How do futures trading affect agricultural markets in India?

What is futures trading?

A futures exchange or market is basically a financial instrument where people can trade

in standardized futures contract—a contract to buy or sell a specific commodity at a given

price within a certain period.

At first, futures markets were only present for certain metals like copper. The second sort

of commodity was agricultural produce, starting in the USA and a few parts of the world.

Now, of course, it is increasingly popular and used all over the world for various types of


Futures Trading and Agriculture

In India, agriculture is a major concern. Even though it is not as large a part of the GDP

as it used to be, it is still a very important portion, especially for food security.

It’s difficult to tell how futures trading affect agriculture. In 2008, the government banned

futures contracts on four goods to handle inflation. In result

  • Only the price of potato went down
  • The ban didn’t lead to any significant price changes
  • Some people suggested that futures markets benefit farmers (as they are assured of a certain price for their goods)
  • Some people suggested that speculation led to price distortions
  • The Abhijit Sen Committee did not have any significant findings—only commenting
  • that it was difficult to tell how future and spot prices affect each other.


It is then difficult to conclude precisely how the futures market affects agriculture. It may

be that in well-organized big cash crop farming, it is a boon but in unorganized farming, it

may actually lead to lower prices.