Current Set of Reforms Seen as Boon Enhancing Participation in Agricultural Commodity Exchanges

There have been lots of friendly move by the government of India in streamlining the process of servicing the requirements of food industry/food processing plants wholesale and retail traders, through economic packages and also from the recent amendments in the Essential Commodities Act or the ECA. 

In previous decades, emphasis of the government was to produce more but now focus seems to be need of the hour from sellers’ side i.e. production surplus is expected to higher this season and there will be need for bigger companies to enter in Agribusiness sector, stock commodities/crops and hold for the entire season. Since consumption continues over the entire year, there is need to hold the produce for the whole marketing season. For an individual farmer it becomes for holding since they have to sell and get their money to be ready for the next crop. As such need for this arrangement through farmer groups/corporate/bigger companies has increased in present term. 

Farming operations, right from production to storage/selling becomes important to manage. Therefore, the role of FPO’s or Farmers’ Producing organizations or FPC’s (Farmers’ Producing Companies) becomes prominent under this situation. In this way needs and finances of millions of small traders can be managed. For more details on FPO’s kindly visit the link given below: 

https://krishijagran.com/agriculture-world/farmers-producing-organization-a-need-for-improving-rural-economy/

Nation’s leading Agricultural Commodity exchange i.e. NCDEX successfully delivers nearly 5-10 Lakh tonnes every year and all of it is covered under eNWR (electronic Negotiable Warehouse Receipts). For storage of Agricultural crops/commodities, NCDEX has exchange accredited warehouses. Other national level Commodity exchange is MCX which mainly deals with Bullions/metals/energy but has Agricultural commodities with a reasonable participation in Crude palm oil/cotton and Mentha oil. 

The recent deregulation of agricultural commodities like cereals, pulses, oilseeds, onions and potatoes through amendment of the Essential Commodities Act implies farmers now have the freedom to sell their produce anywhere. Therefore, in near term delivering the produce at exchange platforms can be a prominent feature. Delivery in a commodity exchange will be through selling futures contract. Once sell is initiated the farmer has to deposit his goods in the exchange accredited warehouses, once the respective contract expires. (how it can be done shall be discussed in details in our upcoming articles). 

The reforms will be suitable for government procurement as well in case the policies and measures from the government are implemented properly. For example, at present the government physically buys at MSP at only those places where there are large scale procurement facilities.  This can be also done through buying futures contract by the government and seeking deliveries from the exchanges. (to be discussed in forthcoming articles). Through current reforms it will be possible for government to able to extend the same to other locations, where procurement facilities are limited or challenging. Even Food Corporation of India can supply to the government for procurement purpose, in those areas the government currently does not have a procurement mechanism.

NCDEX has been successfully delivered approximately 100 lakh tonnes in the last 10-12 years, which is quite a big quantity, with very few disputes. Therefore, trust has built up in last decade amongst participants. When further steps are undertaken to organize these systems then farmers will be also be in the beneficiary list. The grains stored in scientifically managed warehouses are always considered better than grains stored at farmer’s house where it is subjected to humidity/ insect or pest attacks, etc. Last but not the least, participation from Farmer Producer Organizations (FPOs) shall be increasing further in longer run, subject to adequate measures taken by the government.