Articles

How agri-futures market can help reduce agri prices?

by Sandeep Agarwal Financial Blogger & Advisor

It will not be wrong to say that the state of the marketing system for agricultural products is highly uncooperative for the farmers. When the technological innovation is at its peak, it is disappointing to witness that the farmers still cannot get access to the best prices which they can inculcate to make higher produce. The markets are not adequately integrated. The farmers still sell in local markets where prices are smashed when there is bumper harvest. bumper harvest.

The e-NAM, an electronic platform, wishes to create an all India spot market. Installing the software alone will not do, it will need assaying, grading, sorting, storing, delivering and settling disputes. e-NAM will take years to get into action and we can take some learnings from India’s budding and China’s developed futures markets.

The agri-futures market is the way forward. It will ensure that the farmers’ planting and selling decisions are forward-looking and it will also help solve the boom and bust problem in agri-prices. But the problems with Indian agri-futures is that they are often disturbed by the bans by the government because the policy-makers always doubt the functioning of these markets and also only a handful farmers or farmer producer organizations (FPOs) trade on futures which creates distrust of policymakers. The size of agri-futures in our country remains to be at low levels and has been going down more since 2012, as the nifty futures highlight.

The first trade in futures by India was observed in 1875 in cotton in the Bombay Cotton Exchange. It could not develop due to the suspensions around the WW-2 and due to the shortage of essential commodities. In 2003, three national exchanges were introduced and all the agri commodities were allowed to be traded in futures markets. But then 15 commodity futures were suspended leading to the uncertainty in the market. The agri-futures remained at low levels constituting to only 2 per cent of 1.6 bn global agri- futures contracts during the TE-2016.per cent of 1.6 bn global agri- futures contracts during the TE-2016.agri commodities were allowed to be traded in futures markets. But then 15 commodity futures were suspended leading to the uncertainty in the market. The agri-futures remained at low levels constituting to only 2 per cent of 1.6 bn global agri- futures contracts during the TE-2016.

As per the business news, China was the largest player in global agri-futures contracts with a share of 69% in TE-16. China did a lot of experimentation in the early years. China believed in the setting of wholesale market of sufficient size and efficiency before coming up with a vibrant futures market. China had good state participation in the futures markets through the State Trading Enterprises and there were no abrupt suspensions of commodities.

To make agri future market a success, we need to choose the commodities carefully and set up their markets first. A Principal Component Analysis with Siraj Hussain, former Secretary, Agriculture, was done where most promising commodities for futures markets were identified. They were found to be either feed material like soybean meal, rapeseed meal, maize or fibre like cotton and also spices and edible oils (India is the largest importer of edible oils, so these are promising candidates for agri-futures). Basic staple food items like rice, wheat, and even pulses were ranked low as they had food security concerns


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About Sandeep Agarwal Junior   Financial Blogger & Advisor

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Joined APSense since, June 29th, 2016, From Bangalore, India.

Created on Sep 22nd 2017 07:19. Viewed 307 times.

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