27/12/2021 - Economy

KEY POINTS

·        The Securities Exchange Board of India has banned futures and options trading in a host of agriculture commodities including chana, mustardseed, soya bean and its derivatives, crude palm oil, moong, paddy (Basmati) and wheat for a period of one year.

·        Commodity futures are market instruments to achieve price discovery, market price stabilisation and price risk management.

·        Futures trading provides assurance to farmers about price discovery. Any farmer faces the risk of fall in prices when it is harvest season for a particular commodity.

·        In the absence of a futures market, farmers will be forced to sell their produce in the cash market at the prevailing price, which may not be to their advantage.

·        But they take advantage of price signals from the derivative market and this enables them to decide about the cropping patterns based on price signals.

·        Increase in the prices of agricultural products can be mostly attributed to failure of crops, or to the reduced area of cultivation for that particular commodity, exporting a sizeable quantity the same or even hoarding.

·        The main finding of the study was that there has not been any significant change in the spot price volatility after the introduction of futures trading for both wheat and maize.

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