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Forward Sales Contracts: A Market Based Alternative to Government Intervention in Agriculture Marketing

 

Rationale

The two main objectives of government intervention in agricultural marketing are to stabilize food prices and to ensure that farmers receive remunerative prices for their produce. Since the early 1970s, successive governments in Sri Lanka have intervened in agricultural marketing by offering guaranteed prices to farmers for selected food crops. Although the guaranteed price scheme has been in operation for over three decades, it has failed to produce expected results for various reasons. As a market-based alternative to government intervention in agricultural marketing, the Central Bank of Sri Lanka introduced forward contracts under the Govi Sahanaya scheme in 1999.

Objectives

This study describes the agricultural commodity marketing systems in Sri Lanka, and gives reasons for wide fluctuation in prices during the cropping season, low prices during the harvesting period, and high prices during the off-season. The study explains the objectives of government intervention in agricultural commodity marketing and identifies the failures of government intervention. This study examines the forward contract scheme and reviews its performance. Although it is still in its infancy, the Govi Sahanaya scheme has generated encouraging results. The study recommends that this programme be taken seriously by policy makers and be given state patronage to increase farmer participation.

 
Research Team:
Funding:
Publications:
Ananda Weliwita, Roshen Epaarachchi
IPS Core Research
"Forward Contracts: A Market Based Alternative to Government Intervention in Agriculture Marketing in Sri Lanka" (2003) by Ananda Weliwita and Roshen Epaarachchi, Agricultural Economic Policy Series
(IPS Publication)