Linking farmers with futures market can benefit both

3 min read
  1. Recently,Indian Council for Research on International Economic Relations(ICRIER) has recommended the government to empower farmer producer organisations(FPOs) to trade in the commodities futures market.
  2. This was suggested as the government in the Budget has proposed to create 10,000 new farmer producer organisations(FPOs) in the next five years.
  3. Farmers Producer Organisation(FPO) also known as farmers producer company(FPC) is an entity formed by primary producers.These include farmers, milk producers, fishermen, weavers, rural artisans and craftsmen.
  4. The main aim of an FPO is to ensure better income for the farmers through an organization of their own.It provides for sharing of profits/benefits among the members.
  5. A commodity futures contract is an agreement to buy or sell a predetermined amount of a commodity at a specific price on a specific date in the future.A futures contract are used as hedging instruments in agricultural commodities.
  6. Hedging is a common practice that insures the farmer against a poor harvest by purchasing futures contracts in the same commodity.The primary benefit to farmers from the futures market is the protection in case prices fall below the cost of production.
  7. However,farmers still depend on traders in traditional marketing channels who charge high commissions but provide easy access to credit and market.But FPOs can provide the scale of production needed if they receive sufficient information and support.
  8. For this,ICRIER has suggested the government to (a)include the need to focus on commodities with limited government intervention on prices and procurement (b)need to identify production centres and (c)build warehouses and delivery centres around them in order to encourage futures trading in these areas.