Futures Markets and Farmers Welfare: Are They in Sync?

Abstract

Commodity derivative markets, are expected to be alternative markets to physical or spot markets where producers including farmers will be able to foresee market prices of the commodities they are about to produce much in advance of the actual production takes place. The recently introduced commodity options trading instruments are expected to provide a further boost to the hedging and risk management capabilities of commodity derivative markets in India, as option contracts, unlike futures contracts, work on the criteria of unlimited gains with limited losses opportunity. Nevertheless, the risks associated with primary agricultural production are long-term in nature and the current system of commodity derivatives trading instruments available in India needs an improvement to address these long-term aspects so that farmers will be able to take advantage of the system.