Underdeveloped Spot Markets and Futures Trading: The Soya Oil Exchange in India

Abstract The limited presence of futures exchanges in developing countries where commodity markets fall short of the ideal underscore the importance of understanding the relation between spot and futures markets. The paper examines the exceptional success of the soya oil contract at the National Board of Trade (NBOT) in India. The paper asks whether the NBOT contract exhibits the fundamental features of mature futures markets in terms of its use by hedgers. If the market offers arbitrage opportunities to hedgers and if such activity is significant, then the activities of commercial firms should affect the returns to their hedging portfolio i.e., change in basis. This insight is developed into an examination of the impact of soya oil imports on the basis. Despite the lack of key market institutions such as certified warehouses and centralized spot prices, the NBOT contract compares well with mature exchanges. Soya oil imports exercise a significant impact on the basis and provide enough short-term volatility to make the contract attractive to both hedgers and speculators.basis, hedging, futures market, spot markets, soya oil, Marketing, G13, Q13,

Reforming food subsidy scheme: Estimating the gains from self-targetting in India

This paper uses the theoretical framework of the theory of tax reform to analyse whether a "small" change in an existing food subsidy program can be welfare-improving and revenue-neutral. It shows how existing econometric methods can be adapted to estimate demand parameters even when household level data exhibit little price variation because the government controls food prices. The methodology developed here is used to estimate welfare changes from shifting a rupee of subsidy on existing commodities to coarse cereals in the Indian public distribution system.

The economics of GM food labels: An evaluation of mandatory labeling proposals in India

"Labeling of genetically modified (GM) foods is a contentious issue and internationally, there is sharp division whether such labeling ought to be mandatory. This debate has reached India where the government has proposed mandatory labeling. In this context, this paper evaluates the optimal regulatory approach to GM food labels. Mandatory labeling aims to provide greater information and correspondingly more informed consumer choice. However, even without such laws, markets have incentives to supply labeling. So can mandatory labeling achieve outcomes different from voluntary labeling? The paper shows that this is not the case in most situations. The paper goes on to explore the special set of circumstances, where mandatory labeling makes a difference to outcomes. If these outcomes are intended, mandatory labeling is justified; otherwise not." from Authors' AbstractBiotechnology Economic aspects, Genetically modified food Developing countries, Biosafety, Food labeling,

Aggregation in area yield insurance:The linear additive model

Earlier analyses of area yield crop insurance schemes used a linear additive model (LAM) to express the relationship between individual and area yield. Although similar to the capital asset pricing model used in finance, the theoretical foundations of the LAM are unknown. A contribution of this paper is the derivation of the precise conditions under which area aggregation results in a LAM, thus establishing a link between micro variables and LAM parameters. The conditions are two-fold. They relate to the interaction of risks in individual technologies and on the extent of aggregation. We show that if systemic and individual risks are additive in individual yields and if the aggregation is such that the law of large numbers hold then the LAM obtains. The paper also shows how departures from these conditions affect the results derived from a LAM analysis.Area yield, Beta, Crop insurance, Systemic risks

STRUCTURAL MODELS OF AREA YIELD CROP INSURANCE

Earlier analyses of area yield crop insurance schemes used a reduced form linear relationship between individual and area yield. However, without knowledge of the structural framework, the analysis and design of alternative schemes is problematic. This paper resolves this problem. The paper characterizes the entire class of structural models equivalent to the reduced form. As a result, the beta, the slope coefficient of the reduced form is expressed as a function of structural parameters. Second, the structural model is used to analyze the relation between the aggregation (that determines area yields) and the risk reduction due to area yield insurance. Third, we consider optimal area yield insurance for an important class of structural models not consistent with the reduced form.Area Yield, Beta, Crop Insurance, Systemic Risks, Risk and Uncertainty, G22, Q14,

Underdeveloped spot markets and futures trading: The Soya Oil exchange in India

The limited presence of futures exchanges in developing countries where commodity markets fall short of the ideal underscore the importance of understanding the relation between spot and futures markets. The paper examines the exceptional success of the soya oil contract at the National Board of Trade (NBOT) in India. The paper asks whether the NBOT contract exhibits the fundamental features of mature futures markets in terms of its use by hedgers. If the market offers arbitrage opportunities to hedgers and if such activity is significant, then the activities of commercial firms should affect the returns to their hedging portfolio i.e., change in basis. This insight is developed into an examination of the impact of soya oil imports on the basis. Despite the lack of key market institutions such as certified warehouses and centralized spot prices, the NBOT contract compares well with mature exchanges. Soya oil imports exercise a significant impact on the basis and provide enough short-term volatility to make the contract attractive to both hedgers and speculators.hedging, futures markets, spot markets, soya oil

Incompleteness in Insurance: An Analysis of the Multiplicative Case

Risk and Uncertainty,

LIBERALIZATION'S IMPACT ON THE INDIAN SEED INDUSTRY: COMPETITION, RESEARCH, AND IMPACT ON FARMERS

This article attempts to measure the impact of IndiaÂ’s limited liberalization on the seed industry and on farmers. Using a unique data set on the structure, research, and sales of private seed firms at two points in time, 1987 and 1995, we provide evidence that liberalization increased the competitiveness of the seed industry, and increased the amount of research by Indian and foreign seed firms. Then, using government district level data and data collected from these firms, we show that private hybrids increased farmersÂ’ yields. This suggests that Indian farmers are the true beneficiaries of liberalization and that policies that encourage more competition and more research will provide future benefits to farmers.Crop Production/Industries,

Risk management in agriculture

This monograph was written to be part of the series of studies commissioned by the Ministry of Agriculture under the rubric of "State of Indian Farmer - A Millennium Study". On the basis of existing literature, this study documents the status of our knowledge on risks of agriculture and their management. Chapter 2 discusses the evidence on the nature, type and magnitude of agricultural risks. Chapter 3 discusses farmer strategies to combat risk. In addition to the mechanisms at the level of the farm household, the need to cope with risk can also affect community interactions and social customs. This is examined in Chapter 4. In chapter 5, we consider how production risks have been transformed by developments in the agricultural economy in the post-independence period. In chapter 6, we review the principal developments that have impacted on market risks.

Efficiency and distribution in contract farming:The case of Indian poultry growers

This paper is an empirical analysis of the gains from contract farming in the case of poultry production in the state of Andhra Pradesh in India. The paper finds that contract production is more efficient than noncontract production. The efficiency surplus is largely appropriated by the processor. Despite this, contract growers still gain appreciably from contracting in terms of lower risk and higher expected returns. Improved technology and production practices as well as the way in which the processor selects growers is what makes these outcomes possible. In terms of observed and unobserved characteristics, contract growers have relatively poor prospects as independent growers. With contract production, these growers achieve incomes comparable to that of independent growersContract Farming, Contracting, Poultry, Vertical Integration