Proposal for Studying Proposal for Studying the Structure of the Structure of

Commodity Futures Commodity Futures Market in Rice and Market in Rice and

Soybean and Also the Soybean and Also the Impact on the Income Impact on the Income and Production of the and Production of the

FarmersFarmers

Vishwa Ballabh & Prantik RayVishwa Ballabh & Prantik RayXLRIXLRI

Presentation PlanPresentation Plan

• Problems of Agriculture Sector in Problems of Agriculture Sector in IndiaIndia

• Objective and Scope of the Proposed Objective and Scope of the Proposed StudyStudy

• Rice and Soybean Futures Markets Rice and Soybean Futures Markets in Indiain India

Macroeconomic Trends in India Macroeconomic Trends in India EconomyEconomy

1981980-920-92

1992-1992-0101

1993-1993-9494

1998-1998-9999

1999-1999-0000

2000-2000-0101

2004-2004-0505

2005-2005-0606

AgricultuAgriculturere

3.93.9 3.33.3 4.14.1 7.17.1 0.70.7 0.00.0 0.70.7 2.32.3

IndustryIndustry 6.36.3 6.56.5 5.25.2 3.43.4 6.46.4 6.36.3 8.68.6 9.09.0

ServicesServices 6.46.4 8.28.2 7.67.6 8.28.2 9.69.6 5.65.6 9.99.9 9.89.8

Total Total GDPGDP

5.45.4 6.46.4 5.95.9 6.66.6 6.46.4 4.44.4 7.57.5 8.18.1

Source: Economic Survey, 2000-01,2005-6

Growth Rates of Yield

0123456

81 to 91

91 to 01

Source: Ballabh (2007)

Capital Formation in Agriculture (at 1993-94 prices) (Rs. Crore)

YearTotal Public Private Percent Share

Public PrivateTotal 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

1999-2000

17304 4221 13083 24.4 75.6 1.46.0

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

Source: Ballabh (2007)

Lack of Infrastructure and High Lack of Infrastructure and High

Transaction costTransaction cost

• Scale of production is smallScale of production is small

• Production is riskyProduction is risky

• Information and credit cost is also very highInformation and credit cost is also very high

• Lack of proper transportation and warehouse further Lack of proper transportation and warehouse further increases the transaction costincreases the transaction cost

Objective of the StudyObjective of the Study• To assess the efficiency and performance of the To assess the efficiency and performance of the

commodity futures market with reference to rice and commodity futures market with reference to rice and soybeansoybean

• It will include studying the structure in the spot and It will include studying the structure in the spot and future markets and mapping out the functioning of the future markets and mapping out the functioning of the markets in these commodities. markets in these commodities.

• To study the entire supply chain of these commodities To study the entire supply chain of these commodities which will help in identifying value addition, marketing which will help in identifying value addition, marketing cost and areas of intervention to improve the value chain cost and areas of intervention to improve the value chain efficiencyefficiency

• To study the impact of government policies and To study the impact of government policies and interventions on the supply chains in these commoditiesinterventions on the supply chains in these commodities

• To study effect of commodity futures in these To study effect of commodity futures in these commodities on the production, productivity and the commodities on the production, productivity and the income of the farmers.income of the farmers.

Why Rice ?Why Rice ?

Importance of Rice in Importance of Rice in IndiaIndia

• 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 Structure of Rice Futures in NCDEXNCDEX

• 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?Why Soybean?

Source: MCX

Source: NCDEX

Source: MCX

Source: MCX

Source: MCX

Source: MCX

Source: MCX

How We Will Go About How We Will Go About the Studythe Study

• Collection of Primary Data through Collection of Primary Data through interaction with all concerned parties like interaction with all concerned parties like the farmers, middlemen, brokers, the farmers, middlemen, brokers, exchange authorities and government exchange authorities and government officialsofficials

• Studying the historical secondary price Studying the historical secondary price data from the exchange and marketdata from the exchange and market

• Correlating the production and farmers’ Correlating the production and farmers’ income with the participation in the income with the participation in the futures marketfutures market

• Suggesting policy changes required Suggesting policy changes required