CNN Central News & Network–ITDC India Epress/ITDC News Bhopal: Birla Institute of Management Technology (BIMTECH), Noida, one of the leading B-school in India and the Shailesh J. Mehta School of Management (SJMSOM), IIT Bombay conducted two separate studies investigating the impact of suspension of future derivatives contracts on Exchange Traded Commodities (ETCDs). BIMTECH study titled – Impact of Commodity Derivatives Suspension on Underlying Commodity Market is based on empirical data from January 2016 to April 2024 for Mustard Seed, Soybean including Soy Oil, Mustard Oil and Palm oil. It conclusively reports that that suspension of ETCDs (Exchange Traded Commodities) leads to absence of reference price for physical market, and that in turn results in scattered and higher price variance across mandis. SJMSOM, IIT Bombay study titled – Impact of Suspension of Commodity Derivatives on the Agri Ecosystem combines primary and secondary research through survey and in-depth interview of physical market participants (including farmers and FPOs) in three states i.e. Maharashtra, Rajasthan, and Madhya Pradesh with focus on Mustard Seed, Soya Oil, Soybean, Chana and Wheat. The study underlines that derivatives contracts serve as an important tool of price discovery and price risk management for farmer/FPOs and other value chain participants in managing the price volatility and inherent risks in the agro economic space.
In 2021, SEBI suspended derivatives trading in seven agricultural commodity/commodity groups, in what can be termed as largest ever clampdown on Indian commodity derivatives market since the modern electronic versions of commodity exchanges came into existence in 2003. Though a specific reason wasn’t attributed to suspension, however, it is widely believed that the decision was taken with the objective of taming the rising prices due to underlying belief that derivatives trading contributes to price rise. In this context, the two esteemed institutes of India undertook a comprehensive study , evaluating the impact of suspension of commodity derivatives on the commodity ecosystem.
The BIMTECH study, conducted by Dr Prabina Rajib, Dr. Ruchi Arora from BIMTECH & Dr Parama Barai from IIT, Kharagpur focused on three perspectives
Impact of unavailability of price anchors for local mandis
Impact on edible oil prices at wholesale and retail level
Hedging efficiency in the international markets for the suspended commodities
Commenting on the study Prof Prabina Rajib said, “Periodic suspension of commodity derivative contracts has been a recurring theme in India that is not only hampering the growth of the derivative sector but also the growth of the overall commodity ecosystem. Though, world over commodity exchanges have continued to offer uninterrupted commodity derivatives contracts even in the face of supply-demand mismatch and variations in price. Hence, it was intriguing to deep-dive into the underlying prevalent belief system behind suspensions in India via empirical research and understand its impact on the foremost entity – our farmers and value chain participants. Our study articulates that the belief about derivatives futures trading leads to price inflation may be misplaced. Our analysis of retail and wholesale price determines that specifically for edible oils, not only have prices increased across categories during the post-suspension period, retail consumers are paying even higher prices.”
The IIT Bombay Shailesh J Mehta School of Management study conducted by Associate Professor (Economics) Sarthak Gaurav and Assistant Professor Piyush Pandey (Finance) focused on four specific objectives.
#AgriCommodities #FoodPrices #AgriEcosystem #FoodEconomics #AgricultureImpact
