Online spot exchanges for commodities are partly basing their expectations for growth on the lack of practical familiarity of the younger generation of traders with the produce.
The generation in question is well educated and tech-savvy, but not in the habit of travelling to the physical market yard, unlike their ancestors. There are quality differences between agri commodities that look similar on display but, often, vary significantly on taste and prices. Many foodgrains like rice and wheat, and cash crops like sugar, jaggery and oilseeds, are good examples.
Only daily merchants who physically roam about in mandis can differentiate that, says Sharad Maru, president, Grain Rice & Oilseed Merchant Association. Which is where online exchanges have a good opening. Online spot exchange will flourish with the growth of the next generation, said Rajesh Sinha, head of NCDEX Spot Exchange Ltd (Nspot), an online spot commodity trading platform promoted by the National Commodity & Derivatives Exchange (NCDEX).
| COMMODITY TURNOVER (in Rs lakh) | ||
| Commodity 2009 | NSEL | NSpot |
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For that to happen, though, they have to do the crucial job of making the market understand their trading mechanism, delivery and payments systems and, most important, how quality differentiation is handled.
With price ticker boards displayed across major mandis in the country and plans to cover all commodity-specific mandis in a couple of years, farmers’ awareness has multiplied. Since the role of middlemen, that eat over 50 per cent of the prices paid by consumers, has diminished through trading on online exchanges, online exchanges can ensure the maximum benefit of price rises goes to farmers, said Anjani Sinha, managing director and CEO of National Spot Exchange Ltd (NSEL).
Online exchanges have reduced their minimum delivery sizes to engage retail farmers’ participation. Also, exchanges offer counter-party guarantees for the quality of the delivered commodity to buyers and timely account-to-account payment for sellers.
Today, grain purchases from farmers to stockists in mandis go through middlemen who charge a commission of 2.5 per cent from both sides. Stockists also take some profit to sell to retailers who, in turn, take further margins to sell to consumers. During the process, a huge amount of transportation cost is also incurred, which will be saved by trading on online platforms, note the latter. Farmers can sell their produce directly to consumers. The two exchanges commenced trading in late 2008 and had a total turnover of Rs 2,809 crore in the 2009 calendar year, of which NSEL had Rs 2,558 crore. NSEL recorded a total turnover from agri commodities at Rs 1,370 crore during 2009, the first full calendar year of operation.