LUDHIANA (India): The 62-year-old face of Indian farmer Gurdev Singh furrowed in astonishment when asked about a recent government ban on the trade of wheat futures. “I never knew that people bet on grain, let alone anything about a ban. Such news only reaches the cities,” said Singh, standing in his wheat field in Punjab state, the country’s leading wheat producer.
India, under pressure to cool inflation running near two-year highs, banned new wheat and rice futures contracts in its fledgling exchanges in February in a bid to check speculation and — hopefully — tame prices.
But while farmers are unfamiliar with electronically-traded futures, the ban could be bad news for them because there could be less price transparency and fewer private buyers.
“Even though the farmer does not directly benefit from the futures trade, he gains indirectly as private traders fix their prices based on futures,” said D.H. Pai Panandikar, an economist with the RPG Foundation, a private think-tank.
Analysts say the February ban, along with a move to limit the size of wheat stocks that can be held by private firms, could scare away many private buyers.
For Singh, who buys his crop is not a matter of concern — as long as someone does.“I don’t care who buys my wheat — government agencies or private trade,” he said, sweeping his hand over his wheat crop, washed clean by light rain in the village of Bhukri Kalan.
“All I want is a good price for my produce and then maybe I can get my roof repaired,” he added.
FUTURES HELPS FARMERS: But Garry Booth, an Australia-based grains trader at Man Commodities, said a competitive futures market is what ensures that farmers get a fair price for their crops.
“The great thing about the futures market is there is a great deal of transparency on prices. Without that, farmers are in a vacuum on what the prices are,” Booth said.
Singh, who didn’t have a chance to go to school and doesn’t feel comfortable using a computer, depends on word of mouth from fellow farmers, dealers or a visit to a wholesale market to get a fix on prices.
Last year, Singh’s produce was bought for 650 rupees, or $15, per 100 kg by private traders, who sell it at home or ship it abroad. Sometimes they store the stocks until prices rise.
Singh gleaned a monthly income of about 5,000 rupees from the sale of his crops last year, just about enough to keep the kitchen fire going.
The bans on the futures market also prevents farmers from optimising their resources as the lack of advance information on crop prices means farmers can’t determine whether they should plant wheat or opt for other crops such as cotton which might be more lucrative when harvest time comes around.
This year, many farmers have sold their wheat crops to brokers and middlemen even before the harvest, hoping the advance will help as they struggle to cope with rising fertiliser and fuel prices.
“More than 70 to 80 per cent of people in our village have taken an advance for their crop,” says Avtar Singh, a farmer in nearby Tajpur village.
The government, which also buys wheat for private stockpiles, has raised its offer price this year to 850 rupees per 100 kg, but rising costs threaten to gobble up the gains on offer.
Jaswant Singh, a farmer in the small village of Bhukri Kalan on the fringe of Ludhiana town, said he has trouble making ends meet in his tiny inheritance of land.
“My father owned six acres of land, but when he died it was split between me and my three brothers,” he said, sipping a glass of tea as a chilly breeze blew over his fields.
“The cost of everything from fertiliser to seeds are so high now that I am earning only about as much as I am spending.”
WHEAT PRICES: Commodity markets have been around for centuries but futures trading in farm goods took root in Chicago in the 1840s as a way for farmers to sell “forward” their goods.
Farm prices used to be ruled by boom and bust cycles before the introduction of futures in Chicago, with prices shooting up during the scarce winter months, similar to what happens in India. This cycle gradually vanished as futures trading spread.
Electronic futures trading is in its infancy in India, getting underway only five years ago on two exchanges in Mumbai.
When the trading began there was optimism that the more sophisticated approach to buying and selling commodities would help raise the living standards of India’s 600 million farmers.
But the recent freeze on wheat futures in India was seen by analysts as playing to an electorate worried about rising prices and more akin to shooting the messenger because the rising prices simply reflected shortages in the market.
Since the futures ban was imposed on Feb 28, spot prices have fallen but recently world prices are on the march again on expectations of a weak crop in North America.
At Asia’s largest grain market in nearby Khanna, a small, bustling rural township, an angry debate about India’s futures trade goes on amidst the roar of passing trucks and the creak of bullock-drawn carts crammed with sacks.
“Last year, private firms were buying everything in sight,” said trader Brij Lal, as he looked up from a huge weighing scale, surrounded by a pile of account books.
“Not many would come this year because of the government’s drive to check prices. It always helps to have more players in the market.
But Gurmeet Singh Sekhon, a farmer in a nearby village, said he was not worried about the clampdown on futures trading.
“In our village, people would stop going to someone’s house if they thought he was in some kind of betting. That is why, hardly anybody takes interest in futures trade here.”—Reuters
