Jute futures may be banned from Nov

After suspending futures trading in sugar from May 26 till December this year, the Forward Markets Commission (FMC) is mulling a similar ban on jute from November, according to industry officials.

The ban is being considered as futures trading is believed to have led to a rise in prices of raw jute in the domestic market.

Jute industry sources said the government might impose the ban from early November. The move is expected to rein in prices of raw jute.

Earlier this month, the Indian Jute Mills Association (IJMA), the apex body of the jute industry in the country, had sought the intervention of the Union textiles ministry for such a ban.

The IJMA had appointed Technopak Advisors, a management consulting firm, to study the impact of futures trading on raw jute prices. According to its report, the trading has abnormally scaled up prices, which has adversely affected jute trade without benefiting the cultivators.

Raw jute prices in the domestic market had touched an all-time high of Rs 30,200 a tonne in July this year before falling to the current level of around Rs 21,000 a tonne.

The report said the price rise had benefited only the intermediaries in jute trade like farias (small traders), stockists, mill agents and brokers, leaving the farmers high and dry.

In 2008-09, farmers got an average price of Rs 14,780 a tonne, lower than the average yearly market price of raw jute by Rs 5,570 a tonne.

Moreover, industry sources said the abnormal price increase had rendered jute products non-competitive in the market, prompting users to switch to synthetic fibres. The report further stated that raw jute was not suitable for futures trading as the market for the commodity was very small both in volume and value terms as compared with other major agri commodities.

The market size of raw jute is in the range of Rs 2,000-3,000 crore a year as against the combined market size of rice and wheat (two commodities in which futures trading is banned), which is more than Rs 50,000 crore a year. It may be noted that the FMC’s previous effort to ban futures trading in commodities like urad and tur and suspension of futures trade in sugar has evoked mixed results. The ban on futures trading in urad and tur in January 2007 led to a 20 per cent fall in the spot prices of these commodities.

However, the suspension of trading in sugar futures failed to achieve the objective. After the suspension, spot prices of sugar fell 1 per cent in the immediate term but again increased by 5 per cent.