 "Better returns attract farmers to commodity futures platform")
Part of farmer associations and companies, the maize farmers of Purnia have been earning anywhere between 15 per cent and 20 per cent more through their active participation on futures platform.
Spread across states like Rajasthan, Madhya Pradesh, Maharashtra and Bihar, these farmer associations or companies have seen farmers opting for hedging for better returns themselves. Farm producers' organizations (FPOs) like Ram Rahim from Madhya Pradesh (MP) and Jeevika from Bihar have started hedging on exchange platforms in commodities like soyabean, chana and maize.
Experts and Sebi attribute the growing participation of farmers in commodity futures platform to constant education by the commodity exchanges on hedging and trading of their produce on futures market.
So much so that from about 35 farmers companies representing more than 25,000 farmers being actively engaged on National Commodity and Derivative Exchange (NCDEX), the exchange expects the number to be up to over 100 such companies by the end of current financial year. NCDEX has about 85 per cent share in agri-commodities.
On its part, Sebi too has asked commodity exchanges to attract farmers on the platform, which market experts believe, will beneficial for farmers as they would end up getting better price realization on their produce.
"Farmer associations are now actively hedging on exchange platform. As soon as they procure goods they take a sell position on exchange platform. Later, as month on month spreads get lucrative, they begin rolling over their positions to next month," said Samir Shah, managing director and chief executive officer of NCDEX.
Though a trend that started in early 2015, the share of farmers is still very nominal and will take time to get noticeable volume.
"Currently, share of farmers on platform is very less if we consider daily volume of exchange. It is only now that dedicated efforts are being made to bring them on exchange platform. Response is quite encouraging and these associations should give considerable volume in coming days," said Shah.
Bihar Rural Livelihoods Promotion Society’s (BRLPS) Jeevika has formed a 27 farmer groups company named Aranyak Agri Producer Company Limited (AAPCL) in 2015 in Purnia district of Bihar, which is highest maize growing area in India.The aim of the company is to explore better markets from different platforms so that farmers can get better price on their produce.
"It is difficult for an individual farmer to explore new avenues to enhance revenue. For this purpose, we have taken a collective approach by forming a collaborative company of farmers. While the first year experience was good, we believe this year too it will be good for us," said Pradeept Kumar, chief executive officer of AAPCL.
AAPCL had procured 1,000 tonnes maize from farmers at the market rate and hedged it on NCDEX in April last year. The company has passed on profit of Rs 9 lakh to the farmers.This year it is planning to procure 5,000 tonnes and expects profit of about Rs 50 lakh.
Kumar said: "Because of participation on commodity futures platform, price realization becomes more transparent and it has benefited a lot of farmers. Farmers have received almost 15-20 per cent higher return last year and we hope to see good returns this year too."
Coupled with higher returns, farmers are also getting early returns in hedging as against conventional trading. Generally realisations take place after a month or two for farmers, when they sell their produce in the APMC or mandis. As against this, farmers' companies are able to make payments to member farmers within a week.
Further, AAPCL has started the same at Khagaria district in Bihar on pilot basis.
On the flipside, however, there are some regulatory hurdles that are yet to be addressed such as entry barriers and KYC norms, which make entry of farmers limited on futures platform.
"To encourage farmers' participation in the regulated markets some entry barriers should be reworked for farmers and FPCs. Some of the things which can be looked at are margins relaxation, relaxation in KYC norms as many farmer associations are unable to complete documentation requirement of KYC. As a result, they are unable to trade," Shah of NCDEX said.
Farmers companies also believe that there should be easy mechanism to help the farmers.
"Regulatory norms should be made easy for farmer companies to enter in futures markets as it is not easy for them to understand and fulfill it," said Raghav Raghunathan, chief operating officer of MP based Ram Rahim Pragati Producer Company Limited (RRPPCL).
RRPPCL is hedging on soyabean, chana and maize in MP. Last year it had earned a profit of Rs 6 lakh. However, the company has not distributed profit among farmers as it intends to fund future expansion from internal accruals.
Meanwhile, RRPPCL is also helping farmers group to form a company in Rajasthan, where the company is looking at hedging value added products in futures to earn more.