Shri Pasha Patel (Left) and Dr. Sarthak Gaurav, IIT Bombay (Right)
~ Represented by 10,000+ farmers, NCDEX IPFT hosts the landmark meeting ~
- FPOs discuss and share the critical impact of suspensions of Commodity Derivatives and way forward
- Highlight the research by IIT Bombay (SJMSOM), on the ‘Impact of suspensions of Commodity derivatives on the agri Ecosystem’
Mumbai, 26th December 2024: Farmer Producer Organizations (FPOs) from Maharashtra and Madhya Pradesh, collectively representing over 10,000 farmers gather at IIT Mumbai. This unique forum organized by NCDEX IPFT facilitated a dialogue on the critical impact of the suspension of commodity derivatives on farmers and their livelihood.
A study conducted by Shailesh J. Mehta School of Management (SJMSOM), IIT Bombay, titled “Impact of Suspension of Commodity Derivatives on the Agri Ecosystem,” was also presented at the event. The research underscores the critical role of commodity derivatives in price discovery and risk management for farmers and stakeholders in the agri value chain.
Shri Pasha Patel Chairman of the State Agriculture Price Committee, Maharashtra addressed the meet and opined, “The commodity derivatives markets are an extension of the spot markets. As price discovery is an important function of Commodity Exchanges – FPOs must have access to it. Government initiatives in collaboration with the Exchange can yield results that can empower the farmers/FPOs to mitigate their price risk establishing a robust and sustainable agri ecosystem”
India is the 4th largest producer of oil and oilseeds in the world accounting for 10 percent of global production. Government has launched a mission worth US$ 1.3 billion (Rs. 11,000 crore) FY’25 aimed at reducing the dependency on imported edible oils and achieving self-sufficiency in oilseed production. Commodity derivatives market played a vital role in empowering farmers by providing a transparent price discovery mechanism, mitigating price volatility and promoting sound decision-making by all agri market participants. However, the suspension of Exchange-Traded Commodity Derivatives (ETCDs) has disrupted these benefits, leaving farmers vulnerable to inconsistent mandi prices and volatile market conditions.
The SJMSOM IIT Bombay report Impact of Suspension of Commodity Derivatives on the Agri Ecosystem highlighted that
- commodity derivatives market and Futures trading provides a transparent price discovery process for Farmers’ Producers (FPOs) to make informed decisions regarding their agricultural produce (right from sowing to selling).
- commodity derivatives serve as market-driven tools for price risk management by the entire commodity value chain in managing the price volatility and inherent risks in the agro economic space.
- commodity price fluctuations are inevitable and depends primarily upon market dynamics of Demand & Supply.
Dr. Sarthak Gaurav, IIT Bombay, the author of the aforementioned report, commented that, “Commodity derivative contracts play an important role in price discovery and risk hedging, which is apparent from the analysis. The suspension of futures commodities trading has negatively impacted better price realization because of the absence of reference pricing mechanism and thus also disrupted price risk management practices of participants in the commodity value chain. Consequently, the agri-ecosystem in whole has been affected due to hurdles in market access, participation and securing fair prices.”
The SJMSOM, IIT Bombay combined primary and secondary research through survey and in-depth interview of physical market participants (including farmers and FPOs) in three states i.e. Maharashtra, Rajasthan, and Madhya Pradesh with focus on Mustard Seed, Soya Oil, Soybean, Chana and Wheat. It primarily examined the relationship between futures and spot prices, volume, and volatility and presented commodity-specific price variation associated with the suspension. The report shared insights pertaining to futures trading for physical market participants including the farming community whose experiences in the context of futures trading remain understudied. Entire report is available on https://www.iitb.ac.in/
