The first response of the government to any spike in food prices is to ban futures trading and then stop exports. It makes for good theatre, but rarely helps farmers. Financial engineering is a better bet.
The World Bank has now launched a new tool in collaboration with JPMorgan that could help farmers hedge against sudden changes in their product prices. Such basic financial products should be part of any national policy toolbox. In the same spirit, we have a suggestion for the Indian government. There is not enough storage capacity for last year’s record grain harvest. Exports are off the radar because food may be needed at home in case the food security Bill is passed. Till then, food is being wasted.
The government should export the excess stocks and buy them back in the forward market, thus maintaining food security while outsourcing the storage problem.