Commodity futures market helped farmers, shows study

The study also showed the exchanges have helped a number of brokers, traders and producers, expand their business

The growth of commodity futures markets in India has helped farmers dismantle powerful trading cartels in potato and mentha (mint) oil, according to a study by the Tata Institute of Social Sciences conducted in association with the Multi Commodity Exchange (MCX). It has also helped farmers take more broad-based decision on production, storage and marketing of farm produce, the study noted.

The study, which analysed the contribution of commodity exchange ecosystem on economic development, also showed the exchanges have helped a number of brokers, traders and producers - who are first generation economic beneficiaries of commodity markets - expand their business.

The report was based on in-depth analysis of pilots conducted on cotton and bullion and was spread across Ahmedabad, Rajkot, Gondal, Jalgaon, Mumbai Agra, Moradabad, Chandausi, Kolkata, Chennai, Bangalore, and Kerala.

Although the cumulative trade value in all major commodity exchanges fell 5.95 per cent to Rs 170,00,000.47 crore ($3.11 trillion) in FY13, for the first time since 2003, the volumes have risen at a steady clip ever since the modern commodity futures exchanges started around 2002-03. According to experts, the volumes dropped in FY13 due to curbs on futures trade and also a shift towards equities.

The study also showed there has been a definite impact of commodity market as a platform for high-price risk volatility management in bullion, base metals, and energy products.

"With risk management on futures market platform, a number of producers have survived the high price volatility arising out of post-2008 global financial crisis. If we want to calculate the direct benefits arising out of hedging on electronic exchanges, the calculations will be astronomical," the study said.

It added the growth of commodity futures markets has fuelled a steady development of agriculture infrastructure, which include storages, vaults, transport and logistics associated with the expansion of commodity markets.

"Infrastructure expansion has also contributed to the growth of sustained employment and income generation in ancillary industries," the study noted. It said the commodity futures exchanges have also expanded the presence of women in fields such as trading, research, etc.

"Worldwide, commodity markets account for five times the volumes of equity markets. Since this is not yet the situation in India, there is great potential in the sector," the study noted.