The Hindu Business Line : NCDEX plans to prune contract size

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Mumbai March 7 The National Commodity and Derivatives Exchange (NCDEX) is in talks with social and non-governmental organisations for helping farmers pool in their produce for delivery on futures exchange. The exchange is also contemplating reducing the contract size to attract small farmers.

"The minimum deliverable on our platform varies between products. In the case of wheat one unit of the contract is 10 tonnes, while in pepper it is one tonne. A small farmer may not produce 10 tonnes of wheat, a NGO or a government organisation can bring together a few farmers for delivery on futures platform," said Mr P.H. Ravikumar, MD, NCDEX.

"About four to five farmers get together to trade in one contract of wheat, while about nine to 10 farmers gather their produce of pulses to trade on the exchange platform. The capacity of one truck of goods is generally about nine tonnes," said a trader.

Alternative for PAN

Conducting a study for NCDEX to ascertain the awareness on commodity futures, AC Nielsen has found "big lot size for delivery and high quality standards followed by NCDEX" as the reasons for small farmers not selling directly on NCDEX.

Requirement of PAN for opening a futures trading account is also a major hurdle for farmers. To overcome this problem, NCDEX is planning to include a category to indicate occupation in its know-your-client forms and use Kisan credit card details in place of PAN number.

However, the report said: "Farmers have started using futures prices to know the latest prices before selling the produce. It is also observed that in areas where knowledge about futures market is high, farmers are able to bargain better prices for their produce and also sell them in a phased manner."

Futures prices also help farmers in deciding the crop to be grown. "Farmers who are aware of futures market grow the crop which would fetch them a good price in the futures," said the report.

Noting that fluctuating futures prices and steep penalty clauses are stopping small farmers from tapping futures market, the report said the exchange should conduct "awareness programme in villages and mandis and spread the advantages of futures trading through fellow farmers who trade on NCDEX platform."

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