But you can always chip in with whatever you can do?
Oh yes. We should and we already have started that attempt. We have set up farmers' groups in various parts of Gujarat who have formed Producers Company under Companies Act but functioning under co-operative model. The share holders of this company will be the farmers who will bring in their produce, grade them, do the lab testing and then get into Futures trading.
The producer company will become the aggregator and the share holders will take back the profit. I believe we will make this model work successfully within the next year. We can see the changes happening in villages as we see ticker boards now installed in many villages. They know at what price their products are dealt through out the year.
But for this model to develop, it will take some time. You cannot compare farming in developed countries to that of India. Farmers in those countries are organized, powerful and well-educated. Unlike in India where farmer's average landholding is in Bhigas, the landholdings in developed countries are in acres and hectares.
They can rule the roost whereas Indian farmers cannot. Farmers in agriculturally developed countries use all instruments available for them right from getting finance to hedging to trading in Futures. They are aware of the crop and weather patterns to plan their crops. We have farmers who are nowhere near to them. I believe we are at least 25 years behind in those aspects.
Today India have three major national exchanges. The rest are regional exchanges
Regional exchanges have domain expertise of just one or two products. They operate within a jurisdictional area of the products they deal with. But, today those exchanges cannot survive with just one or two products. They have to become broad. Only platforms with multiple products have the scope to bring in more volumes and thereby bringing technologically more advanced platforms. You have to get into the modern way of trading, become transparent, have much better client servicing and go national if you want to survive.
There is a common belief that trading in agri-commodities should be reduced. Will that be a threat to you?
It is not within our jurisdiction or expertise to decide which commodities should be allowed and which should not. I believe you should leave it to the market whether you need to have so many agri-commodities or not. Now, take the case of a continent like Africa. Though Africa has a large number of agri-commodities as well as metals, they are not into this space because the market economy has just not felt the need to set up a commodity trading pattern in that place.
So, the Indian market will decide which commodities will survive and which will not. Obviously any exchange or for that matter any broking house will like to have more products up their sleeves because it gives a wider range for the clients. But does the market need such a large portfolio? I strongly believe it is up to the market to decide.
Commodity sector is witnessing a steady growth. Does it have the potential to grow further?
Oh yes. In fact, commodities have a better chance to grow and blossom further. Today, commodity trading is just another add-on for many brokers because the number of clients in commodity sector is much lower than what we have in equity. But we are pretty bullish on commodities.
But commodities Futures is blamed for every inflationary evil that India has witnessed. Being a part of the commodity trading, do you take the blame?
Certainly not. Commodity Futures trading has nothing to do with country's inflationary problems. In fact, it has helped understand the demand and supply situation. Statistics have already proved that the claims were baseless.
But the rising inflation which just seemed to have gone out of hand made Futures trading look like a casino. There were loopholes, I admit, but it just happened that the supply level shortage became defined by Futures trading. It is nobody's fault.
Do you feel that commodity market is given step-motherly treatment as compared to equity market?
No. it is not a question of preference or treatment. The real problem is that we model commodity market in the model of equity market. Both are different and equating or comparing them is completely wrong. Equity is basically a trading market while commodity is a physical market. The markets cannot develop mechanically. It has to evolve itself. There is no fast-track solution. If it was so easy why did OTC exchange and Inter Connect Exchange failed in its mission. So evolution is the key. The market will decide where it will go.
The anomaly between Futures market and spot market is not solved. Is there a problem here?
There is nothing wrong with spot market scenario. The problem is that we have different grades of commodities. I can show you sixteen different qualities of guar seeds. Which one will you take as a benchmark and how will you grade it. Different markets, different quality and different prices. For arbitrage facility, you need spot market prices but I believe, broking houses have their own system of getting the prices. Yes, there are a few problems which I think can be tackled in due course. There are more serious problems dodging the sector and they are in multiples.
The biggest problem is the warehouses. Today you have godowns which disguise as warehouses. It has no comparison to the warehouses we envisage in our storage pattern. There is this serious problem of manpower. It is not the attrition that makes us worry. In attrition scenario, you get replacements but in commodities, we are not getting people we want, leave alone retaining them. We have developed the most modern software, systems are in place but how do you replace the human intelligence. Research is another problem that we have to face. We are not getting people who are sound in fundamental research.
Where do you see Kunvarji in the next five years?
Today we have 5% share in the national commodity trading volume. This can easily be doubled in say in the next three years. But as I said the market will see a phenomenal growth and as the markets grow, more payers will come into the picture. And as the market grows, my share in the national share will decrease. So volume is not the key. It is the strength of the market that is more important. But we will have national presence and the plans are already started taking shape.
This appeared in COMMODITY MARKET, India's No. 1 news magazine on commodities.