1. Agricultural Commodity Exchanges in India Issues and Concerns

8/8/2019 1. Agricultural Commodity Exchanges in India Issues and Concerns

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Group 1MBA (IB) 2009-11

Indian Institute of Foreign Trade

Group 1MBA (IB) 2009-11

Indian Institute of Foreign Trade

Agricultural Commodity Exchanges in India:Issues and Concerns

Agricultural Commodity Exchanges in India:Issues and Concerns

Naveen Kumar

Ashish Sinha

Prateek Mangal

Abhishek Rai

Tushar Gavishter


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Presentation flow

NCDEX1

NMCEIL2

ICEX3

Issues and Problems4


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Need of a Commodity ExchangeNeed of a Commodity Exchange

Commodity exchange is a platform for trading different

derivatives, product and commodities

It is usually a non profit organization that enforces rules

and practices for trading commodities and related

investments

This type of exchange aims to benefit grower orproducer

and seller of commodity

Commodity exchanges have gained popularity as they offer

investors, producers and consumers to optimize profit and

minimize risk

Major commodity exchanges are linked electronically and

modern day future trading are mostly done online for

improved and secured features


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National Commodity & Derivatives

Exchange Limited (NCDEX)

National Commodity & Derivatives

Exchange Limited (NCDEX)

Location : Mumbai

A public limited company incorporated on April23,2003under the

Companies Act, 1956 Commenced its operations on December15,

2003

It is promoted by ICICI Bank Limited, Life Insurance Corporation ofIndia (LIC), National Bank forAgriculture and Rural Development

(NABARD) and National Stock Exchange ofIndia Limited (NSE)

NCDEX current average daily turnover is Rs 35billion

NCDEX is regulated by Forward Market Commission and is

subjected to various laws of the land like the Companies Act, Stamp

Act, Contracts Act, Forward Commission (Regulation) Act and

various other legislations


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NCDEX Agri productsNCDEX Agri products

Ncdex- gri Pr ductOil and Oil eeds

Castor seeds

Cotton seed oilcake

Soy bean

Refined soy oil

Soybean meal(Export)

Mustard Seed

Kachhi GhaniMustard Oil

Crude Palm Oil

RBD Palmolein

CerealsWheat

Barley

Maize (Yell w/Red)

Maize- Feed /IndustrialGrade

SpicesPepper

Turmeric

Jeera

Chilli

C riander

Plantati n Pr ducts

RubberPulses

Chana

Yell

w peas

Fibres

Indian 28.5 mm cotton

V-797 kapas

Others

Guar SeedsGuar Gum

Gur

Potato

SugarM and S

Almond

Mentha oil

Only by

NCDEX

Cerealsonly

by NCDEX

The top 5 commodities, in

termsof volume traded at

the Exchange, were

Rape/Mustard Seed, Gaur

Seed, Soya bean Seeds,Turmeric and Jeera.


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NCDEX- Non Agri ProductsNCDEX- Non Agri Products

Ncdex- NonAgri roducts

Metals

Steel

Copper

Zinc

Aluminium

Nickel

Lead

Energy

Crude OilThermal Coal

Brent Crude Oil

Natural Gas

Gasoline

Heating Oil

PreciousMetals

Gold

Gold (100 gms)

Gold International

Silver

Silver (5kg)

SilverInternational

latinum


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NationalMulti Commodity

Exchange of India Limited (NMCEIL)

NationalMulti Commodity

Exchange of India Limited (NMCEIL)

Location Ahmedabad, Operational from November 26, 2002

First de-mutualized , Electronic Multi-Commodity Exchange in India

It is being supported by Central Warehousing Corporation Ltd., Gujarat

State Agricultural Marketing Board and Neptune Overseas Limited

NMCE- Agri roducts

Oils and Oilseeds

Castor SeedCopra

Mustard SeedSoya Bean Oil

Spices

epper

Cardamom

Turmeric

Pulses

Chana

PreciousMetals

Gold GuineaGold (100 Gms)

Gold (1 kg)

Silver

BaseMetals

Aluminium

Copper

Lead

Nickel

Zinc

Cerealsnot Traded


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Indian Commodities Exchange BoardIndian Commodities Exchange Board

Location Gurgaon , Started in November2009

It is jointly promoted by Indiabulls Financial Services Ltd and MMTC Limited.

