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The Indian Vegetable Oil Producers Association (IVPA) believes that better price risk management and price discovery is possible by suspending oilseed commodity derivative contracts.
Sudhakar Rao Desai, CEO of Emami Agrotech and president of IVPA said "The agri industry and agriculture commodities and ecosystem which comprises of various participants and stakeholders, who contribute substantially to India’s agri value chain and agri economy has suffered immensely due to the protracted and prolonged suspension of exchange-traded commodity derivatives. IVPA has been a strong proponent of supporting the cause of income improvisation and enhanced price risk management. "
"IVPA believes that better price risk management and price discovery can come through revoking the suspension of the oil seeds commodity derivative contracts. In light of the findings that the studies conducted by leading economic study institutions such as BIMTECH and SJM School of Management, IIT Bombay has clearly articulated – that futures trading not only aids the process of price discovery and sets pricing benchmarks for agri commodities across spot markets, eventually impacting the retail markets positively – but allows for better crop planning at the farmers end, ultimately benefiting the entire value chain," he said.
Regarding the study, Sarthak Gaurav, professor (economics), at Sailesh J Mehta School of Management, IIT Bombay said "Our study attempts to evaluate the impact of the suspension of agricultural commodity derivatives on the agri-ecosystem. We analyze both secondary data and primary data from surveys and in-depth interviews of physical market participants in three states: Maharashtra, Madhya Pradesh, and Rajasthan."
"Our analysis for five of the seven suspended commodities (except Moong and Crude Palm Oil) reveals that the volume of commodity derivatives traded at the largest agricultural commodity derivative exchange (NCDEX) did not increase the spot prices for these commodities, and the futures prices played an important role in price discovery in the spot prices till the suspension was imposed. Importantly, we find that prices of both the suspended and non-suspended commodities that were analyzed remained high after the suspension. This suggests that despite the suspension, commodity price increases were not curtailed. Further, we find that speculation was not a concern in the suspended commodities and that the spot price volatility of the suspended commodities and that of their peers among non-suspended commodities has not significantly altered. In doing so, we show that both domestic and international demand and supply factors influence spot and retail prices of commodities, and assuming commodity futures trading as a cause of food inflation is misplaced."
" Based on our findings, we conclude that commodity derivative contracts play an important role in price discovery and risk hedging. The suspension of futures commodities trading has adversely impacted better price realization and affected risk management in commodity value chains. Since regulatory risks in the form of abrupt suspensions thwart the trust of market participants and undermine decades of efforts to deepen agricultural commodity derivative markets, they are counterproductive," Gaurav added.
Source: Online/GFMM
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