This study examines the impact of interventions that enable farmers to use information from futures markets with the goal of helping them improve agricultural planning and decision-making, reduce their risk exposure, and increase harvest time revenue.
Background
Despite witnessing gradual industrialization of the Indian economy over several decades, agriculture and allied activities continue to be the primary employers, accounting for 52% of the workforce and 17.2% of the GDP. At the same time, average land holding sizes remain very low, with 70% of the land held by farmers who own 2.47 acres or less of land. Small and medium scale farmers do not benefit from economies of scale in production, enjoying limited profitability even in the best of times. Since many smallholders buy farming inputs on credit, and have few assets, it further increases their vulnerability to negative price shocks. The recent arrival of national agricultural futures markets in India holds the promise of providing both producers and consumers with additional tools to manage price fluctuation risk. This policy paper reports on a series of interventions designed to enable farmers to use information from futures markets with the goal of helping them improve agricultural planning and decision-making, reduce their risk exposure, and increase harvest time revenue. The availability of futures price information can help farmers make informed agricultural decisions.
Approach
The field interventions featured in this study were conducted in Gujarat, providing spot and futures prices information for three cash crops to 540 farmers through village boards and a mobile-based platform. It was conducted in collaboration with Self Employed Women’s Association (SEWA), who drew on their established network of village leaders to identify 108 villages were identified in four districts of Gujarat state in India. SEWA helped identify ten households from each of the 108 villages. The survey data captured important household characteristics as well as price knowledge and expectations, the households’ level of trust in financial markets and data on investment and agricultural decisions. Over the course of the project, two treatments were administered (village blackboards, and text messages and push calls) in two phases.
Implications
From a policy perspective, the study finds that providing spot and futures prices information to farmers does change their knowledge and perception of financial markets in general and futures markets in particular, and makes them more willing to trust and get actively involved in financial markets. All three forms of our treatment have been very popular with farmers. Although these interventions were provided free of cost, the only significant cost that we had to bear for this intervention was the monitoring cost of making sure that village boards got updated on a weekly basis. The use of mobile phone technology makes this an easily scalable intervention, since the cost of sending text messages is less than a rupee per farmer (approximately USD 0.02).
Key Findings
These studies find a number of important effects of providing futures prices to farmers. The findings indicated a marked improvement in price knowledge and awareness of financial markets as a result of the interventions. The interventions also resulted in farmers utilizing futures prices in making crop selection and setting expectation of harvest time prices.