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Futures for farmers: Hedging participation and the Mexican corn scheme

  • G. Benavides
  • P. N. Snowden
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    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 reluctance 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.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/00220380600682330
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    Article provided by Taylor & Francis Journals in its journal Journal of Development Studies.

    Volume (Year): 42 (2006)
    Issue (Month): 4 ()
    Pages: 698-712

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    Handle: RePEc:taf:jdevst:v:42:y:2006:i:4:p:698-712
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    1. Sadoulet, Elisabeth & Janvry, Alain de & Davis, Benjamin, 2001. "Cash Transfer Programs with Income Multipliers: PROCAMPO in Mexico," World Development, Elsevier, vol. 29(6), pages 1043-1056, June.
    2. Kletzer, Ken & Newbery, David M & Wright, Brian D, 1992. "Smoothing Primary Exporters' Price Risks: Bonds, Futures, Options and Insurance," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 641-71, October.
    3. Anderson, Ronald W & Danthine, Jean-Pierre, 1981. "Cross Hedging," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1182-96, December.
    4. Rigoberto A. Lopez & Hugo H. Ramos, 1998. "Supply response and demand for basic grains in El Salvador," Agribusiness, John Wiley & Sons, Ltd., vol. 14(6), pages 475-481.
    5. Harwood, Joy L. & Heifner, Richard G. & Coble, Keith H. & Perry, Janet E. & Somwaru, Agapi, 1999. "Managing Risk in Farming: Concepts, Research, and Analysis," Agricultural Economics Reports 34081, United States Department of Agriculture, Economic Research Service.
    6. Larson, Donald F. & Varangis, Panos & Yabuki, Nanae, 1998. "Commodity risk management and development," Policy Research Working Paper Series 1963, The World Bank.
    7. Anderson, Ronald W & Danthine, Jean-Pierre, 1980. " Hedging and Joint Production: Theory and Illustrations," Journal of Finance, American Finance Association, vol. 35(2), pages 487-98, May.
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