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Tuesday, Aug 13, 2002

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Coffee bourse mulls simplified schemes to attract growers

M.R. Subramani

CHENNAI, Aug. 12

THE coffee futures exchange plans to convince brokers and traders on the need to offer simplified schemes to growers to limit their exposure within certain well-defined costs.

This will be done by making the growers understand that their first option is to encash their stocks and not take risks by sitting on their produce by speculating on prices, according to Mr Arun Bidappa, the Chairman-elect of the Coffee Futures Exchange of India (Cofei) Ltd. Cofei runs the country's only coffee futures exchange in Bangalore.

"Once the growers recover a major portion of their expenses, then the speculative element can surface," Mr Bidappa, who will take charge next month after the Cofei annual general meeting, told Business Line.

The bourse also intended to bring in participants "who may not necessarily be from the coffee industry but from the financial sector," he said.

Hoping that the warehouse receipts and some options related schemes as suggested by the World Bank would be allowed in the near future, he said: "We are hopeful of kickstarting a new phase in trading by November when the new crop will start to be actively traded."

The plan to limit the growers' exposure is a sort of risk management scheme that Cofei is trying to finalise. It is also trying to simplify it so that even ordinary growers can understand the benefits of hedging, according to Mr Bidappa.

"Once these are finalised, we will request the bankers to provide the much-needed financial support against stocks or other securities in order to induce trading," he said.

Currently, Canara Bank is the sole institutional clearing member (ICM) of the exchange and it could be urged to extend the financial support.

"Canara Bank has invested in the exchange as ICM and we will be looking to their participation in greater measure in the new season," he said.

Mr Bidapppa was replying to queries on his plans to put coffee futures back on rails. Currently, the futures trade in the exchange has been hit with no transactions for the last one month or so.

This, according to sources, is since the members are "scared to take positions" in view of low prices.

Coffee prices are ruling low on bulging stocks and excess production. The situation is seen continuing through the next season starting October.

Asked specifically about his plans, Mr Bidappa said: "Our first job will be to conduct the annual general meeting and have all the sub-committees reconstituted. We will also try and ensure that members who seek to get elected agree to devote some exclusive quality time to the affairs of the exchange. We need to address members' grievances in double quick time so that the day-to-day trading is not affected."

Detailing the reasons for lack of transactions at the exchange, he said there was a general perception that with very small number of active trading and clearing members, all players knew all trades. "This perception did not provide a conducive atmosphere for any member to be exposed or hold on to a large position. These cobwebs must be cleared from the members' minds and the traders must be assured that their positions will not be the subject of general discussion," he said and hoped that more traders would deal in the exchange to inject some liquidity in the market.

Mr Bidappa said without active market, the traders were not able to exit in a hurry.

The issues relating to gradual decline in trade would be looked into in great detail and "some solutions/incentives for trading will be forthcoming".

Stating that most of the infrastructure for a successful exchange was in place at Cofei or was available at low cost, the Chairman-elect said efforts would be made to induce more trades. "We are an exchange already up and running. Unlike many other exchanges, our problem has only to do with lack of trades, which can be easily corrected," Mr Bidappa added.

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