February date for spot trade in farm crops

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  • Published 15.01.07

Calcutta, Jan. 15: The country’s first bourse for spot trading in agriculture commodities may be up and running in Rajasthan from the middle of February. This is the time when farmers in the state start harvesting their rabi crops.

“We are at a fairly advanced stage of setting up the spot exchange in Bikaner before the beginning of the rabi harvests,” said Anjani Sinha, managing director and chief executive officer of National Spot Exchange Ltd, which has the license for spot exchanges in the state. “It will begin with trading in wheat, gram and guar seed. Other agriculture commodities will be added to the list subsequently,” Sinha said.

National Spot Exchange, a joint venture between Financial Technologies India, Multi Commodity Exchange and National Agricultural Cooperative Marketing Federation of India, will also soon roll out in Kerala, Gujarat, Maharashtra and Bengal.

The plan is to have a single, nation-wide electronic trading platform that will do away with intermediaries and offer farmers a better price.

A vibrant spot market nationwide will also help in price discovery in the futures markets.

Farmers in most states cannot sell their produce beyond a certain area. Under the existing state agriculture produce marketing committee (APMC) act, a state is divided into several market areas managed by the agricultural produce marketing committee (APMC).

Farmers of one area can sell only to APMC license holders in the APMC mandis (wholesale market) in their region.

The APMC licence holders pay a mandi tax to the respective APMC. Once the tax is paid, the license holder can sell to anyone.

“This practice has entailed a lot of price and market imperfections in agricultural commodities in the form of intermediaries. Farmers do not get a good price for their produce and end users pay more than what they would have paid otherwise,” Sinha said.

The Centre has a model APMC Act to end the state monopoly in agricultural marketing and pave the way for a common national market for agricultural commodities for spot trading. Only 14 states, such as Rajasthan, Maharashtra, Gujarat, Madhya Pradesh and Kerala, have adopted the model APMC by amending their agricultural marketing rules.

“Though Bengal has not yet adopted the model APMC code, the state chief minister has evinced keen interest to set up spot exchanges here,” said Jignesh Shah, the founder-promoter of Financial Technologies India Ltd, who promoted the Multi Commodity Exchange in 2003. “The process of rolling out spot exchanges in Bengal, Kerala, Maharashtra, Rajasthan and Gujarat will be completed by February 15,” he added.

“We also have framed a strategy for rolling out spot exchanges in states where the State APMC Act is still in force,” said Sinha.

According to Sinha, National Bulk Handling Corporation, another FTIL subsidiary, will set up warehouses in different locations.

A representative of a local MCX/National Spot Exchange member broker, who also holds an APMC license, will be at each warehouse.

The member broker as an APMC license holder will buy the produce from local farmers and pay the mandi tax.

The farmer can sell the produce at the current market price being displayed on an electronic board. “However, the farmer’s sale price will be reduced by the amount of mandi tax, brokerage charges and an interest component,” explained Sinha.

Since the trading is done electronically, the brokerage will be very small similar to that in the stock markets, Sinha said. There will be an interest component because the member broker will have to pay the farmer in cash on the spot while the broker will get the payment through the exchange after two days of the sale (through the exchange).