The commodity exchanges would enable buyers and sellers of agriculture produce to deal efficiently on a common market platform, Agriculture Minister Sharad Pawar said. Such exchanges could ensure remunerative prices for the farmers down the line, he said.
Three national commodity exchanges and several regional exchanges not only benefit merchants and traders, but also provide a win-win situation for farmers, an expert said.
"Farmers indirectly benefit by commodity exchanges. They will get an idea of prevailing market prices in the future and spot price from exchange terminals and can sell their produce in upcountry markets," leading economist Madhoo Pavaskar said.
The commodity market regulator Forward Markets Commission reserves exclusive rights to suspend or disqualify any broker or trader involved in futures commodity trade, chairman S Sundareshan said.
"FMC has exactly the same power like SEBI to disqualify or suspend a broker in case found involved in activities not in tune with the market norms," he said.
Pavaskar, a director of the Multi Commodity Exchange of India Ltd, said farmers can sell their commodities at a better price even in the time of peak marketing season when the price tend to go down amidst excess arrivals.
National Commodity & Derivatives Exchange chief economist Madan Sabnavis said though farmers are not directly taking part in price hedging process on commodity exchanges, they are well aware of the prevailing market prices for their produce.
"There is no need for compromise as farmers can compare prices at the spot and the futures market before finalising the price negotiation in their local mandis," he argued.
A farmer faces many hurdles like high membership fees, high margin deposits and portfolio management, which he cannot manage, according to Sabnavis.
"However, farmers are influenced by the spot and future market prices mainly in the commodities like chana, urad, castor seed and wheat," he says.
MCX Chief Executive Officer Anjani Sinha said farmers, through co-operatives, are now reaping benefits of price discovery and hedging on the commodity exchanges.
He cited an example of Kerala-based Pala Rubber Farmers' Marketing Cooperative, a member of MCX, which takes advantages of covering price risk on behalf of their member farmers.
"Even if the price crashes, the farmers are at an advantageous position as they have the protection of futures contract of their produce," Sinha said.
Moreover, farmers can now decide the sowing pattern after after analysing futures price trend at a commodity exchange.
"Commodities like castor seed and cumin seed are going to benefit by this. Farmers can now change the pattern of sowing according to the trend in prices," Sinha said.
He said the existence of commodity exchanges enhance farmers' bargaining power at the local mandis as they are aware of the market price, both futures and spot.
Pointing to a growing trend in futures trading in India, the combined trading volume at the three commodity exchanges touched the magical Rs 500,000 crore (Rs 5000 billion) mark in 2004-05. Interestingly, the trading volume stood at Rs 400,000 crore (Rs 4000 billion) by December 2004.
Commenting on the ever rising futures trading volume, MCX chairman Venkat R Chary said "I would not be surprised if the daily volumes of trading touches Rs 15,000 crore (Rs 150 billion) within the next 3-4 years."
Chary said the MCX was bullish about prospects of futures trading in India, and added it would soon become one of the giants in commodity futures trading in Asia. At present, efforts are being made to raise share of farm commodities in futures trading, he said.
Ideally, MCX would like to see 30-35 per cent of futures trading coming from agriculture products including food grains, cotton, jute, edible oilseeds and plantation crops during next three-four years.