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Informist, Friday, Dec. 27, 2024

 

MUMBAI – The suspension of commodity derivatives has negatively impacted price realisation because of the absence of a reference pricing mechanism and by disrupting the price risk management practices of participants in the commodity value chain, according to a study by Indian Institute of Technology Bombay Professor Sarthak Gaurav.

 

The study – Impact of Suspension of Commodity Derivatives on the Agri Ecosystem – is based on primary and secondary research through surveys and in-depth interviews of physical market participants, including farmers in Maharashtra, Rajasthan, and Madhya Pradesh, with a focus on mustard, soyoil, soybean, chana and wheat.

 

"Commodity derivative contracts play an important role in price discovery and risk hedging, which is apparent from the analysis," Gaurav said, presenting the study at a seminar organised by the National Commodity and Derivative Exchange. Suspension of futures commodities trading has negatively impacted better price realisation, which consequently affected the agri-ecosystem due to hurdles in market access, participation and securing fair prices, Gaurav said.

 

The commodity derivatives market and futures trading provide a transparent price discovery process for farmers to make informed decisions regarding their agricultural produce right from sowing to selling. It also serves as a market-driven tool for price risk management by the entire commodity value chain in managing the price volatility and inherent risks in the agro-economic space. The suspension of exchange-traded commodity derivatives has disrupted most of the benefits, leaving farmers vulnerable to inconsistent mandi prices and volatile market conditions, the study said. 

 

The seminar organised to discuss the impact of the suspension of commodity derivatives on farmers and their livelihoods was attended by several farmer-producer organisations from Maharashtra and Madhya Pradesh.

 

Speaking at the seminar, Maharashtra State Agriculture Price Committee Chairman Pasha Patel said commodity derivatives markets are an extension of the spot markets. "Government initiatives in collaboration with the exchange can yield results that can empower farmers and farmer producer organisations to mitigate their price risk by establishing a robust and sustainable agri ecosystem," he said.

Last week, the Securities and Exchange Board of India extended the suspension of derivatives trade in wheat, chana, moong, paddy (non-basmati), mustard seeds and its derivatives, soya bean and crude palm oil till Jan 31. The suspension of derivatives trade in these contracts, imposed on Dec. 19, 2021, has been extended multiple times to stem inflationary pressures.  End

 

Reported by Anjali Lavania and Taniva Singha Roy 

Edited by Saji George Titus

 

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