Hedging grain price risk in the SADC: Case studies of Malawi and Zambia

We use simulation methods to examine the results of hedging maize food security imports into Malawi and Zambia on the South African Exchange (SAFEX). Results show that hedging using either futures or options can spread import costs over time, thereby reducing variability, and also possibly generating lower average costs. These benefits are increased if hedging only takes place when local prices are at less than import parity and also if the hedge is levered. However, problems will remain so long as intra-regional transport costs remain high.