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Viability of introducing milk futures contracts in Brazil: a multiple criteria decision analysis

Author

Listed:
  • Kennya B. Siqueira

    (Agribusiness Engineering Department, Fluminense Federal University, Av. dos Trabalhadores, 420, Vila Santa Cecília, 27255-125, Volta Redonda, Rio de Janeiro, Brazil)

  • Carlos Arthur B. da Silva

    (Food Technology Department, Federal University of Viçosa, 36570-000, Viçosa, Minas Gerais, Brazil)

  • Danilo R.D. Aguiar

    (Undergraduate Program in Economics, Federal University of Sao Carlos, Campus of Sorocaba, Rd. SP-264 km 110, Sorocaba, São Paulo, 18052-780, Brazil)

Abstract

The viability of introducing milk futures contracts in Brazil was assessed through a combination of multiple criteria decision analysis and the application of traditional principles from the theory of success and failure of futures trading. Commodity-specific attributes and market-related aspects were analyzed for chilled raw milk, ultra high temperature (UHT) milk, and milk powder. The analytic hierarchy process methodology was used to rank the commodities in terms of their feasibility prospects. Among them, it was ascertained that chilled raw milk is the most suitable for futures trading. Major reasons for this result are the product's high price volatility, the competitive nature of its markets, the absence of competing risk-management tools, and the impossibility of cross-hedging. Complementing the analysis, interviews were conducted with the 100 largest milk producers in the country to assess their perceptions regarding futures trading. Approximately 92% of these farmers expressed an interest in adopting milk futures contracts as price risk management tools. In conclusion, the analysis indicated that the introduction of a milk futures contract in Brazil has a high probability of success. [EconLit citations: Q130, C610, 0220]. © 2008 Wiley Periodicals, Inc.

Suggested Citation

  • Kennya B. Siqueira & Carlos Arthur B. da Silva & Danilo R.D. Aguiar, 2008. "Viability of introducing milk futures contracts in Brazil: a multiple criteria decision analysis," Agribusiness, John Wiley & Sons, Ltd., vol. 24(4), pages 491-509.
    • Handle: RePEc:wly:agribz:v:24:y:2008:i:4:p:491-509
    DOI: 10.1002/agr.20175
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    References listed on IDEAS

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    Cited by:

    1. Eewoud Lievens & Kobe Tielens & Erik Mathijs, 2021. "Creating a market for price swaps: Case study of an innovative risk management instrument in the Belgian-Dutch pear market," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 67(1), pages 33-40.
    2. Quintino, Derick David & David, Sergio Adriani, 2013. "Quantitative analysis of feasibility of hydrous ethanol futures contracts in Brazil," Energy Economics, Elsevier, vol. 40(C), pages 927-935.
    3. Boniface, Bonaventure & Gyau, Amos & Stringer, Randy, 2009. "Relationship quality as the predictor of long term relationship in the Malaysian dairy industry," MPRA Paper 24420, University Library of Munich, Germany.
    4. Perera, Devmali & Białkowski, Jędrzej & Bohl, Martin T., 2020. "Does the tea market require a futures contract? Evidence from the Sri Lankan tea market," Research in International Business and Finance, Elsevier, vol. 54(C).

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