The Hindu Business Line : Price discovery thru futures trade — NCDEX plans pilot project for TN cotton farmers

THE National Commodity and Derivatives Exchange Ltd (NCDEX) has planned a pilot project for Tamil Nadu cotton growers on price discovery through futures/options trade in commodity.

The project, to be implemented by the exchange as part of its `spread-awareness' campaign on commodity futures/options trade, is intended to alleviate the farmers' feeling of uncertainty between sowing and harvesting/selling the commodity.

The NCDEX Managing Director and Chief Executive Officer, Mr P.H. Ravikumar, said the exchange would rope in bankers and insurance companies to provide a platform for the State's cotton farmers in price discovery mechanism under the corporate farming activities.

The project components would include involving the farm service extension outfits for quality farm practices and creating awareness on financial implications and the right of the farmers for hedging their crop risk. While the exchange has held talks with major banks such as Punjab National Bank, ICICI Bank, HDFC Bank and Bank of India, which have agreed to involve themselves in the project, discussions are on with State Bank of India.

It is also seeking to work with the South India Cotton Association (SICA) based in Coimbatore in the field of information dissemination on operating the project. This is after considering the expertise of SICA in understanding the needs of the Tamil Nadu cotton sector in terms of Government policies and fiscal reliefs.

The exchange is already involved in a similar exercise for the Gujarat cotton farmers introduced some time ago where the farmers are perceived to be `market savvy'.

The project has targeted to cover about 700 farmers. "But in Tamil Nadu, we will initially be covering not more than 100 farmers under the project', Mr Ravikumar added.

On the issue of developing stakeholders' interests in commodity futures, Mr Ravikumar said the Rs 18-crore investment made by the exchange on technology would be sufficient to carry on business for the next one or two years, but it would have to spend more on developmental activities in the coming days. According to him, another Rs 10 crore or so would be required to be spent on such activities in the days to come.

With regard to the commodities futures trading potential, he said that the per day turnover of the exchange amounted to Rs 25-40 crore involving the nine commodities cleared for the futures trade.

The exchange would be enlarging the list of commodities allowed for trade within the next three months when items such as rubber, jute, pepper, tea, coffee and metals such as aluminium and copper would be dealt with.

Mr Ravikumar said currently the combined trade value in 22 regional single commodities exchange and the three national exchanges worked out to Rs 700-800 crore.

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