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

Kennya B. Siqueira, Carlos Arthur B. da Silva and Danilo R.D. Aguiar
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Kennya B. Siqueira: Agribusiness Engineering Department, Fluminense Federal University, Av. dos Trabalhadores, 420, Vila Santa Cecília, 27255-125, Volta Redonda, Rio de Janeiro, Brazil, Postal: 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, Postal: 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, Postal: Undergraduate Program in Economics, Federal University of Sao Carlos, Campus of Sorocaba, Rd. SP-264 km 110, Sorocaba, São Paulo, 18052-780, Brazil

Agribusiness, 2008, vol. 24, issue 4, 491-509

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.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:wly:agribz:v:24:y:2008:i:4:p:491-509

DOI: 10.1002/agr.20175

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