“Aggregation – A Solution of Farmer’s Participation in Commodity Exchanges”

Report Submitted To:

Dr. V.Shunmugam

Chief Economist

Multi Commodity Exchange of India Limited,

Exchange Square, Suren Road, Chakala, Andheri (East), Mumbai - 400093

SUBMITTED By:

Amresh Kumar

Sumeet Kumar Pandey

KIIT SCHOOL OF RURAL MANAGEMENT (KSRM)

KALINGA INSTITUTE OF INDUSTRIAL TECHNOLOGY (KIIT)

UNIVERSITY, BHUBANESWAR

January 2011
 Executive Summary
Title of the Project: Aggregation – A Solution of Farmer’s Participation in Commodity
Exchanges.

Host Organization: Multi Commodity Exchange of India Ltd, Mumbai.

Project Location: Indore, Sagar, Vidisha (Madhya Pradesh) and Bikaner, Ganaganagar, Jaipur
(Rajasthan).

Project Duration: 2nd December, 2010 to 28th January, 2011.

Objective of the Project: To find out the constraints/issues in participation of farmers in

Commodity Exchanges.

Methodology: To achieve the objective of the project, primary data was collected by survey and
opinion taking. Altogether 25 samples were taken from each three districts of Madhya Pradesh
and Rajasthan through purposive sampling. The sample break up was as follow: 76% farmers,
12% traders, 8% processors, and 4% warehouses. Apart from this opinion taking was also done
with banks, Co-operatives, and NGOs.

Findings and Analysis: There is very low awareness of futures market among the farmers as
only 45% had heard the name of the futures market but awareness about its utility is negligible.
If empowered with price signals all surveyed farmers in Rajasthan and Madhya Pradesh showed
willingness to hold their produce. The holding period varies from 1 month to 5 months and the
average holding period is 2 months. The minimum lot size of chana for trading in futures market
is 10 MT. This is too large as the overall average production by the farmers surveyed is
approximately 5.3 tonnes. Hence the small, medium and even large farmers find it difficult to
meet the lot size.

The lack of infrastructure in the rural areas is a major constraint in farmers’ participation in the
commodity markets as there are no warehouses in the rural areas at the same time there in no
reliable quality certification agency too.

Generally farmers have fragile liquidity condition so they take loan from the organized or
unorganized sectors for the chana cultivation and thus they are under pressure to sell their
produce immediately after harvesting in order to repay their loan. The lack of infrastructure like
warehouses, electricity, roads, and computers with internet connectivity in the rural areas has
made farmers participation in the futures market even tough.

Recommendations: Creation of infrastructure in the rural areas is the most urgent need of the
hour. There is need of creation of warehouses and quality certification agency at the farm level
on which the farmers have trust should be established. At the same time better connectivity of
the rural to urban areas should be emphasized (through roads, electricity and internet).

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Continues awareness campaigns should be organized in association with District Co-operative
Boards and Regional Rural Banks as they are working closely and regularly with the farmers. So
this can prove an effective means to spread awareness. The awareness programs should be in
local languages and in lucid manner as it would be difficult to understand the complex terms and
processes involved in the trading. Bankers, Co-operatives, NGOs and other potential aggregators
should also be made aware of futures market and its utility so that they can make best benefit out
it and provide better services to the farmers.

The issues of aggregation which need detail study are profit and loss sharing model, say in the
decision taking at commodity market. As the most of the potential aggregators want this power
should remain with them, on the contrary the farmer say that as it’s their produce so this power
should remain with them only. The service fee charged to farmers should be mutually beneficial
to keep both parties interested in the process, method of working (the whole process from
aggregation to trading) with farmers to win the trust and faith of the farmers as an aggregator.

