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EU markets eye farm derivatives

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by Brian Turner
EU markets eye farm derivatives

With European Union farmers facing a time when they will no longer have as many subsidies and price supports to guarantee them a regular income, financiers see a good opportunity to expand the European market in farm derivatives.

As the Common Agricultural Policy is gradually phased out, farmers’ products will have to brave free market fluctuations without assistance.

Because of this, advocates of an expanded farm derivatives market are making it their business to teach the farming community how to use derivatives and other market tools to better their financial position.

European exchanges currently do provide derivatives contracts as a way of managing risk, but so far they are little utilized.

In contrast, agricultural derivatives trading has been used in the United States since the mid-1860s when the Chicago Board of Trade opened its doors. Even Australia leads Europe in the use of derivatives.

But many European farmers have been hesitant to get into the derivatives market due to affordability factors, the perception of derivatives as speculative, as well as the expectation that subsidies and the Common Agricultural Policy would be there to help them.

Experts acknowledge that an active farm derivatives market is at least several years away in Europe, but the move to develop such a market has begun.

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News posted: May 12, 2005

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