Opportunities and Constraints of Linking Farmers with futures markets in India

Abstract

Farmers in India, particularly small and marginal farmers, do not trade directly in the agri-futures market. Their small size, lack of trust and understanding of futures market and dependence on middlemen, are some of the main deterrents. Farmer Producer Organizations (FPOs) play an important role in this context because they can procure commodities, aggregate them, and ensure that the size and quality standards required for agri-futures trading are met. The Union Finance Minister set a target of 10,000 FPOs in the next five years in her Budget speech for the Union Budget of FY20 (by 2024). NCDEX has been attempting to increase FPO participation in markets for several years. This is a qualitative study based on in-depth interviews with representatives of NCDEX officials, producers involved in the agricultural value chain, interest groups, and government agencies. In addition, for specific case-study data, interviews were conducted with local actors at the producer-company level at seven producer companies and their supporting organisations in the states of Gujarat, Rajasthan, and Madhya Pradesh. The study attempts to bring understanding of ways of linking farmers with FPO in India and map the role of FPO in agri value chain creation. Based on this research, the paper makes the recommendations for FPOs, NCDEX, and the government in order to achieve better price risk management and quality of life for the farmers of the country.