Thursday, March 29, 2018

Are agriculture commodities exchanges promoting speculators ?

Agriculture commodities exchanges were established to give an opportunity to farmers to do the forward contract of his crop production. Agriculture commodities exchanges are the useful tool for price discovery. But these commodities exchanges have become the platform for the speculators and they wipe out the whole profit of the investors. Conversion of the forward contract in delivery is a major challenge. Actual investors and farmers face the loss in case of heavy demand and tight supply. 

Generally, speculators enter in the selected commodities which are grown in a limited geographical area. They collect the all the market information through their network and started to manipulate the demand and supply. When all the fundamentals are positive, and investors & farmers expect the good return. These speculators wipe out the profit with pre-planned price movement. Generally, speculators play against the general fundamental factors.

When speculators find there is the short delivery of commodity they sell out their stock and create a position of artificial saturation. This situation put pressure on prices of commodities and prices of commodities doesn’t go up and speculators pick the new arrival of the commodity from the market. After picking the commodities he withdraws his stock from market and prices start to rise with multiple speed. He earns profit from his stock.

It is not possible to manipulate the big agriculture commodities grown in the wide area. Because it not possible to control all stockholders in the wide area. Like Wheat and Rice. Prices of wheat and rice don’t go up spontaneously because these are grown in the large area. But in the case of turmeric, Cumin or Guar we find 6-7 lower and upper circuits in one month. Investors lose more small commodities.

Govt must take strict action against these movements. Terms of contracts should be revised further. There must be mandatory delivery and pick up. Except the farmers, there must be mandatory delivery for sell contract and mandatory pick up for the buy contracts. If someone declares himself/herself as farmers then his/her land record details must be mandatory. Size of contract should be matched with delivery. Any sudden buy and sell in commodity exchange must be checked properly and there must be the proper investigation that from where the stock is coming, or stock is going. 

Some irregularities were also noticed at warehouse level where the inferior quality material is stocked at the price of superior quality. Issues were raised with warehouse service provider attached to Exchanges. Last time it was noted with black pepper and coriander. Govt must these issues seriously. Price discovery has left behind not commodities exchanges are used for price manipulations. 

Trading must be banned for the small commodities and regional commodities. So that no one can manipulate the prices. 30% Participants must be farmers so that actual profit should be shared with farmers and in the case of price fall farmers can give delivery to exchanges. Entry of speculators in commodity exchange are harmful to farmers and traders both.

Sunday, March 4, 2018

92% Farmers are the net buyer of agriculture commodities.

As per Govt data, around 92% farmers are small and marginal farmers. They are cultivating only less than 2 Hectare land only. They are producing the agriculture commodities. Most of the produce is consumed by themselves only. They are not producing all commodities for their consumption. They buy these nonproducing commodities from market produced by other farmers. Instead of net seller most of the farmers are the net buyer of agriculture commodities. India is an agrarian country, but it is importing essential food items. India import a lot of Edible oil, Pulses and Wheat. In peak festival season, there is always the shortage of these three items.

Many organization and farmers group advocate the increase of Minimum Support Price ( MSP). Any proposal of To increase of MSP and price of other agriculture commodities will hurt farmers themselves. Even today farmers can’t afford regular Vegetable, Milk, Meat, Egg and nutritive food. Malnutrition is major health problem due to the lower affordability of Food items. Minimum Support Price is not a solution for larger farmer population of India. Govt is providing few food items through PDS. Supplied quantity itself is affected by the corruption problem and it doesn’t reach up to last end beneficiaries.

Big farmers will benefit from the increased MSP because they are capable in holding and selling their produce in Agriculture market as per MSP procurement. Small and marginal farmers can’t wait for MSP procurement process, he has to sell just after the harvesting. Govt should first focus on health and affordability of food item to major agriculture population. Once Govt will include more agriculture commodities or food items in PDS system then automatically demand of other agriculture commodities will increase and prices will go up due to limited supply. Farmers will benefit automatically from demand driven.

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The inclusion of packed processed food items in PDS. In the tribal area, we see a larger population don’t have access to nutritive food. They are depended on limited forest products. Govt must include processed fruit, vegetable, milk product for them in PDS. Costs of buying of agriculture commodities by the farmers will come down. Due to low price farmers will avoid the overproduction of nondemand agriculture commodities. They will focus on in-demand agriculture commodities fruit and vegetable. If there will support of Govt policy for processed fruit and vegetable, then processing of agriculture commodities will go in next stage. The demand for Fruit & vegetable will increase, and the farmer will benefit from the demand of these agriculture commodities. Farmer’s buying cost will come down, his selling revenue will go up and his health will improve. 

Dairy, Meat, Vegetable and fruit production is good for Small land holdings. Consumption of these items is India is lowest in the world in similar economies. Govt must focus on increasing the consumption of these items. Demand-driven policies will lead to the better economic environment. It will generate rural employment, Industry and traders will benefit from it. Farmers will be the major beneficiary from these policies. We have so many nutritious local fruit and vegetable. The demand of these fruits and vegetable will increase Local Farmers will benefit from it.

For example, In Rajasthan, there is production local vegetable by the name of SANGARI (Prosopis cineraria) and KAIR (Capparis decidua). The market price of dehydrated Kair & Sangari is around INR 1000/Kg Price of green Kair & Sangari cost around 100-120/Kg. Both the vegetables are pesticide free and grown in local rainfed climatic condition. Agronomical point of view it will require lesser water and lesser plant protection cost of cultivation will almost zero after 3-4 years. This is one example there are thousands of species in India which are grown locally and there is huge demand at the premium price.

Policymaker should come with the policy for farmers by keeping in mind that they are the net buyer of agriculture commodities or produce. Govt should come with demand generation policy for agriculture produce instead of buying them from farmers and after that let the produce decompose. India is the largest consumer of agriculture food products in the world after China. This demand of agriculture food products will not come down it will keep increasing.