments can help reach its objectives more effectively, at a lower cost and with a lower risk. Among the instruments that it should consider in this respect are commodity linked bonds and loans—it can convert, for example, some of its loans

30 For a detailed discussion and set of recommendations, see N. Budd. Legal and regulatory aspects of financing commodity exporters, UNCTAD, 1995; and UNCTAD. Government policies affecting the use of commodity price risk management and access to commodity finance in developing countries, 1998.


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