Other partners- Indian otash Ltd., KRIBHCO and IDFC

ICEX is India's third commodity exchange and offers contracts primarily in

metals and energy

Its current average daily turnoveris Rs.15-20billion as against 200 billionforMCX and 35 billion for NCDEX

ICEX- Agri roducts

Oil and Oil seeds

Mustard Seed

Soyabeen

Soya Oil

Palm Oil

RBD Palmolein

Spicesepper

Turmeric

Jeera

PulsesChana

Yellow peas

Fibres

Raw Jute

Metals

SteelCopper

Zinc

Aluminium

Nickel

Lead


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Commodities Futures MarketCommodities Futures Market


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Financials 2008-09 fig in Crores

NCDEX (market share of12%)

NMCE (3%)

17 regional exchanges together under the Federation of Indian Commodity Exchanges

(FICE) to form a common electronic trading platform.


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ProblemsProblems

Lack ofprice transparency

The commodity futures markets suffer from problems oflack

ofprice transparency

No common interface or communications infrastructure

using which prices from one market become accessible at

another.

Central governmental intervention by way of minimum

support price, minimum and maximum price bands for

specific commodities

Agriculture is a State subject : Official permits are required for

out-of-state sales of some commodities (paddy in Tamil Naduand AP, edible oil in Gujarat, cotton and alcohol in

Maharashtra).


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IssuesIssues

Warehousing : No central notification agency for standards and grades

Central and state government controlled warehousesmajor providers of agri-produce storage facilities :Central Warehousing Corporation of India operating500 Warehouses with a storage capacity of 10.4million tonnes

Only about 3% to 5% of the total commodity derivativestraded settled in physical delivery

International Practice:

Certified warehouses (CWH) for physical settlements :Quality Assurance

Warehouse receipt becomes good collateral


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Why the Warehousing Problem?Why the Warehousing Problem?

Centraland state government controlled warehouses major providers of

agri-produce storage facilities; apart from these, a few private warehousing

being maintained

However there is no clear regulatory oversight of warehousing services

There is a lack of minimum standards in procedures, design and

management of the warehouses

As a result any commodity exchange which enters into an arrangement with

a warehouse

(a) have to implement its own methods of assessing warehouse

quality and

(b) depend entirely upon generallaw in the event of non-performance

by a warehouse

There is a need for setting up of a nodal agency for regulating warehousingand various allied issues such as licensing standards, registration of

certification and inspection agencies, warehouse inspection

Reliability and efficiency of the current set of warehouses are still to be

established


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IssuesIssues

The Regulator : Unlike SEBI ,Forwards Markets Commission

(FMC) is under the Department of Consumer

Affairs

Autonomous body needed

Tax and Legalbottlenecks:

Regulatory changes are required to bring about

uniformity in octroi and sales taxes


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IssuesIssues

Lack of Economy of Scale: Too many (5 national level and 23 regional)

commodity exchanges

Over 80 commodities are allowed for derivatives

trading but only a few commodities are traded inbulk.

Still in nascent stage

International Scenario : China : from 80 in 1993 to 3 in currently.

Japan : from 17 in 1994 to 6 now


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IssuesIssues

Illegal Derivatives Markets

The black market in future trading

Every commodity has got a local shadow

market where futures trading takes place eg : Jaggery future : Original Market

Muzzafarnagar , Shadow Market : Delhi

eg : castor seeds and oils futures market in

Bhabhar in Gujarat


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Way ForwardWay Forward

Price Transparency through Boot

Strapping Model ( followed by NSE) for

Spot Prices

Physical Delivery through robustdistribution system and proper

Warehousing facility

Tradable ware hose receipts as

Securities to increase the volume andtransparency


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THANK YOU!!!THANK YOU!!!

1. Agricultural Commodity Exchanges in India Issues and Concerns

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