What is the role NCDEX has been playing in commodities trading?
NCDEX is India’s largest platform for spot and futures trading in agricultural commodities. More than 30 commodities, including important cash crops like grains, edible oils, pulses, cotton, sugar and spices, are traded daily on our exchange. We have 844 members and a client base of 1.7 million who trade through 49,000 terminals across 1000 centers. As an exchange, the three areas that we have relentlessly focused on are price discovery, price dissemination and improved risk management. We believe price is one of the most powerful signals on earth and the best fertilizer. Free trade and efficient commodity markets give farmers and companies clear price signals for better business decisions. NCDEX gives price signals for 50 per cent of food grains, 48 per cent of pulses and 56 per cent of spices produced in the country.
Though commodity trading has become more organised, the unorganized market is still prominent. Why?
The regulated commodity futures markets are only a decade old. Despite the rapid strides made in market development, we have touched only the tip of the iceberg. Besides, the fragmented physical agri-commodity market, with all its imperfections, hasn’t helped either. Integration between the commodity futures markets and spot markets is the need of the hour. With over 7500 mandis in India falling under the jurisdiction of respective states, the trade being confined to the geographical location, there is a pressing need to bring about greater transparency and efficiency in trading.
What regulation can be adopted to curb artificial price fluctuations?
Commodity futures markets in India are regulated by the Forwards Markets Commission (FMC) which works closely with the futures exchanges, ensuring fair and transparent price discovery and market operations. The passing of the much awaited FCRA bill will further strengthen the regulatory body. A well-regulated marketplace builds confidence in the participants.
How farmers are benefited from organized commodity trading?
Though farmers do not directly participate in the futures markets, they have benefited from the national price discovery platform and the development in storage infrastructure that has been triggered by the futures markets. A case in point being maize farmers in Gulabbagh in Bihar were getting a raw deal due to lack of drying or proper storage facilities and often had to sell their produce at a discounted price. Recognizing the need, NCDEX launched a maize future contract with Gulabbagh as the basis centre, which resulted in increased trading activity, demand for warehousing rising and large companies investing in developing storage capacity and, most importantly, increase in the farmers bargaining power. Another example is Andhra Pradesh, where about 70 per cent of the population depends on farming. Ever since the arrival of futures trading in chilli, turmeric and maize, farmers have begun to see the benefit of not having to seek a buyer individually. This process increases business survival among farmers and the exchanges always make sure there is a buyer for every seller, provided their prices meet.
What technological intervention can enhance the dissemination of information in the process of buying and selling?
Farmers today not only suffer from price opacity but also narrow market access resulting in poor realisation and negligible market surplus. Hence the task at hand is much more than merely dissemination of information. NCDEX, through its subsidiary, NCDEX Spot Exchange Limited (NSPOT), has undertaken novel initiatives to reform primary markets through the use of technology. With an aim to build a pan-India spot commodities market, we have worked to establish a modern eco-system for spot commodities trading, helping businesses bring greater efficiency in the value chain.
Due to shortage of warehouse facility, a large amount of agricultural production is wasted in the country. What or who can be held accountable for this discrepancy and what should be done to address it?
While consumer food habits have changed, storage has not evolved with and with increasing consumption, demand has quickly exceeded supply. India needs around 43 mn tonnes of warehousing capacity if it wants to reduce the amount of agricultural produce wasted. Much needs to be done to build additional storage capacity, renovate existing warehouses, include standardization, grading and assaying services and implement a robust negotiable warehouse receipt system. The sustainable growth of the warehousing sector will rely heavily on how effectively industry players and the government can work together to address challenges in the long term.
Where does the industry stand and what more developments do you think we could witness in the days ahead?
Over the last ten years, India’s commodity ecosystem — from grading to warehousing and finance — has improved greatly, in part thanks to the catalytic role that the national exchanges have played. But much remains to be done, in particular in creating the right regulatory framework for sustainable growth. Further Primary market reforms need to be unleashed with greater integration of spot and futures essential for development of commodity markets. Today Indian Agriculture is divided into close to 2500 main market yards and 4500 sub market yards. To say it simply, one would need at least 2500 licenses to participate in Indian Spot Markets.
What measures would you like to see in the days ahead to achieve certain benchmark in the industry?
There is no doubt that the existing fragmented and opaque market structure for agricultural produce will have to give way to a national market. This will entail the best governance practices, including risk management from the exchanges, a strong regulator, more innovative products, better institutional participation, greater inclusion of physical markets and policy advocacy.
In summary, if there is to be visible change in the agri-marketing, eco system the action plan must include: Reform the APMC Acts to permit pan-India trades, electronic auctions and trading in warehousing receipts; Integration of spot and futures; Freeing of movement restrictions on agri produce across the country through the introduction of a uniform GST; Granting exemption of commodity exchanges from essential commodities act.