Literature on Farmers’ Participation in Futures

Abstract

This chapter reviews the empirical studies of farmer participation in futures market. Empirical research on farmer participation in the futures market in developing countries has been somewhat limited. The institutional structure, design, and governance mechanisms to facilitate their participation are not yet well understood. Officially sponsored interventions in India, Nicaragua, Mexico, Canada, Ethiopia give some evidence and experience of farmer participation in the organized futures markets. Many of these interventions have failed to sustain. But the rationale for exploring farmers’ participation in futures markets has relevance in the wake of the agrarian crisis and pro-market national agriculture policies. The chapter covers the topics of the past efforts, current scenario, enablers to farmer participation in derivative markets, empowering and orchestrating the roles of regulator and market agencies, coexistence of futures and spot exchanges, and devising a liquid market microstructure. Farmers’ direct participation forward/futures markets is very minimal in India despite aggregation efforts of government projects. This can be due to many factors including lack of financial literacy and liquidity and depth of the market. Indirect participation through access to real time futures price from price ticker boards, online price portal, and mobile service is an alternative, but low awareness of farmers and the market regulating authority often comes in the way. However, there is renewed interest from organizations such as Small Farmers’ Agribusiness Consortium (SFAC) and the Ministry of Agriculture and Farmers Welfare for mobilizing collective action and market access of smallholders through Farmer Producer Companies (FPCs) for direct and indirect participation of farmer in futures markets.