What is futures trading, thousands of farmers cultivating lowly gloom potatoes that is a must in everyone’s palate want to know, leave alone reap gains from it.
Perhaps rightly so, for their lot is fast deteriorating with a slide in the prices of the common man’s staple, no matter whether futures trading in it thrives or not.The government introduced futures trading with much fanfare in several commodities, including potato, as a tool to aid farmers to hedge their risks and help in getting better prices.
But most in the industry dismiss the government claims with disdain.“Instead of doing a drama on futures trading, government should fix a good minimum support price for potato in order to help farmers avert losses,” said Umesh Kumar, a trader here said.
Potato is one of the most crucial crops in the world and government should take measures to lift its falling prices instead of getting into this gambling, he said.Prices of potatoes have fallen this year by 11 per cent from over a year ago, leaving farmers in the lurch, unable to even recover their production costs.
The year 2008 had been declared as the international year of the potato by the United Nations. But it turned out to be one of the worst years for potato farmers, particularly in India.
Commodity exchanges officials say a sudden discontinuation of futures trade in the tuber crop in 2008 had actually eliminated the only price discovery platform in the country that helped, though indirectly, to better realization by farmers.
Divergent views
Traders and farmers beg to differ. “Futures trading is something that 70-75 per cent farmers in the villages do not even know about, forget about finding out whether farmers have benefited out of the trading,” Kumar lamented.
“I have heard about futures trading, but since we are uneducated we don’t understand all this,” said a farmer in Agra, one of the key potato markets in the country. “I prefer selling my crop in the physical market.”
He said currently potato prices are hovering around Rs 400 per 82.7 kg, as compared with Rs 450 during the year ago period. “Farmers do not have any money...at present we all (farmers) are desperate, so, we sell at any amount we get from buyers,” Kumar said.
In developed nations too, farmers are not directly participating in futures trade, but it does help them to optimize their returns by taking right decisions at the appropriate time.
Farmers and traders involved in the business for decades say it is simply the fundamentals of supply and demand that determines the fate of the farmer rather than any intricate trading mechanism. But exchange officials hold a different view.
Sumesh Parasrampuria, chief business officer of MCX, asserted futures trading has been highly beneficial.“Futures trading has definitely helped farmers a lot. Before the ban was imposed, cold storage owners used to hedge their risks and save themselves from huge losses,” he said.
Futures on MCX and NCDEX act as an indicator of price trends for farmers on the basis of far-month contracts and allow farmers to get a decent price, Parasrampuria said.
“Do not underestimate farmers, they know everything about futures trading. We are hosting seminars and meetings, in order to encourage farmers to participate in futures trading,” he said.
Neligible impact
The fate of the potato farmer was bad when futures trading in the commodity was introduced in the National Commodities and Derivatives Exchange on July 6, 2006. It remained so when the market regulator clamped a ban on it in May 2008 and there is little change in the situation now that the ban has been lifted since December, they say.
Just 13 trades were executed in front month potato contract on NCDEX, while 77 lots were traded in March potato on MCX Wednesday, sharply lower than the volumes registered in these contracts before suspension was imposed on futures trade.
India annually produces around 24 million tonnes (MT) of potato. In 2007-08 (April-March) the country produced 29 MT of potatoes, up from 24.5 MT in the year ago period.
This year farmers are expecting another bumper crop but reports of late blight disease that affect the leaves and productivity, could lead to some crop loss in West Bengal, Uttar Pradesh and Bihar.
On January 28, the Uttar Pradesh government announced a slew of measures, including an increase in minimum support price and transport and export subsidy, to support potato growers in the state.
The state government, apart from transport subsidy, raised minimum support price of potato to Rs 300 a quintal from Rs 250 a year ago.
But this has helped little in bettering the farmers’ lot.
Hard days
India is the third largest potato producer in the world after China and Russia. Apart from Pakistan, it exports potatoes mainly to Mauritius, Sri Lanka, Bangladesh and Afghanistan.
More than 80 per cent of the country’s potato crop is grown in the rabi season, and harvested in March.
“I feel that this trading mechanism in exchanges is not at all beneficial at least so far as potato is concerned,” said S.V. Singh, principal scientist, Central Potato Research Institute at Shimla.
“In 2008, when farmers were not getting their price and when there was a glut in the market, where was futures trading? I don’t know why government had put a ban. It is very confusing,” Singh said and dismissed futures trade as a political gimmick.
Last year, the government banned futures trading in potato among other items, saying that the high price of commodities was fuelling inflation.
But this only boomeranged on the farmers and by the end of 2008, the condition of potato industry deteriorated as prices crashed.
Dilip Ghosh, a potato trader from West Bengal said he saw no co-relation between futures trading and profits.
“Farmers benefit only from physical delivery and nothing else.”
Although officials of exchanges see enough light at the end of the tunnel, distraught potato farmers are bracing for hard days.
