From Futures Markets to the Farm Gate: A Study of Price Formation along Tanzania’s Coffee Commodity Chain

Bargawi, Hannah; Newman, Susan

doi:10.1080/00130095.2016.1204894

Cited by 22 publications

(18 citation statements)

References 34 publications

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“…This highlights that the futures price can serve as an indicator for supply chain managers to predict the change of bilateral contracting relations and the corresponding performance outcomes. This result is consistent with the price‐to‐be‐fixed contracting practice in coffee supply chains where the contracted price is the futures price plus a quality adjustment (Starbucks, ; Bargawi and Newman, ). Fourthly, for a given futures price, an increased DPI level strengthens the bilateral relation with a higher proportion of final product from the bilateral channel at an elevated wholesale price, and the result yields a win‐win performance scenario, in which both the supplier and the manufacturer achieve a higher expected profit with different risk implications.…”

Section: Introductionsupporting

confidence: 84%

“…Our result is aligned with the price‐to‐be‐fixed contract used in transacting coffee of bulk grades between international traders and Tanzanian exporters. The contracted price in this bilateral channel equals to the futures price of the coffee at a particular point in time, plus or minus an agreed differential for quality difference (Bargawi and Newman, ). Moreover, a trader in this coffee supply chain, interviewed by Bargawi and Newman, acknowledged that “the futures price is the determinant all along the chain.” Similar price‐to‐be‐fixed contract is also adopted by Starbucks (Starbucks, ).…”

Section: Managerial Implicationsmentioning

confidence: 99%

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Two‐echelon supply chain operations under dual channels with differentiated productivities

Fang

2017

Int Trans Operational Res

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This paper examines a two‐echelon supply chain with an upstream supplier (she) and a downstream manufacturer (he) transacting an intermediate product via direct bilateral contracting and futures market channels with differentiated productivities. A game model is established to examine the dual‐channel supply chain operations. Analytical results reveal that downstream productivity improvement (DPI) through the bilateral interaction is necessary and sufficient for the supply chain members to trade in the bilateral channel in addition to the futures market. We show that when the price in the futures market increases, the manufacturer would purchase less from the futures market and more from the supplier, which not only increases the supplier's expected profit but also increases her risk (variance of the profit) in equilibrium. Furthermore, when the bilateral channel exhibits stronger DPI, the manufacturer obtains a higher expected profit and bears a higher risk, but the supplier enjoys a higher expected profit without incurring any additional risk.

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Section: Introductionsupporting

confidence: 84%

Section: Managerial Implicationsmentioning

confidence: 99%

Two‐echelon supply chain operations under dual channels with differentiated productivities

Fang

2017

Int Trans Operational Res

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“…Work on financialised commodities shows that particularly value chains for globally traded cash crops are increasingly financialised through the price mechanisms of derivative markets. Far beyond their financial sphere, global derivative markets have transformed how and to the favour of whom value chains are organised (Newman, 2009;Bargawi & Newman, 2017;Staritz et al, 2018). Here, value chains resemble translation devices for financialisation processes from global markets in their most financial form towards local trading and production in its most physical form (Purcell, 2018).…”

Section: Financialisation and Agricultural Value Chainsmentioning

confidence: 99%

Large investments, small farmers: A financialisation perspective on value chains in a development corridor

Hartmann

Mwaka

Dannenberg

2020

Development Southern Africa

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Development corridors have recently gained momentum as territorial tools to attract flows of global capital into agricultural value chains. As this includes the controversial blending of public with private funding for investments into farmland, the integration of smallholders in largescale operations is increasingly promoted as legitimatory practice. With this article, we discuss the role of finance in shaping such value chain arrangements. Using a spatially sensible financialisation perspective, we present two investment cases that have touched ground as reaction to the promotion of the Southern Agricultural Growth Corridor of Tanzania (SAGCOT). We assess how finance unfolded along territorial (corridor region and investment origin) and relational (investment chain and value chain) spatialities, to scrutinise the tensions and fragile outcomes that were co-constituted by mixed financial and moral investment imperatives. This helps to understand whether, why, and with what consequences smallholders can benefit from corridor-related investments.

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“…While there is now a large, often quantitative, literature on the implications of financialization on commodity prices, there is limited analysis of how financialization dynamics manifest along particular commodity chains. This is related to a division within the literature between the study of financial markets and the financial dimension of price transmission at the international level, and global commodity chain, value chain and production network analyses of the impact on producers and other chain actors (Bargawi and Newman, ; Clapp and Helleiner, ). The former remains focused upon global‐level analyses of futures and spot prices and financial sector operations while paying no attention to what this means for local markets and producers under a system of globalized production (for example, Gilbert, ; Tang and Xiong, ; UNCTAD, ).…”

Section: Introductionmentioning

confidence: 99%

“…The latter has focused on analysing the organization and governance of international production, particularly through the role of lead firms, and how this affects the development prospects of producers (for example, Gereffi, ; Gereffi et al., ; Gibbon and Ponte, ; Henderson et al., ; Kaplinsky and Morris, ). With a few notable exceptions (including Bargawi and Newman, ; Clapp, ; Newman, ), research to date has largely neglected the role of finance and financial markets in shaping the structure and functioning of commodity chains and the outcomes for different actors in commodity sectors. In light of this analytical gap, scholars working in the global production network tradition, in particular, have begun to incorporate issues of financialization into their frameworks (Coe et al., ; Yeung and Coe, ).…”

Section: Introductionmentioning

confidence: 99%

Financialization and Global Commodity Chains: Distributional Implications for Cotton in Sub‐Saharan Africa

Staritz¹,

Newman²,

Tröster³

et al. 2018

Development and Change

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Restructuring of global and local markets has led to an increased influence of commodity derivatives markets on commodity price setting. This has critical implications for price risks experienced by actors along commodity chains. Commodity derivatives markets have undergone significant changes that have been referred to as the ‘financialization of commodities’, which we define as an increase in trading activity by financial investors and the reorientation of business strategies by commodity trading houses towards risk management and financial activities. This article assesses how these global financialization processes affect commodity producers in low‐income countries via the operational dynamics of global commodity chains and national market structures. It investigates how prices are set and transmitted and how risks are distributed and managed in the cotton sectors in Burkina Faso, Mozambique and Tanzania. It concludes that uneven exposure to price instability and access to price risk management have important distributional implications. Whilst international traders have the capacity to deal with price risks through hedging, in addition to expanding their profit possibilities through financial activities on derivatives markets, local actors in producing countries face the challenge of increased short‐termism — albeit to different extents depending on national market structures — with limited access to risk management.

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From Futures Markets to the Farm Gate: A Study of Price Formation along Tanzania’s Coffee Commodity Chain

Cited by 22 publications

References 34 publications

Two‐echelon supply chain operations under dual channels with differentiated productivities

Two‐echelon supply chain operations under dual channels with differentiated productivities

Large investments, small farmers: A financialisation perspective on value chains in a development corridor

Financialization and Global Commodity Chains: Distributional Implications for Cotton in Sub‐Saharan Africa

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