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© 1988 Oxford University Press and the Foundation for the European Review of Agricultural Economics

research-article

The contribution of futures and options markets to a revised agricultural policy*

GORDON GEMMILL

City University Business School, Frobisher Crescent, Barbican Centre London EC2Y 8HB

Summary

Changes in agricultural policies are likely to shift more price risk to farmers. In such an environment futures and options markets can provide the means for laying-off that risk, to the extent that farmers want to do so. The potential contribution of these markets in the EC is examined under a variety of agricultural policies. Under a laisser-faire policy, the use of forward (or futures) contracts by farmers would be significant but not huge, and options contracts might be more attractive. However, under the stabiliser proposals of the European Commission farmers would not use forward contracts much more than at present, unless they were made to bear some of the risks on the export market. It is possible that options could be tailored to the particular needs of farmers, as is the case in financial markets. This would allow government intervention to concentrate on the objective of maintaining sectoral income, leaving price risks to be hedged by individual farmers.


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