India Loses Opportunity to Become Price Setter Like China, Chief of India's Leading Exchange Says

© AP Photo / Rajesh Kumar SinghA worker stands on a mound of sugarcane fibre on the outskirts of Bareilly, India, Tuesday, March 23, 2021.
A worker stands on a mound of sugarcane fibre on the outskirts of Bareilly, India, Tuesday, March 23, 2021. - Sputnik International, 1920, 07.09.2022
Arun Raste, MD and chief executive of India's leading commodity exchange, National Commodity and Derivatives Exchange Ltd (NCDEX), has told Sputnik in an interview about the availability of grain in India, the rising food crisis around the world, and opportunities for India.
Sputnik: What is your opinion of the present availability of agricultural products in India?
Arun Raste: Initially we thought we would be in a position to feed the world. But now we realize that because of the sudden temperature variation in March, the wheat yield in Punjab, and Haryana went down. Therefore, our wheat production is about 10 percent lower than was expected.
And because of the vagaries of nature, as I call it, we will also have a little problem in paddy. So, we might not be in a position to export wheat and paddy. If the global market is hoping that India will be a big exporter, it's unlikely.
At the moment we have possibly gram, and soya crops in abundance. Last year, soya production in Brazil, Argentina, and Paraguay witnessed a 10 to 15 percent drop in annual production, putting pressure on soybean prices.
We also received less sunflower oil from Ukraine because of the ongoing situation. Also, Indonesia put an export ban on palm oil because they wanted to mix palm oil with petroleum. And Malaysia didn't have labor. So, all of that put together, there was inflation in edible oil.
We might get a better soybean crop globally, including in India. Hopefully, we will get more sunflower oil from Thailand, if not Ukraine.
So we will not have concerns about edible oil this year. I think we should be in a position to manage all the food needs. There might be some shortages of pulses, but that will not threaten our food security.
Sputnik: What kind of opportunity is there in the export market, considering the increasing demands from every part of the world?
Arun Raste: We estimated we would have 330 million tons of foodgrain production this year. If we get that, we will be in a position to export almost 10 percent of the total output. Now, to whom do we export? We realize that when the Ukraine crisis happened, the biggest importer was Egypt.
So, there might be future opportunities for us to export some of our wheat and rice to regions we were not exporting to before. Also, we have to keep in mind that the Ukrainian crisis will not continue longer. It might end by next year. Hopefully, Ukraine and Russia will both be back in the export market. But then we can be competitive, and we can also export to those countries.
Sputnik: India is one of the biggest producers of Agri products. However, we have yet to find a mechanism to discover the prices of several commodities. What should be the best way to discover the prices?
Arun Raste: There are 91 notified commodities for which future markets would be opened up. We are not a mature market. If you are looking at something such as the Chicago Board of Trade, it is a 150-year-old market. Compared with the US, we are not market-driven because of our food security concerns. But for commodities where food security is not a concern, we should allow price discovery from the market straightaway, except for wheat and rice.
Sputnik: How equipped are Indian farmers to trade in the futures market, in terms of knowledge of the market and access to it?
Arun Raste: I will give you one small example: I was roaming around with one of my field staff in the Malwa region, one of the country's major soybean-producing regions, and we met with farmers. They said they get details about future prices of any specific commodity and monsoon situation from NCDEX. If you show a good monsoon and better prices of soybean in the futures, we sow soybean. If prices in the future market do not support our expectations, we switch to other crops.
So, people decide in terms of futures markets; they know what the prices will likely be and what they would be sowing this season. A layman farmer is taking this kind of decision. So, this is the importance of a market-driven price mechanism.
Sputnik: India suspended future trading in several commodities last December. The food Inflation level is still hovering around 15 percent. Do you think with future trading, food inflation could have been higher?
Arun Raste: When looking at the price discovery mechanism, we bring transparency to the system, whereas future markets indicate where the prices would be. Today's price determines what the price will be four months down the line.
People who don't want fairness in the system created this myth that inflation goes up because of future trading.
Banning trading in futures means banning prices of four to five months down the line. People must understand that prices in spot markets occur because of a mismatch in supply and demand. So, banning futures doesn't make any economic sense. It isn't logical to punish the futures market for what is happening in the spot market.
Sputnik: A section of people, including those in the government, believe that higher prices because of future trading do not benefit farmers. What would you say about this perception?
Arun Raste: This is a contradiction that we are talking about. If prices are going up, obviously the supplier will receive a good amount of money for their produce. Here the supplier is farmers. But again, the futures markets are just a messenger. They give you a message that five months down the line, what will the prices be?
As I said earlier, farmers are much more aware than anyone about the prices decided at a commodity exchange. Let's say if a local trader offers prices lower than prices found at the exchange, farmers can refuse to sell their products. Farmers get reference points from exchange market.
So, those who do not give the right price to farmers oppose the futures trade. In a transparent market, corrupt people would not be in a position to make money.
These people always oppose the system because the exchange system brings pricing upfront; it is available to anybody and everybody.
Sputnik: The government believes that India will become a price setter rather than a price taker in the bullion market. Why can't we have a similar yardstick for Agri products?
Arun Raste: Forget the US and Canada for a while. China started the commodity market just the same as we started. When we started around 15 years ago, NCDEX was the fifth largest, and none of the exchanges in China were bigger than NCDEX at that time.
Today, the Chinese exchanges are bigger than US exchanges because their equivalent to our NAFED or Food Corporation of India, are trading on exchanges. So now what has happened is China has become a price setter. China sets the prices for the whole world because it is the largest consumer.
Sunflower harvest in Novosibirsk Region, Russia. - Sputnik International, 1920, 05.08.2022
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Why can't we do that? We are one of the largest pepper producers, but we follow prices on the Vietnam exchange. We are also the largest or second-largest producer and consumer of many commodities, but we are price takers.
When trading was not suspended, we were setting a benchmark price for Indonesia for soya or some other commodities. But now we have lost that opportunity.
Sputnik: We have seen massive demands for Agri products in global markets. As trading in futures is banned, is it possible that Indian farmers and exporters might not get the benefits at this crucial time?
Arun Raste: Our people, such as Ruchi Soya or Adani Wilmar, or other big companies, had the opportunity to hedge risks on our exchange. But now, they don't have any options in India. So, they have to go and hedge at international exchanges because they have risks, and they have to hedge their bets somewhere. The price discovery mechanism and the whole exchange mechanism are a must for any developed or developing country.
Sputnik: Is hoarding in Agri commodities a significant concern, and what can be done to do away with this anomaly?
Arun Raste: What needs to be done is to get legislation passed - the regulation called Warehousing Development and Regulatory Authority (WDRA) was presented to Parliament. Unfortunately, it could not be passed. The law empowers all warehouses to be registered with the WDRA. When you register warehouses with the WDRA, any stock coming in or going out is put in the system. WDRA people sitting in Delhi will be able to manage or look at the stock in a particular Godown anywhere in the country.
So, there would be no possibility of any cornering by anyone, or even if somebody were to corner, the government would know the culprit. Hopefully, the Bill will be passed in the winter session. Once it comes into effect, the number of registered warehouses in the country can go up to between 30,000 and 50,000 from 2,000 at present. This whole system will become very transparent and efficient when that happens.
Sputnik: Do you think the government or regulator will allow futures trading in commodities which at present is banned, to resume?
Arun Raste: I can't guess what the government or regulator will do. I only hope that they will allow it. As I said, this is the most efficient and transparent system. The decision is in the hands of the government.
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