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 ACKNOWLEDGEMENT
The present study has been carried out with active support from Multi Commodity
Exchange, Corporate Office, Mumbai. We are grateful to Dr. V.Shunmugam, Chief
Economist for providing us opportunity for summer trainee project in your
esteemed organization which provided a stage for our exposure to real time
production and business practices in agriculture in rural area and for expanding
my horizon.
We are thankful to Mr. Nazir Moulvi, Mr. Debojyoti Dey, Mr. Sujan
Bhattacharyya and Mr. Niteen Jain for their kind support throughout the period of
completion of the study.
Our special thanks to Prof. L.K. Vaswani, Director, School of Rural Management,
KIIT University, Bhubaneswar for his invaluable guidance, constant inspiration,
keen interest, kind help & untiring efforts during the course of preparation of this
report.
We are extremely thankful to the officials of all the firms and organizations who
provided necessary information, data and operational details for the completion of
this study. We are indebted to many other organizations, persons from industry,
trade and farmers who contributed immensely to this study by sharing their
knowledge and experience.
However the responsibility of data collected, sources indicated, quotes mentioned
and findings lies solely with us and not any of the person indicated above.
Table of Content

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s
1. Introduction to Commodity Future Market..............................................................................6
1.1 Background Study:.................................................................................................................6
1.2. Project Rationale:..................................................................................................................9
1.3. Objective of Study:...............................................................................................................9
1.4. Scope of Study:...................................................................................................................10
1.5. Designated Project Area:....................................................................................................10
1.6. Limitation of Study:............................................................................................................10
2. Methodology For The Study:.................................................................................................11
2.1. Phases of the study:.............................................................................................................11
2.2. Sample Design and Sampling Method:...............................................................................12
2.2. Survey Design:....................................................................................................................12
2.3. Data Collection:..................................................................................................................12
2.4. Data Analysis:.....................................................................................................................12
3. Review of literature:...............................................................................................................13
4. Findings and Analysis:..............................................................................................................15
4.1 Major Issues/Constraints in farmers’ participation in futures market:................................15
4.1.1 Awareness:....................................................................................................................15
4.1.2 Lot size..........................................................................................................................19
4.1.3 Poor liquidity condition:................................................................................................20
4.1.4 Lack of Infrastructure....................................................................................................21
4.2 Some key constraints regarding participation in futures market:........................................21
4.2.1 Regulatory constraints...................................................................................................21
4.2.2 Policy Constraints..........................................................................................................21
4.3 Aggregation opinion............................................................................................................22
4.5 Some common opinion regarding participation in futures market:.....................................23
5. Conclusions:..............................................................................................................................24
6. Recommendations:....................................................................................................................25
Annexure-1....................................................................................................................................26
Annexure- 2...................................................................................................................................28

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References:....................................................................................................................................43

List of Tables

Table No. Description Page No.

Table No. 1 Source/s of Price & Market Information (Rajasthan) 15
Table No. 2 Source/s of Price & Market Information (Madhya Pradesh) 15
Table No. 3 Source/s of Price & Market Information (Madhya Pradesh & Rajasthan) 16
Table No. 4 Duration of produce holding by farmers 17
Table No. 5 Average spot & futures prices of chana in Madhya Pradesh (2010) 18
Table No. 6 Average spot & futures prices of chana in Rajasthan (2010) 18
Table No. 7 Volume and value of trade commodity derivatives 26
Table No. 8 Some important figures at a glance (Rajasthan) 26
Table No. 9 Some important figures at a glance (Madhya Pradesh) 27
Table No. 10 Some important figures at a glance (Rajasthan & Madhya Pradesh) 27
Table No. 11 Cost of delivery at warehouse for futures trading by traders 27

List of Figures

Figure No. Description Page No.

