InvestorQ : How to get farmers to participate more effectively in commodity futures?
Suhani Mirza made post

How to get farmers to participate more effectively in commodity futures?

Dia Deshpande answered.
3 years ago

There is a need to lower the entry barriers for farmer participation in the futures market. Currently, the KYC norms are too stringent and smaller farmers may not be in a position to meet these stringent norms which will keep them out of the futures market. Therefore, there is a need to have more user-friendly entry norms for farmers. Remember, farmers are looking at this market to hedge their risk and not to speculate on commodities.

The next step is to create a conducive environment for commodity financing. The 450 plus accredited warehouses can be exempted from the Stock Control order and the Essential Commodities Act. This will make the movement of farm produce into warehouse much simpler and quicker. With the repository of Warehouse Repository also coming into being, the all India database of WRs can be effectively by farmers to access margin finance against their stock. This will ensure that the farmers get access to low cost finance rather than depending on the informal segment to finance them.

While ensuring an integrated market and warehouse financing is critical for farmers, a more fundamental requirement is the need to aggregate farm produce. Most Indian farmers are marginal farmers and hence their output is not of the basic economical quantity. For creatable viable marketable lots, it is therefore essential to have an aggregating mechanism of small farm produce which is economical and beneficial to the farmer.

The digital mandi network can go a long way in bring farmers into the fold of the commodity futures market. Already 455 markets across 13 states have already joined the Electronic National Agricultural Market (e-NAM) platform. This is the first step and soon nearly 600 markets across India will be interconnected enabling a smoother flow of goods to and from warehouses. This will be a big boost for the farmers.

The new market architecture is currently being envisaged that enables to integrate the spot market for produce, the inputs markets and the futures market. That should go a long way in reducing the overall risk for the farmers. It will also ensure that the farmer gets a more competitive price for his produce and in a much more transparent manner.

The government of India under Mr. Narendra Modi has pledged to double farm incomes by year 2022. However, farmers are continuing to receive non-remunerative prices for their produce. As the latest report by the government on the state of agriculture shows, the big challenge is to market the agriculture produce effectively. In the past we have seen many agricultural commodities seeing high levels of wastage due to poor warehousing and transport infrastructure. Here are some of the key challenges to marketing agriculture. It also sets an agenda that the government needs to work closely with mandis and commodity futures exchanges going ahead.