The Hindu : Business : High growth in futures trading in farm products not due to price rise: Govt

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High growth in futures trading in farm products not due to price rise: Govt

Gargi Parsai

‘The growth was mainly due to restoration of trading in suspended commodities'

NEW DELHI: The Centre on Friday denied that the 102.59 per cent jump in the volume of trade in agriculture commodities in the futures market between April, 2009, and January, 2010, valued at Rs.10.13 lakh crore, was owing to continuous rise in the prices of farm commodities or due to excessive speculation or profiteering.

“The increased volatility in prices leads to increase in volumes as more and more stakeholders need the price risk management, taking short-term positions and entering and exiting the market repeatedly. This increase in volume/value of trades is not an indication of price rise. Trade volumes can increase even in a falling or fluctuating market. At the aggregate level, introduction/reintroduction of new commodities and operationalisation of new exchanges also added volume to the trade,'' the government said in a written reply to a Parliamentary question by Brinda Karat (CPI-M) on futures trading in farm commodities.

“The over 100 per cent growth in trade value of agricultural commodities was mainly due to restoration of trading in suspended agricultural commodities such as chana, wheat, soya oil, potato and rubber, as well as higher volume of trade in guar seed and guar gum,'' Agriculture and Consumer Affairs Minister of State K. V. Thomas said.

He added that the increase in volumes did not lead to increase in prices; rather it made the price discovery more efficient by increased participation and consequential liquidity.

Such active and increased market participation, in fact, could lead to reduction in price volatility and not increase in prices.

“As a matter of fact, due to suspension of trading in a number of essential commodities during 2007-08 and 2008-09, trade value in agricultural commodities had fallen from Rs.13.17 lakh crore in 2006-07 to less than half at Rs.6.27 lakh crore in 2008-09. The subdued commodity prices in the wake of the 2008 global financial crisis were also a contributory factor,'' he said.

“From another angle, the prices of the most actively traded essential agricultural commodities, namely, chana, wheat, maize and potato has been steady or with moderate inflation as against high inflation in non-traded commodities, namely, urad, tur, vegetables and fruits. Therefore, it would not be correct to say that the growth in the trade volume in agricultural commodities during 2009-10 was due to excessive speculation or by causing inflation or indulging in profiteering,'' Mr. Thomas added.

He said futures markets were driven by market fundamentals shaping demand and supply over a longer time horizon. The same demand and supply factors affected both spot markets and futures markets with the only difference that the time horizon for these factors was nil or negligible for spot trade whereas futures trade had a longer term horizon of 3-6 months.

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