From Futures Markets to the Farm Gate
A synopsis of a recent article by Dr Hannah Bargawi (SOAS University of London) and Dr Susan Newman (UWE Bristol): From Futures Markets to the Farm Gate: A Study of Price Formation along Tanzania’s Coffee Commodity Chain.
Within the social sciences broadly, and within commodities-related research in particular, research has increasingly focused on prices – analysing and evaluating the formation of prices, the transmission of prices, and the impact of prices and price changes on different actors (from within mainstream economics, see for example Rapsomanikis et al 2006 or Çalişkan and Callon 2010 as an example of the research originating from within economic geography). However, such studies have tended to tackle their research questions in isolation, adopting a particular analytical framework, which has often resulted in important and relevant issues being ignored.
Within price transmission approaches, for example, interest has focused on how prices are transmitted between distinct nodes in a chain e.g. from international commodity markets to exporters in a producing country. This still leaves important gaps to be explored. Firstly, what is the nature of the relationship between the actors at different points in the chain i.e. how much power do a certain groups of actors have to determine prices over another group? Secondly, (how) do domestic and international institutions interact with the vertical transmission of prices to determine prices received by different actors?
These are the aspects we try to capture in our new article “From Futures Markets to the Farm Gate: A Study of Price Formation along Tanzania’s Coffee Commodity Chain“ in the journal Economic Geography. The article traces the coffee price chain from international financial markets to Tanzanian producers in the Kilimanjaro region. The article develops a new framework for the study of prices which brings together relational and institutional perspectives for a fuller study of price formation and transmission.
In the context of coffee prices in Tanzania, three main points can be drawn from the article. First, there has been a dislocation between movements in coffee futures prices and changes in physical supply and demand conditions, owing to increased financialization and the rise of commodities as an asset class in portfolio investment. Second, the way in which prices are transmitted from the world level to coffee producers depends crucially on the structure of the domestic marketing system. The auction system in Tanzania has cushioned the transmission of daily international price movements to domestic traders and cooperative unions. Finally, these domestic institutional changes have led to a differentiation in price transmission and impact. In the Kilimanjaro region, producers linked to the KNCU cooperative system are generally more protected from in-season price changes. While producers selling to private agents are more exposed to price shifts.
References:
Çalişkan, K., and Callon, M. 2010. Economization, part 2: A research programme for the study of markets. Economy and Society 39:1–32.
Rapsomanikis, G., Hallam, D., and Conforti, P. 2006. Market integration and price transmission in selected food and cash crop markets of developing countries: Review and applications. In Agricultural commodity markets and trade: New approaches to analyzing market structure and instability, ed. A. Sarris and D. Hallam, 187–217. Cheltenham, UK: Edward Elgar.