Managing wild swings in prices of essential commodities such as food grains, oilseeds, edible oil, cotton and other agro products is a key policy focus of all countries to balance the interest of farmers and consumers. While sharp fall in the market price of these commodities affect the interest of farmers, substantial rise in these prices hurt the cost of food processing companies, traders and consumers of these commodities.
World Trade Center Mumbai organized a training session on the role played by commodity exchanges in protecting farmers, food processors, traders and other stakeholders in the agro-commodity value chain from adverse price volatility in farm products. The session was organized for an incoming seven-member delegation of government officials from Bangladesh. In order to bring stability in the local market prices and supply of essential commodities, Government of Bangladesh is planning to establish a Commodity Exchange in the country, on the lines of similar institutions in the developed world.
Key members of the delegation from Bangladesh were: Mr. Md. Afzal Hossain, Chairman (Secretary), Bangladesh Trade and Tariff Commission; Mr. A.H.M. Safiquzzaman, Additional Secretary, Ministry of Commerce; Mr. Shah Md. Abu Raihan Alberuni, Member (Trade Policy Division), Bangladesh Trade and Tariff Commission; Mr. Khandaker Nurul Haque , Deputy Secretary, Ministry of Commerce; Mr. Md. Mahmudul Hasan, Assistant Head (Trade Policy Division), Bangladesh Trade and Tariff Commission; Mr. Lokman Hossain, Research Officer (Monitoring Cell), Bangladesh Trade and Tariff Commission.
The training session was conducted by Ms. Bhupalini Kodati, Product Head - Spices Complex and Mr. Amit Malde, Assistant Vice President, NCDEX, which is India’s leading commodity exchange for agriculture commodities. Ms. Kodati highlighted the uncertainties in commodity prices and its impact on producers and consuming industries, ways to manage price uncertainties, how to hedge price risk through commodity derivatives market and the role of NCDEX in developing the derivative market in India.
Specifically, she explained the role of agriculture commodity derivative market in facilitating online real time price discovery in future months, price dissemination and transparency, price risk mitigation, integration of demand and supply forces on an electronic platform etc. The derivate market also plays a key role in reducing information asymmetry and facilitating informed decision making through price signals for farmers, value chain participants, policy makers and developing state of the art warehousing, assaying and grading infrastructure for farm commodities, besides supply chain integration and farm credit facilitation.
NCDEX helps farmers and other stakeholders to hedge their position from adverse price movement of commodities by entering into futures contracts, which is a standardized contract traded on the exchange’s platform. Ms. Kodati explained how hedging can be an efficient tool for price risk management and helps in reassuring both sellers and buyers of the profit margins, capital protection & optimization, better planning efficiency and cash flow stability.
She elaborated with numerical example how market participants can use ‘Short Hedging’ and ‘Long Hedging’ to manage future price movements in commodities. In Long Hedge, a participant takes Long or Buying position in future contracts and fixes his/her buying price for a future date to protect against upward movement in prices. In Short Hedge, a participant takes a short/ selling position in future contracts and fixes his/her selling price for a future date to protect against any downward movement in prices.
The session was followed by a lively Q&A session where the members of the visiting delegation sought clarification from the trainers on various concepts and procedures related to commodity derivative trading in India and how this market can be developed in Bangladesh. Mr. Amit Malde and Ms. Bhupalini Kodati answered their questions with live examples and demonstration of live trading on NCDEX’s platform.
Mr. Anil Velde, Deputy General Manager - Trade Promotion & Marketing, WTC Mumbai delivered welcome address and proposed vote of thanks for the event.