Figure No. 1 Phases of the study 11
Figure No. 2 Source/s of Price & Market Information (Rajasthan) 15
Figure No. 3 Source/s of Price & Market Information (Madhya Pradesh) 16
Figure No. 4 Source/s of Price & Market Information (Madhya Pradesh & Rajasthan) 16

List of Abbreviations
FMC Forward Markets Commission
CBOT Chicago Board of Trade
ECA Essential Commodity Act
UNCTAD United Nations Conference on Trade and Development
NMCE National Multi Commodity Exchange of India.
NCDEX National Commodity Derivatives Exchange Ltd.
MCX Multi Commodity Exchange of India Ltd.
ICEX Indian Commodity Exchange Ltd.
ACE Ace Derivatives and Commodity Exchange Ltd.
APMC Agriculture Produce Marketing Committee
KYC Know Your Customer

Glossary

Chana Gram
Mandis Agriculture Produce Markets
Vaayda Bazzar Futures Market

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1. Introduction to Commodity Future Market

1.1 Background Study:

1.1.1Commodity:

A commodity is a good for which there is demand, but which is supplied without qualitative
differentiation across a market. We can also say that it is something useful that can be turned for
commercial or other advantage such as an article of trade and commerce. These are especially an
agricultural or mining product that can be processed and resold.

1.1.2 Commodity Future Market/Exchange:

A commodity futures market (or exchange) is similar to a public marketplace where

commodities are contracted for purchase or sale at an agreed price for delivery at a specified
future date. These purchases and sales, which must be made through a broker/agent who should
be a member of an organized exchange, are made under the terms and conditions of a
standardized futures contract. The elementary difference between a futures market and a market
in which actual commodities are bought and sold, either for immediate or later delivery is that in
the futures market deals in standardized contractual agreements only. These agreements
(customarily called as futures contracts) provide for delivery of a specified amount of a particular
commodity during a specified future month, but it doesn’t involve any immediate transfer of
ownership of the Commodity involved.

1.1.3 History of commodity markets:

Commodity markets have existed for centuries around the world because producers and buyers
of foodstuffs and other items have always needed a common place to trade. Cash transactions
were most common, but sometimes “forward” agreements were also made – deals to deliver and
pay for something in the future at a price agreed upon in the present. One of the earliest written
records of futures trading is in Aristotle's book “Politics”. There are records, for example, of
“forward” agreements related to the rice markets in seventeenth century from Japan. The first
modern organized futures exchange began in 1710 at the Dojima Rice Exchange in Osaka, Japan.

The United States followed in the early 19th century. Chicago is located at the base of the Great
Lakes, close to the farmlands and cattle country of the U.S. In 1848, the Chicago Board of Trade
(CBOT–) was formed. Trading was originally in forward contracts. The first contract (on corn)
was written on March 13, 1851. In 1865, standardized futures contracts were introduced.

In 1881, a regional market was founded in Minneapolis, Minnesota and in 1883 introduced
futures for the first time. Trading continuously since then, today the Minneapolis Grain

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Exchange (MGEX) is the only exchange for hard red spring wheat futures and options. Today,
the futures markets have far outgrown their agricultural origins. With the addition of the New
York Mercantile Exchange (NYMEX) the trading and hedging of financial products using
futures dwarfs are playing a major role in the global financial system.

1.1.4. Emergence of Commodity Futures Markets/Exchanges in India:

Future trading in India started way back in 19 th century. The first commodity exchange set up for
organizing commodity trading in India was Bombay Cotton Trade Association Ltd in 1875. Over
the period of time other commodities were also permitted to be traded in the future
markets/exchanges. Regional mandis and unorganized markets are the major places for Spot
trading in India which are fragmented and isolated. With coming up of 20 th century India saw a
number of commodity exchanges mushrooming. The major pre independence commodity
markets/centers were the cotton market of Bombay, Karachi, Ahmedabad and Indore, the wheat
markets were at Bombay, Hapur, Karachi, Lyallpur, Amritsar, Okara, and Calcutta. The
groundnuts market of Madras and Bombay.

