Now that the ban on seven agricultural commodity futures in India has been going on for more than a year, it is becoming difficult for market participants to get a better price discovery mechanism and also find it difficult to operate on physical products without having any hedging platform to cover their price risk. Future price trends provided by stock exchanges are an important indicator for farmers, traders and processors. Physical markets or mandis often follow the price trend based on exchanges. Similarly, even farmers plan their unloading of various crops based on the price trends visible on the exchanges. More than individual farmers, the Societies of Peasant Producers (FPC) and the Organizations of Peasant Producers (OPF) trade on stock exchanges. Therefore, the price discovery mechanism should be strengthened by lifting the ban on agricultural commodity futures. In addition, greater participation by players such as mutual funds, financial institutions and foreign institutional investors should be allowed to increase liquidity on our agricultural exchanges and thereby reduce the risks of price manipulation on exchanges. by a few selected lots due to minimal liquidity. Meanwhile, all settlements of agricultural commodity futures must be done on-site instead of mandatory delivery to avoid speculation and these platforms could be used primarily for price hedging and discovery. Options trading should also be restored in agricultural commodities.
On the edible oil front, the domestic refining industry is suffering losses as the duty differential between imported CPO and Palmolier RBD is only 7.5%, which has led to an increase in oil imports of refined palm. Therefore, an increase in RBD Palmolein & RBD Palm oil import duties from the current 12.5% to 20% would discourage cheaper imports of refined palm oil and allow for greater capacity utilization by domestic refiners. Meanwhile, we must achieve self-sufficiency in edible oil supply in India to reduce losses to the treasury by reducing reliance on edible oil imports. This could be done by allowing the production of Genetically Modified (GM) crops after successful trials by the Genetic Engineering Assessment Committee (GEAC), as this could increase the productivity of oilseed crops and improve nutritional content by making the crops climate-resistant GMs and more. herbicide tolerant. Also, the minimum support price for oilseed crops should be increased to encourage the production of these crops by farmers. With the depletion of the water table in the northern part of the country, increasing mustard acreage would also help save the water table from depletion.
Speaking of the current wheat price inflation, one way to control it was to release wheat from the central pool under the Open Market Sale (OMSS) program which the government recently announced to unload 3 million tonnes of wheat in the first quarter of 2023. The other way to cool prices is to reduce the import duty on wheat from 40% to 0%. Removing the duty would not create any influx of imported wheat as international wheat prices are higher and there is no parity even at zero duty, however, it will change market sentiments. Wheat prices in Delhi hit a record high of Rs 3225 per quintal, prices were up over 42% from the same period last year. After the government announced wheat sales under OMSS on January 25, wheat prices have corrected by around Rs 200-300 per quintal till today in most Indian wheat markets. Yet prices are much higher than the minimum support price of Rs 2125 per quintal and it would be difficult for the government to replenish its granaries by purchasing a substantial amount of wheat in the current crop year. Wheat stocks have fallen to almost 5 years and it would be difficult to make food security programs work next year if a substantial amount of wheat is not purchased, which could fuel food inflation again. Therefore, corrective action must be taken at the right time to control the increase in food inflation.
(The author, Major Rajiv Yadav, is Senior Vice President (Supply Chain) – Origo Commodity India Pvt Ltd)
