Factors Affecting Farmers’ Participation

This chapter examines various other factors affecting farmer participation in the futures market. It is observed that farmers who are aware of futures/forward markets are also likely to have stronger associations with farmer bodies (cooperatives, PACs, FPC), APMC officials, and traders/dealers in both Gujarat and Madhya Pradesh. The analysis examines major reasons that impede participation/adoption of futures markets by farmers and the avenues toward more awareness and participation. Though some commodity exchanges are trying to create awareness regarding how futures markets work and their benefits, the state governments need to also try to reach out to the different farmer associations and dispel their concerns regarding the speculative and complex nature the markets. A major problems lies in the mismatch between available expected future spot and reported futures prices, complexity in mark-to-market settlements, entry barriers created by middlemen, speculative trade information from broker’s terminal, and the absence of physical delivery. The perception/concerns is higher among those who have participated in these markets and in Gujarat farmers. NCDEX has a customer testimonial page for responses from farmers, traders, and analysts. While some farmers are reaping the benefits of price rises by being able to store produce themselves, the others are apprehensive of market fluctuations and do not participate. In this regard, the top factors that can influence farmers are value additions (pooling, weighing, grading, and standardization), availability of storage structures, access to pledge-/commodity-based structured financing at reasonable rate of interest ,and finally customized contracts for farmers: contract size, price band, and margining system. Thus, farmer awareness camps will be useful for all. There is high positive correlation of participation with response to problems indicating that farmers may benefit more if their problems are solved/addressed. Not all commodities are traded on futures, and so they need to go to different markets—spot and futures for different crops. More customized contracts may be useful. In Rajasthan, it is seen that lack of understanding of the futures market, requirement of extensive documentation, lack of warehouses or delivery centers in proximity to production centers, and high rejection rates due to quality issues, among other factors are major constraints. Greater state governmental support is required to address these problems. Market innovations, such as ‘futures plus insurance,’ can also be a way forward.