Economic crises channel vitriol against certain scapegoats. The past year has found bankers at AIG and Lehman in the line of fire. In 2007, when food prices hit the roof, commodity speculators were the ones who found themselves demonized. Thankfully, the vitriol against these traders is subsiding.
In February 2007, India banned futures trading in some agricultural commodities, believing that this speculation had driven up prices. Now, the chairman of the country’s Forward Markets Commission, the body that regulates commodity futures trading, has told Dow Jones Newswires that the ban may be lifted.
This is a welcome, if overdue, move. Besides aiding in price discovery, a futures contract allows a farmer to hedge the risks faced when crop prices fluctuate. Deprived of this modern financial tool, thanks to the government’s ignorance, farmers are the ones suffering.
With minimum support prices and grain hoarding, India has never used free-market economics to help its farmers. It now can.