1.1.6. Impact of Different Policies and Committees on Futures Market:

With the liberalization of the Indian Economy in the year 1991, a number of steps were taken to
liberalize the commodity forward markets. This can be felt by the expression in several reports
and studies of committees and groups which recommended positive reforms in the commodity
future markets. The Kabra Committee (1994), and the earlier reports in early post 1991,
recommended opening of 17 selected commodities for future trading but there were no
consensuses regarding on some of the commodities. The committee and groups unanimously
recommended that the future markets should not resume for wheat, pluses, non-basmati rice, tea,
coffee, dry chilli, maize, vanspati and sugar. For most of these commodities it was recommended
that it require case by case review of suitability of each commodity be carried out in light of
developments in the future. UNCTAD and World Banks Join Mission Report “India: Managing
Price Risk India’s Liberalized Agriculture: Can Futures market Help? (1996) emphasized on the
role of future markets as a market based instruments for managing risks and strengthening of
institutional capacity of the Regulator and exchanges for the more efficient performance of the
future markets. The report also highlighted the government’s intervention as pervasive in some
very sensitive commodities like wheat, rice, and sugar was of the point of view that future
markets in these commodities were very unlikely of be useful because of this.

The other major policy which supported future markets was the National Agriculture Policy,
2000. The Expert Committee on Strengthening and Developing Agriculture Marketing (Guru
Committee: 2001) highlighted the need for and role of futures trading in the price risk
management and in the management and marketing of the agricultural produce. The committee’s
Group on the Forward Markets also recommended that it should be the work of interested
exchanges to decide the usefulness and appropriateness of commencing of future trading in the

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products (not only the commodities) based on the studies of feasibility on a case to case basis.
However it recognized that:

All the commodities are not suitable for futures trading. A commodity suitable for future trading
must have these following basic charters:

I. The commodity must have a suitable demand and supply conditions with respect to their
volume and their marketable surplus should be large.

II. The price of the commodity should be volatile which makes hedging necessary in this
case person with a spot market commitment may face a price risk. As a result it has a
demand for the hedging facility.

III. The commodity must be free from the governments or any other bodies’ substantial
controls and regulations, which may lead to restrictions on their supply, distribution and
prices.

IV. It should be a homogenous commodity or it should be easy to standardize or grade and

easy to measure their deviation from the standard set or grade. This should be a must
condition for the futures exchange to deal in standardized contracts.

V. The commodity should be easy to store or storable. If it not fulfill this criteria the
arbitrage would not be possible and there would be no relationship between the spot
markets and the futures market.

1.1.7. Present Status of Commodity Futures Markets/Exchanges in India:

At Present, as per the list presented on Forward Market Commission (FMC), there are about 21
exchanges (list of commodity exchanges in India) are in operation carrying out futures trading
activities in a wide variety of commodity items under 7 major categories there are about 100
commodities are available for trading which are; Metals, Food grains, Energy, Spices, Edible
oilseed, Fibers, Other (Castor seed, Gur).

The futures market has grown by 177 %, since year 2001 to Oct. 2010.

To make up the loss of growth and development during the four decades of restrictive Govt.
policies, Forward Markets Commission (FMC) and the government encouraged setting up
commodity exchanges using the most modern system and practices in the world. Some of the
main regulatory measures imposed in the FMC include daily market to market system of
margins, creation of trade guarantee fund, back office computerization for the existing single
commodity exchanges , online trading for the new exchanges, demutualization for the new
exchanges and one third representation of independent Directions the Board of existing
Exchanges etc.

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There are five National Level Commodity Exchanges in India which are MCE (National Multi
Commodity Exchange of India), NCDEX (National Commodity Derivatives Exchange Ltd),
MCX (Multi Commodity Exchange of India Ltd), ICEX, (Indian Commodity Exchange Ltd),
ACE (Ace Derivatives and Commodity Exchange Ltd.)

The commodity Market is poised to play an important role of price discovery and risk
management for the development of agricultural and other sectors in the supply chain. New issue
and problems Govt. regulators and other share holders will need to proactive and quick in their
response to new developments. WTO regime makes it all the more urgent to develop these
markets to enable our economy, especially agriculture to meet the challenge of new regime and
benefits from the opportunities unfolding before U.S. with risks not belong absorbed any more
the idea is to transfer it as the focus is shifting to “Manage price change rather than change prices
the commodity markets will play a key role for the same.”

