The Hindu : Business : ‘E-platform offers better price realisation in rubber futures’

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Friday, Oct 12, 2007
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‘E-platform offers better price realisation in rubber futures’

K. Venkiteswaran

NMCE claims to have ensured equal access to all participants

KOCHI: The Ahmedabad-based National Multi-Commodity Exchange of India Limited (NMCE) has brushed aside the criticism against futures trading in rubber and dubbed the move a result of lobbying by “vested interests” which want no transparency and to force rubber growers to resort to distress sale.

In a press release, the NMCE claimed that after the introduction of rubber futures in May 2003, the electronic platform had benefited nearly 9,000 clients, including a large number of small and marginal plantation growers, vis-À-vis a well organised consumer industry.

The NMCE ensures equal access to all participants across the country through a proper communication network, protecting the anonymity of the counter party as well as the genuine interests of different stakeholders.

“Contrary to the criticism against futures trading, this exchange has provided an alternative trading platform to more than a million families of small plantation growers who were earlier subjected to the vagaries of distress sale when the organised consumers withdrew from the market even temporarily,” the release said.

With the introduction of futures trading in rubber, agencies such as State Trading Corporation and NAFED have abandoned the practice of declaring a statutory price for procurement of natural rubber, because the rubber prices used to fall below the cost of production, particularly when the consumers of natural rubber withdrew from the market. Thus the exchange has provided an alternative platform to counter such eventualities, says the release.

In tandem

On the price front, it can well be argued that the domestic and international prices are by and large in tandem, except at some point in time. It could go on either side, which is a normal phenomenon, resulting in import or export of the commodity, in absence of export subsidy. It underlines the concept of a free market regime, in which the tariffs are rationalised and import barriers dismantled by the Union Ministry of Commerce. NMCE has also played a role in price stabilisation, with increased stocks owing to bank credit flowing in, which was not there earlier. This has helped the rubber processing societies to improve their condition, despite the withdrawal of eight per cent cash subsidy on export of natural rubber. It is also for the first time that the Indian rubber futures proved to be a price-setter rather than a price-taker, setting an international benchmark too, when compared with TOCOM prices during the past two years, the release noted.

While the benefits of futures trading far outweigh the earlier administered pricing regime with export subsidies and vulnerability to erratic prices during lean period, the physical delivery of rubber has reached 49,520 metric tonnes till the expiry of the September 2007 series last fortnight, not a small achievement for a nascent sector, according to the release.

Integrating markets

The NMCE platform of rubber futures has succeeded in integrating domestic market with the international one, helping millions of farmers in providing an opportunity of better price realisation through transparent and equitable access to futures market, adds the release. Similarly, the consumer industry is also now equipped with hedging mechanism for managing the price risk on NMCE terminals. NMCE has been promoted by Central Warehousing Corporation, Punjab National Bank, NAFED, Gujarat Agro Industries Corporation, Gujarat State Agricultural Marketing Board, Jaipur-based National Institute of Agricultural Marketing, and Neptune Overseas Limited.

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