Farmer and Farmers' Associations in Developing Countries and Their Use of Modern Financial Instruments

Can farmers' associations use modern financial instruments to manage risk?

This paper concentrates on practical applications of new financial techniques for enabling farmers to manage price risk and facilitating their access to credit.

The paper provides:

  • An overview of farmers' attitude towards risk;
  • The possible role of farmers' associations in helping them cope, and in facilitating agricultural financing, stating that:
    • Managing just price risks is an imperfect solution;
    • Price risk management should be combined with crop risk management;
    • Efficient farmers' organizations could use price risk management and facilitate members' access to finance.

The paper:

  • Describes various applications of financial techniques for price risk management and agricultural finance, discussing:
    • Pricing clauses in physical marketing contracts;
    • Stand-alone price risk management instruments;
    • Possibilities of linking expenditure and earnings;
    • Examples of their use in developing countries.
  • Focuses on possibilities for farmers and farmers' associations to enhance their use of modern financial instruments, such as:
    • Market-based risk management instruments;
    • Structured financing instruments;
    • Modern communication and information technologies.

The paper concludes by discussing the role of governments and the international community in providing an enabling environment for farmers' associations to use modern financial instruments.