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

• Published in: Agribusiness (New York, N.Y.) Vol. 24; no. 4; pp. 491 - 509
• Main Authors: Siqueira, Kennya B, da Silva, Carlos Arthur B, Aguiar, Danilo R.D
• Format: Journal Article
• Language: English
• Published: Hoboken Wiley Subscription Services, Inc., A Wiley Company 01-10-2008; John Wiley & Sons, Ltd; Wiley Periodicals Inc
• Series: Agribusiness
• Subjects: chilled foods; commodity prices; Competition; Contracts; dried milk; Futures trading; High temperature; Management tools; market competition; Milk; milk industry; milk prices; multi-criteria decision making; Multiple criteria decision making; raw milk; Risk management; risk management process; Studies; UHT milk; Brazil
• ISSN: 0742-4477; 1520-6297
• DOI: 10.1002/agr.20175

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.