1.2. Project Rationale:

India is predominantly an agrarian economy with very high population dependence on

agriculture and allied activities. About 65% of total population derives their livelihood from
agriculture directly or indirectly. Risk and uncertainty are inescapable factors in agriculture.
Farmers face production risk from the weather, pests, diseases and natural calamities, which
affect the yield of crops directly. They also face price or market risks mainly due to adverse
movements price of commodities in market produced by them, which causes unforeseen losses
irrespective of the level of yield. Fluctuations in prices of agricultural commodities adversely
impact the incomes and livelihoods of farmers, particularly the small and marginal farmers.
Commodity derivatives play a pivotal role in the price risk management process especially in any
agricultural based country. Commodity future markets could help the farmers to address the price
risk and price discovery if farmers are linked with the proper mode of channels. The commodity
Market is poised to play an important role of price discovery and risk management for the
development of agricultural sector. Still the Indian farmers are not participating in the
commodity future market. Our study is an investigation to find out the issues/ constraints in
participation of farmers in commodity market/ Exchanges. This study has been carried out to
identify the issues/constraints in participation of farmers with commodity future markets in
India.

1.3. Objective of Study:

The study is focused on “Aggregation- A solution of farmer’s participation in commodity

Exchanges”. The present study was conducted with the following objectives:
 To find out the constraints/issues in participation of farmers in Commodity Exchanges.

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1.4. Scope of Study:

The information, suggestion and opinions made can help in strategic planning for aggregation.
The primary data collected regarding farmers, traders, processors, warehouses, farmer’s
organizations, NGO’s, co-operatives and banks would result in creation of resource for future
studies. The academic that arises from the project would provide a model for similar work
elsewhere.

1.5. Designated Project Area:

As our selected commodity was gram (chana). The leading gram producing states of India are
Madhya Pradesh and Rajasthan which accounts for 53.37% of the total gram production in India
(in year 2008-09). So our study areas were the major gram producing districts of Madhya
Pradesh (Indore, Sagar and Vidisha) and Rajasthan (Bikaner, Ganganagar and Jaipur). Further
these districts are closer to the MCX India’s delivery centers at Ganj Basoda in Madhya Pradesh
and Bikaner in Rajasthan.

1.6. Limitation of Study:

 The study was confined to only six districts of Madhya Pradesh and Rajasthan.
 The case method was adopted for collecting relevant data, which obviously had its recall
bias especially from farmers, traders and processors.
 The implication of the case study has to be used with caution before generalization as the
study was confined to only one district at a particular point of time.
 The present study also used secondary data collected from various published sources.
 The time period was not sufficient for studying the different dimension and details which
would have been more beneficial. Analysis was carried out both in static and dynamic
settings. Hence, care should be taken while using the results of the present study for
making policy decisions.

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2. Methodology For The Study:
2.1. Phases of the study:

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2.1.1. Phase 1 (Background Study):

The Background study (phase 1) of our project or study consisted of the background study on the
commodity and commodity markets/exchanges, their origin, regulation, impact of policies,
present status, and how it has benefited farmers. It included selection of commodity, area for
field study, sample designing and development of questionnaire. It also included detailed
discussion with the staffs of MCX India. The sample design and questionnaire were based on the
discussion and background study.

2.1.2. Phase 2 (Primary Research):

The Primary research (phase 2) of the project consisted of field work for data collection from the
respondents which included farmers, traders, processors, warehouse owners, farmer
organizations, NGOs, co-operatives, and banks. Various statistical tools were applied to analyze
the data.

2.1.3. Phase3 (Report Writing):

The report writing (phase 3) of the project consisted of the report writing. The report was written
on the basis of the phase1 (Background Study) and phase 2 (Field work).

