Futures for Farmers: Hedging Participation and the Mexican Corn Scheme

30 Pages Posted: 28 Feb 2005

See all articles by Guillermo Benavides

Guillermo Benavides

Banco de Mexico

Nicholas Snowden

Lancaster University - Department of Economics

Date Written: December 30, 2004

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.

Keywords: Farmers, hedging incentives, subsidies, Mexico

JEL Classification: G19, O12, Q14

Suggested Citation

Benavides, Guillermo and Snowden, Nicholas, Futures for Farmers: Hedging Participation and the Mexican Corn Scheme (December 30, 2004). Available at SSRN: https://ssrn.com/abstract=673682 or http://dx.doi.org/10.2139/ssrn.673682

Guillermo Benavides (Contact Author)

Banco de Mexico ( email )

Cinco de Mayo # 2
Mexico DF, 06059
Mexico

Nicholas Snowden

Lancaster University - Department of Economics ( email )

Lancaster LA1 4YX, LA1 4YX
United Kingdom
(0)1524 594228 (Phone)
(0)1524 594244 (Fax)

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