The Contribution of Futures and Options Markets to a Revised Agricultural Policy

Gordon Gemmill

European Review of Agricultural Economics, 1988, vol. 15, issue 4, 457-75

Abstract: Changes in agricultural policies are likely to shift more price risk to farmers. In such an environment futures and options markets can provide the means for laying-off risk, to the extent that farmers want to do so. The potential contribution of these markets in the EC is examined under a variety of agricultural policies. Under a laissez-faire policy, the use of forward (or futures) contracts by farmers would be significant but not huge, and options contracts might be more attractive. However, under the stabilizer proposals of the European Commission farmers would not use forward contracts much more than at present, unless they were made to bear some of the risks on the export markets. It is possible that options could be tailored to the particular needs of farmers, as is the case in financial markets. This would allow government intervention to concentrate on the objective of maintaining sectoral income, leaving price risks to be hedged by individual farmers. Copyright 1988 by Oxford University Press.

Date: 1988
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