FPOs, farmers in a bind over futures trading ban on select agri commodities

The one-year ban on futures trading in a slew of agriculture commodities has left scores of Farmers Producers Organisations (FPOs) high and dry. Many FPOs, which had bought agriculture commodities from farmers during the harvest last year, are facing problems as prices have plunged ever since and they have not been able to hedge their risk on futures exchange.

Utthan Mustard Producer Company of Bharatpur in Rajasthan has over 535 quintals stocks of mustard stored in warehouses. It bought the mustard stocks at ₹6,600-₹7,000 a quintal during the initial arrival in April. Today, mustard prices are hovering around ₹6,200 a quintal. About 55-60 per cent of mustard arrives at the mandis between March and April soon after harvest.

Rup Singh, CEO, Utthan Mustard, told BusinessLine that it paid a premium of ₹50 a quintal on the spot price that prevailed then to support distressed farmers who brought their produce to market immediately after the harvest knowing well that the prices would be under pressure.

This is first time in last 12 years, prices have crashed even below the initial arrival days, he said.

Usually, he said the FPO hedges its risk by going short on far months’ contracts on NCDEX and depositing the stock in accredited warehouses, but SEBI banned futures trading last December and most farmers are now facing huge losses.

Chana, wheat

Singh says most of the other FPOs dealing in chana and wheat in Rajasthan are also facing the same fate. Attempts to sell mustard directly to corporates and open markets have resulted in negotiation for a 5-10 per cent discount knowing that it is a distress sale, said Singh.

Basant Sharma, a farmer from Bharatpur district, who planted mustard on 5 hectares this season, was holding on to his produce hoping that prices will shoot up due to the Ukraine war.

Earlier, farmers use to make decisions on selling after looking at the ticker board on NCDEX prices put up at mandis but the board has not been working of late, he said.

Last October, the government banned futures trading in rapeseed-mustard till further notice and then included RMseed in list of seven commodities on which futures trading was banned for a year in December

Bharatpur district, which is the largest mustard growing division, contributes to over 48 per cent of Rajasthan output. Other key mustard growing districts include Alwar, Sriganganagar, Sawaimadhopur and Jhunjhunu.

In terms of area under mustard cultivation, Rajasthan has a share of 45 per cent followed by 12 per cent each in Uttar Pradesh and Madhya Pradesh and Haryana (9 per cent) in the just-ended season.

BV Mehta, Executive Director, the Solvent Extractors’ Association, said the transparent price discovery mechanism of futures exchange had helped farmers and the government should consider the industry demand to lift the ban on futures trading in select commodities.

India produces about 45 per cent of edible oil for domestic consumption in which, mustard has a highest share of 39 per cent, followed by soyabean (24 per cent) and groundnut (7 per cent).

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