While farmer involvement in the futures market appears to be minimal, spot or physical markets can accommodate them in a better way. Over 7,500 regulated markets or mandis (APMC market yard) and sub-yards in the country can offer benefits to smallholders. However, a policy roadmap is essential to revamp the current market and trade system to increase farmer participation.

Modernising mandis The APMC model Act, way back in 2003, suggested a slew of measures to improve the market infrastructure and its functioning. The measures include standardisation of auctioning, facilities, such as weigh-bridge, moisture meter, oil refraction instrument, cleaning plank, grading instrument, availability of gunny bags or jute sacks, installation of price ticker board, dry or hermetic warehouses and silos. APMC monitors the activities of merchants or commission agents and hamalis ’ association under the Chairman and Secretary of the regulated market. Provision of banking and CCTV in every auction yard has been observed in most places now-a-days.

While Gujarat, Karnataka, Rajasthan, Madhya Pradesh have responded positively, many States are yet to improvise concerned markets or mandis . Trading mechanics

Electronic spot trading can replace the current auctioning system in APMC or regulated markets. While pit or floor trading has some advantages, it indeed makes price discovery opaque and illegitimate sometimes. Capability asymmetry or asymmetry of relationships between power and accountability among farmers, commission agents, auctioneers, or the auction writer makes the exchange process maligned and impoverished.

Spot exchange could be an alternative avenue of the transaction in a software-enabled trading environment. NCDEX Spot Exchange (NSPoT) or NCDEX electronic markets deserves a special mention. Though national level spot exchanges were promoted in 2007, they started operations only in 2009.

While NSPoT reported a few successful interventions in Gujarat, Karnataka, Rajasthan, other spot exchanges became dysfunctional or failed to sustain, namely NSEL and SNX. Mother Dairy Fruits and Vegetables Limited – a wholly-owned subsidiary of NDDB – partnered with MCX and promoted Safal National Exchange or SNX in 2008. SNX failed to withstand the test of time on account of techno-economic problems. NSEL also failed to emerge successful due to faulty contract design and fragile settlement system.

Since spot trading complies with physical delivery, it requires a robust surveillance and risk management system. For instance, NSPoT facilitated groundnut and chana procurement from small farmers on behalf of the Small Farmers’ Agribusiness Consortium (SFAC). A few not-for-profit organisations such as Somnath Foundation, Ambuja Foundation and DSC mobilised local farmers in Gujarat’s Saurashtra region and procured commodities at MSP or the ruling price.

Benefits to members

Intervention of NSPoT has made several farmers financial literate and acquainted them with the exchange through in-built trading architecture known as ‘commtrack’. Buyers, on the other hand, reduced transaction or search costs as price and quantity information was available through the architecture. NSPoT has monitored the Participant’s Fund Management on a real-time basis wherein members need to settle the trade in T+7 through designated clearing agents of the exchange.

Innovate to Integrate Co-existence of spot exchanges and mandis is of crucial relevance in improving structure, conduct and performance of agricultural markets. However, functioning of the exchange, APMC board, merchants or commission agents is essential to accommodate buyers and sellers in the market. NSPoT may offer coordinated switching incentives to commission agents, who, in turn, would take action on behalf of farmers and check malpractices in the market. The warehouse service provider can work in tandem with the exchange and the marketing board. The Forward Markets Commission can step in for improving the relationship between futures and spot exchanges. In order to achieve a hassle-free operation, State governments’ clearance for the trade-order, earmarking market yard, standardising auctioning process and arrangement of facilities such as weighing machine, trading terminal, and storage premises, among others are needed.

The writer is a Post-Doctoral Fellow of CMA, IIM-Ahmedabad. Jitendra Prajapati assisted him during field work. Views are personal.

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