Linking farmers to future market to benefit both

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Published: August 9, 2019 3:19:03 AM

An early action by NCDEX, the premier agri futures exchange, in collaboration with Nabard, which is the main body promoting farmer producer organisations (FPOs), can bring rich dividends to farming community as well as the exchange, the study said.

farmers, future market, farmer benefit, farmer producer organisations, marketThe scheme, started as a pilot stage for soybean and corn, has since been scaled up to cover more areas.

Stating that linking farmers to futures markets can be mutually beneficial to both, a study by Icrier has suggested initial focus should be on commodities markets in which there is few government intervention. An early action by NCDEX, the premier agri futures exchange, in collaboration with Nabard, which is the main body promoting farmer producer organisations (FPOs), can bring rich dividends to farming community as well as the exchange, the study said.

According to the study, co-authored by Tirtha Chatterjee, Raghav Raghunathan and Ashok Gulati, the exchange should identify production centres for those crops, which are not protected by heavy government intervention, build delivery centres around them and encourage futures trading in these areas through FPOs. It also said that FPOs can procure and aggregate the produce and ensure that both size and quality standards are met as per requirements for participation in futures markets.

From the first FPO — Ram Rahim Pragati Producer Company of Dewas, Madhya Pradesh — transacting on NCDEX in 2014, the number of FPOs increased to 69 as of May 2018. However, 55 (or 80%) of these FPOs had traded only once on the futures platform after their enrollment with the exchange. Even though formal efforts by NCDEX to engage directly with FPOs started in 2016, their share in overall agri-futures trade was just 0.004% between April 2016 and May 2018.

Stressing that learnings from China can help focus on agri-futures, reduce government protection, and customise products, the study said globally, China is the world’s largest player in futures market in terms of number of contracts traded, despite starting in 1993.

A programme of futures plus insurance was introduced in China in 2016 as it intends to move from a state-controlled economy of minimum support prices towards a market determined price structure in future. Under the scheme, farmers buy insurance to ensure the minimum selling prices/earnings, while insurance companies make payments to compensate when commodity prices are less than agreed futures price levels. The price data related to the insurance contracts shall be based on futures prices of the Dalian Commodity Exchange. The scheme, started as a pilot stage for soybean and corn, has since been scaled up to cover more areas. “Alongside developing and focussing on the agri-futures markets, another critical initiative taken by the Chinese government is slowly freeing the commodity market from government intervention.

China was raising MSP since 2004, and ended up piling huge stocks. As a market correction measure, since 2014, it has been reducing its MSPs for rice and wheat and removed corn from the support. It is slowly moving towards a Direct Income Support (DIS) based intervention,” the study said.

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