Misgivings of Future

There has been much analysis regarding the usefulness of Futures in our commodity market more importantly in our Agri commodity market Everytime when there is a spike in the prices of the major cereals and other important agri commodities there is a concerted move by the political establishments to attack the policy of futures In order to acquaint ourselves with this concept lets first know about Futures Futures trading is characterized by a transaction which is agreed upon between the parties and the settelment is contractually deferred to a predefined future date Future dated supply and future dated demand generate the future prices A farmer who sells goods at a future harvest date at a locked in price appears to be fundamentally sound proposition But a key source of mistrust vis -vis futures arise in context of spot-futures arbitrage For example when a bad news comes about Monsoon the futures price goes up immediately At this point traders,big companies buy goods from the spot market and start storing them If it is done to honour your contract it is fine but when you start buying substantially in order to influence the future course of action then it is seen as profiteering or more precisely; Hording; But conversely one can argue that this a common natural reaction of the market exchange system In case of anticipated bad news the spot prices go up and thus consequent economic activities So its not only true for agri commodities but for all commodities in general Infact they argue spot- futures arbitrage entice all correct resonses; stock prices go up, stocks are built up and future prices are watered down enabling stabilisation of prices So if we analyse the scenario the truth lies in between Whereas Futures as a mechanism is needed in the system, at the same time we should try to build in mechanisms so that misuse of this system is averted In this context there is a need to strengthen the Forward contract regulation act As in USA where there is commodity futures trading commission which deals with all the aspects of derivatives ,similarly there is aneed to have a body like this In India Too many supervisory organizations work at cross purpose often promoting their own agenda and interests in addition vested political interests Let there be transperancy and used as a tool of economic activity and nothing else

PROBLEMS IN IRRIGATION

Farmer suicides and distress has taken alarming proposition in the country Infact many suicides by farmers have been traced to the crop failure because of unpredictibility of rains That is why rapid expansion of irrigation was made one of the six components of the ambitious Bharat Nirman project currently undertaken by the central government But mere allocation of budgets is not going to solve the problem as we have already seen in equally ambitious project lunched a decade back under Accelerated irrigation benefit programme The major focus under accelerated programme was to focus resources on easy to complete project Sometimes facts can be harsh Despite all the ambitious planning no more than 1.4 million hectares of additional irrigation potential was reported to be created in the 10th five year plan But the fact is for more than half a century the country has added close to a million hectres of irrigation potentially annually If we compare to this the 10th five year plan performed dismally Similarly already lofty projections have already been made in the 11th five year plan Infact Bharth nirman programme of extending irrigation to 10 million hectares has not be met either The net result is that a sizeable part of the countrys total irrigation potential -recokned at 139.9 million hectares will continue to be unexploited for a long period to come The major problem of underperforming in this crucial sector is because irrigation is in the state list and most states are unable to raise resources required to be invested in irrigation Work under even the accelerated programme has got stuck because of the states failure to put in their share of resources-usually a half to a third of the centres allocation In addition to this the populist approach towards water and power charges have converted irrigation works from revenue generation to a financial burden This has affected not only the maintenance and operation of irrigation projects but also command area development work so as to make use of the irrigation capacity that has been created The result is water logging, and soil salinity So the country needs urgently water sector reforms including the fixation of realistic user charges and establishment of water user bodies for maintaining and operating irrigation works It is only when irrigation is made commercially viable then states and private institutional bodies will be prompted to invest in the expansion of irrigation

