Hedge commodities against price volatilities, experts say
What you need to know:
- Now the Chief Executive Officer of Just Know Your Coffee Cup (JKCC), also seems to have no idea regarding the collective influence that coffee value chain players can culminate in safeguarding themselves against price volatilities.
Beyond trading coffee “recklessly”, Mr Julius Kalulu says understanding and appreciation of coffee value chain linkages was badly wanting.
Now the Chief Executive Officer of Just Know Your Coffee Cup (JKCC), also seems to have no idea regarding the collective influence that coffee value chain players can culminate in safeguarding themselves against price volatilities.
Fast forward, Mr Kalulu is now well-grounded in price risk management and contract negotiations, thanks to the sector stakeholders' organised training in that regard. As a result, he now appreciates the need to hedge against price volatilities after learning the hard way – incurring routine losses on account of commodity price instabilities.
“We are not in charge of our prices, particularly that of coffee because it is determined elsewhere,” Mr Kalulu told Daily Monitor.
He continued: “Unlike before, we can now mitigate the losses by proper planning. We know when to go to the market and when to supply without distorting the prices of the commodities so that by the end of the day we are not hit by price volatility even in the Covid situation.”
Analyst take
One of the ways that sector value chain players can hedge against the volatilities of commodities, according to Mr Robert Byaruhanga, board member of Uganda Coffee Federation, is by making use of Bridges Exchange.
Bridges Exchange is a platform that allows traders, farmers, and dealers in coffee and other commodities to hedge their price risk.
“Commodity prices can go up or down and none of us knows when this will happen. So this tool will help farmers, traders, dealers and exporters to manage the volatility of commodity prices. And this tool is not just only for coffee but other commodities such as maize,” Mr Byaruhanga said in an interview.
With the platform, you can sell coffee not just to a physical buyer, but to the platform which guarantees a return on investment even when the market price is down.
This, he says is important because even when the bank lends money to a value chain player, there will be no worry of default.
As for the Business Advisor with a specialty in the agribusiness sector, Mr Wilberforce Karuhanga, training of different cooperatives in the coffee sector to hedge their risks will continue to feature routinely. Focus he said will be on price risks of coffee exports and local trading.
However, it emerged that the biggest issue right now is the shortage of export companies or producer organisations participating in international exports.
“The training in price risk management goal is to see more producing organisations export more to the international market and benefit from the premiums,” Mr Karuhanga said.
