Proposal for Studying Commodity Futures Market Influence on Farmers' Income in Rice and Soybean

1. Proposal for Studying the Structure of Commodity Futures Market in Rice and Soybean and Also the Impact on the Income and Production of the FarmersVishwa Ballabh & Prantik RayXLRI

2. Presentation Plan • Problems of Agriculture Sector in India • Objective and Scope of the Proposed Study • Rice and Soybean Futures Markets in India

3. Macroeconomic Trends in India Economy Source: Economic Survey, 2000-01,2005-6

6. Source: Ballabh (2007)

7. Capital Formation in Agriculture (at 1993-94 prices) (Rs. Crore) Source: Ballabh (2007)

8. Lack of Infrastructure and High Transaction cost • Scale of production is small • Production is risky • Information and credit cost is also very high • Lack of proper transportation and warehouse further increases the transaction cost

9. Objective of the Study • To assess the efficiency and performance of the commodity futures market with reference to rice and soybean • It will include studying the structure in the spot and future markets and mapping out the functioning of the markets in these commodities. • To study the entire supply chain of these commodities which will help in identifying value addition, marketing cost and areas of intervention to improve the value chain efficiency • To study the impact of government policies and interventions on the supply chains in these commodities • To study effect of commodity futures in these commodities on the production, productivity and the income of the farmers.

10. Why Rice ?

11. Importance of Rice in India • Rice is the most important and extensively grown food crop in the world. • Around 90% of all rice grown commercially is used directly for human consumption. • Rice is the staple food of more than 60 percent of the world population and will remain as lifeline for the people in Asia and Pacific regions where 90% of it is produced and consumed. • International trade in rice is relatively very small – only about 5%. It is estimated that 50% of the world crop is consumed on the farms where it is grown. • India has the largest area under rice in the world and ranks second in the production after China. India has also emerged as a major rice consumer and exporter.

12. Source: MCX

13. Source: MCX

14. Source: NCDEX

15. Structure of Rice Futures in NCDEX • Fourtypes of Rice Futures are traded: Grade A Raw rice, Grade A Parboiled Rice, Common Raw rice, Common Parboiled Rice • Contract Size: 10 MT • Primary Delivery Centre: Delhi • Spot Price Determination by Polling (CMIE) • Risk Mitigation by NCDEX by Margin Collection

16. Why Soybean?

17. Source: MCX

18. Source: NCDEX

19. Source: MCX

20. Source: MCX

21. Source: MCX

22. Source: MCX

23. Source: MCX

25. How We Will Go About the Study • Collection of Primary Data through interaction with all concerned parties like the farmers, middlemen, brokers, exchange authorities and government officials • Studying the historical secondary price data from the exchange and market • Correlating the production and farmers’ income with the participation in the futures market • Suggesting policy changes required