PULSE REMEDY

Out of all agri commodities which has seen a spike in the price, the pulses scenario is the most worrisome In the post Green revolution period the production of most of the crops has increased except for the Pulses It is shocking to learn that the production of pulses has remained stagnant for the past 45 years since 1965-66 It has moved in the narrow band of 12million tonnes to 14 millin tonnes per year In the past 20 years the growth has been measely o.33% and the important reason is stagnancy in the area under the crops Further there is no major technological breakthrough with certified seeds not available in adequate quantity Usually inferior lands are devoted in this crop and when the land gets irrigation farmers switch over to other crops The government has not showed any interest in augmenting production But now suddenly there is a concerted move to prioritize this important segment which has come very lateThe Government announces the minimum support prices every year and goes for relatively higher prices to give incentive to the farmers to shift towards production of pulses However this has not acted as a catalyst as there is any significant increase in the production As a result of which supplies have remained stagnant and the prices are rising fast And with a rise in population the per capita availability of pulses has decreased from 13.9kg in 1985 to less than 9 kg in recent years Further the per capita expenditure on pulses has decreased Pulses are the only source of protein for most indians and fall in the consumption of pulses will have negative impacts So the urgent need is to augment the production with the government has taken beleted steps in the current budget by allocating higher resources And the productivity of pulses in India is very low-only a 1/3rd of that in China and 1/10th that of France Also the gobal situation is not very welcome World production has increased at a very low rate of 0.48% per annum and that unit value of imports has increased by three times in the past 20 years Consequently supply and prices could become a problem in the international market Seeing this scenario DAAL ROTI KHAO PRABHU KA GUN .... WOULD BE a nightmarish experience Sooner we realise the enoromity of the problem the better it is for us Lets welcome Govts move and sincerely wish it would provide us genuine breakthrough in our production stagnancy

SUGAR WOES

Recent announcement of Union Agriculture Minister to free sugar industry from controls have been welcomed by the Industry at large But given the complexities of Sugar dynamics that prevail in India it require more than political will to set this industry right In order to understand the real problems ,one need to first analyse various issues with this regard In India Sugar is under the perview of essential commodities act of 1955 which means that Government control sugar capacity additions through industrial licensing and determines the price of sugarcane and the quantity that can be sold in the open market As a result of which the sugar mills are expected to surrender 20% (currently) of their production to the Government at prices below the market level prices This sugar is known as Levy sugar to be used by the public distribution system In addition to this there is a second restriction on the mills in the form of Free sale quota After surrendering 20% the remaining 80% are to be sold by mills in a restricted marketing environment The Government releases what is called monthly free sale quota to mills to be sold within the stipulated time frame In addition to this there is a differential pricing systems by the centre and the State governments The centre announces MSP and the states have their own SAP (state adminstrative price) In the latter case most of the times the prices are determined by political expediency to humor the farmers without a clear analysis of the production lecel,international prices etc as a result of which the cane grower farmers are made to wait for months to get their payments Then there is this curious principle of growers have to sell to the miller within a 15km radius Apart from these policy problems the major problem of sugar industry all over the world is its cyclical nature Other countries have offseted this problem by diversifying into ethanol and power generation from Bagasse But in India we dont have any clear policy with this regard Some share of profits can be envisioned for the farmers by actively pushing for additional byproducts Similarlyin india the sugar yeild is one of the lowest in the world A perfect oppertunityis knocking our doors with European union opening up its sugar industry India exports primarily to Asian countries like indonesia,bangladesh,& Pakistan Though we have limited capacity of production of refined sugar which is the requirement of EU,but still our production process can be adjusted accordingly With every chances of having a bumper production( estimated to rise to 25million tonnes from existing 18 million tonnes) these plethora of issues assume added significance What we need today is the fine balance of protection of consumer interest and commercial viabilities of the millers The Government has much work to do with this regard

SUGAR WOES

Recent announcement of Union Agriculture Minister to free sugar industry from controls have bee

ARTIFICIAL BARRIERS- serious threat to International Agri trade

The major problems that have been encountered by the Indian Exporters is the arbitrary quality and technical restrictions setting by the western markets This is despite clear cut requirement of WTO standards regarding food security and technical barriers to trade The major problem with this regard is continuous shifting of quality standards and specifications to the ignorance of the exporters of the third world countries A lot of times Indian Exporters send consignements to countries only to discover that they have failed some specific quality or technical norm and consignements have to be returned The number of these TBT (technical barriers to trade) have increased sharply from just 365 in 1995 to 1030 in 2007 China alone has 560 TBT measures followed by USA and european union India has already asked the WTO to examine these multiplicity of international standards These non tariff measures (NTM) the efforts should be made by the member countries to list these NTMs Once WTO makes it mandatory to post all NTM data there would be some sense of uniformity which would obligate the countries not to change the standards frequently Moreever exporters would know the existing standards in the destination countries Sometimes WTO prescribed international certification is not considered by various groups The requirement of Aflatoxin in Groundnut is prescribed at 15 parts per billion by CODEX whereas EU has a standard of 4 PPB These multiplicity standards creates hurdle in the smooth flow of international agri business