Viability of an Exchange Traded Commodity Derivatives market in sustaining price stability of Agricultural products in Kenya
Angwenyi, Theodore Omariba
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Simulations are used to analyze the effects of introduction of an Exchange Traded Commodities Derivative market. These effects are both to the consumer and producer of Tea in developing countries. Application to the tea market shows that futures availability can lead to sizeable market- and farm-level effects. Futures availability enhances consumer welfare, and yields important welfare gains for adopters when their market share is small. In order to fix the current inefficiencies in the market, developing countries should thus not only employ market based schemes but also improve both infrastructure and policy consequently leading to a positive impact since market solutions i.e., introduction of Futures do not result in expected welfare gains, price stability and improved production and quality.