The ministry of food and consumer affairs is not in favour of recommending a ban on forward trading of essential commodities. The ministry is currently working on the final recommendations based on suggestions made by a working group on consumer affairs headed by Narendra Modi and co-chaired by chief ministers of Maharashtra, Andhra Pradesh and Tamil Nadu. These recommendations, then will be sent to the Prime minister thereafter.
The working group had strongly recommended banning forward trading in essential commodities.The ministry, albeit is in favour of many recommendations made by the working group, especially those on reforming the Agricultural Produce Marketing Committees across states for bridging the gap between the wholesale and retail food prices and amending the Essential Commodities Act to check hoarding.
“On trading of essential commodities on commodity exchanges, the ministry will go by views of the expert panel set up by the government under Abhijit Sen. The panel had stated there is no conclusive evidence to prove that prices of commodities are driven by the futures prices of the same commodities traded on commodity exchanges. Besides, presentations with case studies have been also presented by the Forward Markets Commission, the commodity exchange regulator, to the working group which showed no correlation between the prevailing market prices and futures prices,” said senior officials. They further added that prices of food articles are function of demand and supply. In tur, urad, rice, there is no futures trading but even then prices are going up. On the other hand, in sugar, prices were going up even when there was a ban. In fact sugar prices fell after futures trading commenced.
B C Khatua, chairman of FMC said: “Our presentation to the working group was based on well founded facts and not mere sentiment. Today a farmer has multiple options for selling his products- either in a mandi or a spot exchange . While we are continuing with our awareness programme, what is not realised is that farmers need a sound price discovery system and thus, his interest is in futures market to plan and execute pricing of his sale rather than just selling the products in the spot market.”
“In India, we have 120 million farm families and in just a span of eight years into existence, forward markets cannot improve them all. Futures/ forward market is just a price discovery mechanism which could help farmers to plan their crop, storage, sale, credit and everything else in the value chain and lets keep the basic objective at that. There has been no complain on regulation of commodity exchanges and price discovery is transparent. Thus, there is no reason why such a useful tool be banned.”
Citing the example of guar seeds, he said, “This year guar seeds prices have fallen below Rs 20,00 a quintal . FMC did a detailed analysis of crop estimation, demand-supply and it was found that the industry had made huge estimate of 1.7-1.8 million tonnes whereas actual arrivals were at 1.1-1.2 mt. Besides, demand has gone up sharply whereas carryover stock with the industry was very less. Prices started to move up quite justifiably and we removed margins to reduce the transaction costs, however re-imposed it after prices stabilised. Meanwhile, exporters lobby demanded higher margin of even 50 per cent followed by a representation from the Rajasthan government .
However, we did not intervene since higher margins would have affected the genuine domestic consumers who were anyway fighting higher prices for procurement. Higher trade margins would have hurt genuine hedgers and traders. We learnt that the farming community in guar seeds benefited a lot since they sold 20,000-30,000 per month rather than offloading the entire produce of 100,000 tonnes in the harvest season which they usually did in the past. Thus, they took advantage of the price rally when prices actually stabilised at Rs 2,800-2,900 a quintal compared to lows of Rs 1,970-2,000 a quintal in November- December 2010”.
