Managing food industry business and financial risks with commodity‐linked credit instruments

Abstract

AbstractThis study reviews the use and structure of commodity‐linked credit instruments. It is argued that in the absence of contingent markets food firms face increasing financial risk‐reduced investment, and limited access to debt markets. One strategy is to issue commodity‐linked credit whose payment structure is linked to the price of an underlying commodity. In some cases, a commodity‐linked bond (CLB) can be structured to provide an incentive to investors by sharing in profit gains. If the goal is to hedge financial risks, CLBs can also be constructed that reduce the loan principle or coupons depending on price movements. [JEL classifications: G13, Q13, Q14] © 2006 Wiley Periodicals, Inc. Agribusiness 22: 523–545, 2006.