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Futures for farmers: hedging participation and the Mexican corn scheme

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  • G Benavides
  • P N Snowden

Abstract

Administered commodity price schemes in developing countries have proved ineffective in raising farmers’ incomes and price stabilisation through futures markets is increasingly advocated as the alternative policy objective. A potential difficulty is that farmers tend not to hedge extensively, even in developed countries where access to futures markets is long established. Explanations for this reticence are examined here with context provided by the Mexican hedging programme, which incorporates financial incentives to spur adoption. Applying representative data for corn to a well-known analysis of the hedging decision suggests that limited participation may reflect rational calculation rather than farmer ‘inertia’. A policy implication is that permanent access subsidies are difficult to justify from the national perspective.

Suggested Citation

  • G Benavides & P N Snowden, 2005. "Futures for farmers: hedging participation and the Mexican corn scheme," Working Papers 563432, Lancaster University Management School, Economics Department.
    • Handle: RePEc:lan:wpaper:563432
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    References listed on IDEAS

    as
    1. Anderson, Ronald W & Danthine, Jean-Pierre, 1981. "Cross Hedging," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1182-1196, December.
    2. Faruqee, Rashid & Coleman, Jonathan R & Scott, Tom, 1997. "Managing Price Risk in the Pakistan Wheat Market," The World Bank Economic Review, World Bank, vol. 11(2), pages 263-292, May.
    3. Anderson, Ronald W & Danthine, Jean-Pierre, 1980. "Hedging and Joint Production: Theory and Illustrations," Journal of Finance, American Finance Association, vol. 35(2), pages 487-498, May.
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