Do Futures Benefit Farmers Who Adopt Them?

Sergio Lence

No 03-20, Working Papers from Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA)

Abstract: The present study shows how to use a simulation approach to quantify the effects of making a futures market available on adopting farmers’ behavior and welfare, and its impact on market variables such as spot prices. Relevant constraints often faced by commodity producers, such as credit restrictions or lack of markets for staple crops, are explicitly considered. Aggregate market effects associated with the adoption of futures by a group of producers are also incorporated. Under the chosen parameterizations, futures availability affects various aspects of adopters’ behavior. Futures availability renders consumers better off and non-adopting producers worse off. Farmers who adopt futures gain if their market share is small, but lose if their market share is large. However, the magnitudes of adopters’ gains or losses are quite small, especially when compared to the welfare effects resulting from alternative changes in the market environment faced by farmers, such as the relaxation of credit restrictions or the opening of a market for food crops. The impact of making futures available on the spot market is quite modest, regardless of whether the share of adopters is small or large.

Keywords: Behaviour; Cash crops; Commodity markets; Demand; Farmers; Rational Expectations; Futures trading; Mathematical models; Supply; Trade policies (search for similar items in EconPapers)
JEL-codes: D41 D44 D84 D92 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
ftp://ftp.fao.org/docrep/fao/007/ae053e/ae053e00.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Failed to connect to FTP server ftp.fao.org: No such host is known.

Related works:
Working Paper: Do futures benefit farmers who adopt them? (2003)
Working Paper: DO FUTURES BENEFIT FARMERS WHO ADOPT THEM? (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fao:wpaper:0320

Access Statistics for this paper

More papers in Working Papers from Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA) Agricultural Sector in Economic Development Service FAO Viale delle Terme di Caracalla 00153 Rome Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Gustavo Anríquez ( this e-mail address is bad, please contact ).