Risk Management, PRMIA

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March 26, 2007

Commodity Futures Market and the Indian Farmer

Ever since the go-ahead given by the Forward Markets Commission regarding Commodity futures Trading in emerging markets in 2003, the futures market in commodities has seen vigorous growth. The spectre of Inflation has recently brought the commodity futures market was once again under the scanner. The basic question is- are we witnessing too much speculation going on? The long legacy of treating derivattives as something similar to gambling came back to haunt us.

It is in this context, necessary to examine the benefits accruing to the Indian farmer from the futures market. Those of us, who had the fortune of seeing rural markets from close quarters know that the Indian farmer is far for a representative individual- there are big and small farmers with diverse holding capacity. In many a cases, they contract prices ahead of the harvest . This is often due to working loans needed to cultivate the land. The price typically fall( if not crash) post harvest , and procurement prices are effective only to areas and markets the Government agencies are able to penetrate. Given the poor infrastructure and low awareness, it is not possible for the majority of farmers to dream of trading in organised exchanges.
But the availability of fututes market has emerged as an important source of information to farmers,thanks to the revolution in audio-visual media. Even when the farmers are not exchange users, they are more aware of prices of what they produce, likely prices a few months ahead and related variables. If discussions in village tea shops are any pointer, farmers are using such price information to get better deals in the village marketplaces.Knowledge thus becomes a source of empowerment for farmers. However, the knolegdge penetration among farmers is still pretty low. The road ahead for the State and the exchanges is to facilitate greater sharing of information, more roadshows and interfaces to really make the presence of commodity futures markets beneficial for rural farmers.

Posted by sunandoroy at March 26, 2007 12:46 PM