The British potato industry will soon have a further option to manage price risks when a new potato futures market operating system is agreed.

If enough interest is shown by the industry, the system secured with the co-operation of the British Potato Council will once again offer everyone in the industry the option to buy or sell futures contracts.

Once the system becomes operational, British-based futures brokers BDF Commodities and German organisation WTB will trade contracts based on the widely recognised BPC weekly spot average price. They will replace LIFFE, which recently ceased trading potato futures. The most significant aspect of the switch is the move away from physical delivery contracts (based on physical specifications) to a new cash index settled contract, which brokers believe offers a more level playing field for users and should improve confidence in managing risk.

BPC chairman David Walker expressed the full support of the Council for the new structure and called it 'a valuable and real opportunity for the trade'.

BPC agricultural economist Guy Gagen added: 'Volatile and far ranging prices can damage business in both the short and long term. By buying or selling futures contracts that establish a price now for a purchase or sale that will take place at a later time, individuals and businesses are able to achieve what amounts to insurance protection against adverse price changes.

'This will be an important development in risk management,' he added. 'Renewing interest in futures marketing should lead to greater volumes being traded and create the liquidity required to be of benefit to users.' He pointed out that whilst recognising the benefits of locking in to forward prices, interested parties should seek proper advice before entering any agreement and understand the risks involved. 'Setting up a trading account is quite straightforward and we can direct people to accredited brokers. Once an account is in place and the deposit paid, a commodity trader will be assigned to help with trading.' John Bull of BDF said that a typical deposit would be in the region of £10,000 and said that the aim of the market was to be trading 100,000 contracts of 25 tonne lots by 2004. 'In the mid 1980s the potato futures market was trading 1,000 contracts a day, mostly of 40t lots,' he said. 'We don't expect to get back to that level. But the market ought to be at the level we are aiming at if it is being used properly and there exists a genuine need for risk management.' WTB, which has wide experience in futures markets for a variety of commodities, offered the initial platform for the futures market, and BDF, the only dedicated agricultural broker in the UK, was brought in to create the necessary competition in the marketplace, said Gagen.

'The BPC will actively be educating growers, making them aware of this tool, how it can be used to improve their business and informing them of the brokers that are involved,' said Walker.

'The futures market assists growers to manage risk by securing a guaranteed price for a part of their production and as an industry we have not been good users of this type of tool. If we don't use it, we might just lose it. With the cash settlement we now have a very exciting option to manage risk within our businesses and this should become a fundamental part of every grower and trader's armoury.