Transcript Building, Processing Industry and Retailing and

Proposal for Studying the
Structure of Commodity
Futures Market in Rice and
Soybean and Also the Impact on
the Income and Production of
the Farmers
Vishwa Ballabh & Prantik Ray
XLRI
Presentation Plan
• Problems of Agriculture Sector in India
• Objective and Scope of the Proposed Study
• Rice and Soybean Futures Markets in India
Macroeconomic Trends in India Economy
198092
1992-01
1993-94
1998-99
1999-00
2000-01
2004-05
Agriculture
3.9
3.3
4.1
7.1
0.7
0.0
0.7
2.3
Industry
6.3
6.5
5.2
3.4
6.4
6.3
8.6
9.0
Services
6.4
8.2
7.6
8.2
9.6
5.6
9.9
9.8
Total GDP
5.4
6.4
5.9
6.6
6.4
4.4
7.5
8.1
Source: Economic Survey, 2000-01,2005-6
2005-06
Growth Rates of Yield
6
5
4
3
2
1
0
Source: Ballabh (2007)
ll
Cr
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s
A
oo
d
on
F
N
ot
to
n
C
ee
ds
O
ils
ne
ga
rc
a
n
Su
od
gr
ai
at
Fo
W
he
Ri
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e
81 to 91
91 to 01
Capital Formation in Agriculture (at 1993-94 prices) (Rs. Crore)
Total
Public
Private
Year
Percent Share
Public Private
Total GCF in
Agriculture
as % of Total
GDP
Total GCF
in
Agriculture
as % of
GDP from
Agriculture
(At 1980-81 Prices)
1960-61
1668
589
1079
35.3
64.7
2.7
5.1
1970-71
2758
789
1969
28.6
71.4
3.1
6.7
1980-81
4636
1796
2840
38.7
61.3
3.8
9.9
(At 1993-94 Prices)
1990-91
14836
4395
10441
29.6
70.4
1.9
6.6
1991-92
13389
3871
9518
28.9
71.1
1.7
6.1
1992-93
14508
4076
10432
28.1
71.9
1.8
6.2
1993-94
13523
4467
9056
33.0
67.0
1.6
5.6
1994-95
14969
4947
10022
33.0
67.0
1.6
5.9
1995-96
15690
4848
10842
30.9
69.1
1.6
6.2
1996-97
16176
4668
11508
28.9
71.7
1.5
5.9
1997-98
15942
3979
11963
24.9
75.1
1.4
5.9
1998-99
14895
3870
11025
26.0
74.0
1.3
5.2
19992000
17304
4221
13083
24.4
75.6
1.4
2000-01
16906
3927
12979
23.2
76.8
1.3
5.9
2001-02
17328
4127
13201
23.8
76.2
1.3
5.7
2002-03*
18657
4538
14119
24.3
75.7
1.3
6.4
6.0
Source: Ballabh (2007)
Lack of Infrastructure and High Transaction cost
• Scale of production is small
• Production is risky
• Information and credit cost is also very high
• Lack of proper transportation and warehouse further increases the
transaction cost
Objective of the Study
• To assess the efficiency and performance of the commodity
futures market with reference to rice and soybean
• It will include studying the structure in the spot and future
markets and mapping out the functioning of the markets in
these commodities.
• To study the entire supply chain of these commodities which will
help in identifying value addition, marketing cost and areas of
intervention to improve the value chain efficiency
• To study the impact of government policies and interventions
on the supply chains in these commodities
• To study effect of commodity futures in these commodities on
the production, productivity and the income of the farmers.
Why Rice ?
Importance of Rice in India
• Rice is the most important and extensively grown food crop in
the world.
• Around 90% of all rice grown commercially is used directly for
human consumption.
• Rice is the staple food of more than 60 percent of the world
population and will remain as lifeline for the people in Asia and
Pacific regions where 90% of it is produced and consumed.
• International trade in rice is relatively very small – only about
5%. It is estimated that 50% of the world crop is consumed on
the farms where it is grown.
• India has the largest area under rice in the world and ranks
second in the production after China. India has also emerged as
a major rice consumer and exporter.
Source: MCX
Source: MCX
Source: NCDEX
Structure of Rice Futures in
NCDEX
• Four types of Rice Futures are traded:
Grade A Raw rice, Grade A Parboiled Rice,
Common Raw rice, Common Parboiled Rice
• Contract Size: 10 MT
• Primary Delivery Centre: Delhi
• Spot Price Determination by Polling (CMIE)
• Risk Mitigation by NCDEX by Margin
Collection
Why Soybean?
Source: MCX
Source: NCDEX
Source: MCX
Source: MCX
Source: MCX
Source: MCX
Source: MCX
How We Will Go About the Study
• Collection of Primary Data through interaction
with all concerned parties like the farmers,
middlemen, brokers, exchange authorities and
government officials
• Studying the historical secondary price data
from the exchange and market
• Correlating the production and farmers’ income
with the participation in the futures market
• Suggesting policy changes required