Cooperative societies get FMC nod to trade on commexes

Move will see federations such as Nafed and Amul reaping benefits through direct trading

Liberalising the commodity derivatives market further, the Forward Markets Commission (FMC) has allowed cooperative societies to act as “authorised persons” and take positions on futures exchanges.

Despite having a huge member base, cooperative societies were, so far, barred from participating in commodity futures exchanges due to lack of hedging skills.

With this directive, farmers’ cooperative societies and federations such as Haryana State Cooperative Supply & Marketing Federation (Hafed), National Agricultural Cooperative Marketing Federation of India (Nafed) and Gujarat Cooperative Milk Marketing Federation, popularly known as Amul, may now be able to reap the benefit of futures exchanges through direct trading. Over 10 million farmers are registered with the three cooperative societies.

 

“The decision will reduce dependence on middlemen for selling hard-earned farm produce, resulting in higher profit for small and marginal farmers,” said Hafed administrator Captain Chattar Singh.

Until now, cooperative societies and federations were selling goods by aggregating from small and marginal farmers and selling to bulk consumers and stockists through auctions. Therefore, farmers’ realisation varied depending on the demand during auction time. Farmers, in turn, were relying on the guidance by their respective cooperative managers, who used to issue advises on the movement of goods.

Thus, the overall farmers’ realisation was lower than the prevailing market price, resulting in a loss for them. Most farmer organisations were surviving on government funding. Now, they would be able to hedge the commodity risk on futures exchanges, which would help boost their overall holding capacity and realisation, said Singh.

Under the amended guidelines issued last week, the commodity derivatives market regulator has expanded the base of aggregators known as “authorised persons” and incorporated cooperative societies to act as sub-brokers on the commodity futures exchanges.

An “authorised person” can be an individual, partnership firm or corporate body appointed as the member of a recognised commodity exchange for providing access to the trading platform as an agent of the member of the commodity derivatives exchange.

“This is a good move which will allow small and marginal farmers direct participation in commodity exchanges, something they cannot do now,” said Naveen Mathur, associate director, Angel Broking.

Direct participation by farmers has been low on commodity futures market due to two broad reasons. They are unable to pay the high one-time membership fee and keep margins with exchanges which may or may not yield good returns in future. Since their financial capacity is uncompetitive, they are afraid of taking risks in commodity futures. The commodities’ lot size is sometimes bigger than the entire produce of many of small farmers.

But, with the latest revision in guidelines, they can take a calculated and accumulative risk to share profits as well as losses in the proportion of the quantity of their produce.

A consortium of farmers can now appoint skilled staff members, deploy technology and facilitate ticker boards in major centres for the benefit of members.

“By virtue of their role, their participation was limited till now. This is one way to open the market for small farmers,” Mathur said.

Direct participation by farmers will increase significantly on the exchange platform, he added.