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2.2. Sample Design and Sampling Method:

For this project random sampling was done. The survey was done by taking sample size of 25
samples from each district of our study. 76% of our sample size was covered with farmer
interview, 12% trader interview, 8% processer interview, and 4 % of the warehouse owner
interview. The study of distribution of farmers, traders, processors and warehouse owners was
done in purposive sampling which was done by dividing into non-overlapping groups of all
mentioned above. The respondents were randomly selected based on their availability and
willingness to participate in the survey. The respondents (farmers, traders, processers, warehouse
owners) were from the three districts of Madhya Pradesh (Indore, Sagar, and Vidisha) and three
districts of Rajasthan (Bikaner, Ganaganager and Jaipur). The potential respondents from each
district were considered as the universe for the study, with one respondent as one unit of the
study. The purpose of the survey was conveyed to the respondents before starting the survey.

Apart from the survey, opinion taking was also done with the NGO’s, co-operatives, and
bankers.

2.2. Survey Design:

Questionnaires were designed for the primary survey. The check list for opinion taking was
designed in order to get the information from the potential aggregators (NGO’s, farmer’s
organization, co-operatives, and banks). First questionnaire was designed for the farmers; second
questionnaire was designed for traders; third questionnaire was designed processers; fourth
questionnaire was designed warehouse owners.

2.3. Data Collection:

Since the research required both quantitative and qualitative data, so both the data were
collected. Quantitative and qualitative data were collected from farmers, traders, processers, and
warehouse owners. From the opinion taking mostly qualitative data were collected.

2.4. Data Analysis:

The data collected was analyzed using various statistical tools after tabular and graphical
summarization of the raw data. After the data analysis the final conclusions were drawn and
these conclusions along with personal observations at field formed the basis for
recommendations.

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3. Review of literature:

Futures contracts perform two important functions of price discovery and price risk management
with reference to the given commodity. It is useful to all segments of economy. It is useful to
producer because he can get an idea of the price likely to prevail at a future point of time and
therefore can decide between various competing commodities, the best that suits him. It enables
the consumer get an idea of the price at which the commodity would be available at a future
point of time. He can do proper costing and also cover his purchases by making forward
contracts. The futures trading is very useful to the exporters as it provides an advance indication
of the price likely to prevail and thereby help the exporter in quoting a realistic price and thereby
secure export contract in a competitive market. Having entered into an export contract, it enables
him to hedge his risk by operating in futures market. Other benefits of futures trading are:

(i) Price stabilization-in times of violent price fluctuations - this mechanism dampens the peaks
and lifts up the valleys i.e. the amplitude of price variation is reduced.

(ii) Leads to integrated price structure throughout the country.

(iii) Facilitates lengthy and complex, production and manufacturing activities.

(iv) Helps balance in supply and demand position throughout the year.

(v) Encourages competition and acts as a price barometer to farmers and other trade
functionaries.

(Source: http://fmc.gov.in/htmldocs/Evolution.html)

Nath and Lingareddy (2008) study found that both average price change and spot price
volatility of urad, gram and wheat were higher by statistically significant margins during October
2004 to January 2007 as compared to either the pre-futures period January 2001 to September
2004 or during February 2007 to October 2007 when futures trading in some of these
commodities was suspended. They also reported tests of causality that show that the volume of
futures trading had positive and significant causal impact on both the average level of spot prices
and their volatility in case of wheat and urad.

Basab Dasgupta (2004), paper suggested that the allegation against futures market in India 'that
it distorts the spot market price and creates artificial scarcity by allowing unnecessary hoarding',
is a misconception. This paper finds out that there is a co-movement among futures price,
production decision and the inventory decision. With the assumption that future market is
monopolistically competitive, the paper finds that future price elasticity of production always
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being greater than or equal to one, an increase in profit by increasing price is not possible.
Therefore, the doubt about its distorting effect on spot price can be ruled out. The suspicion
about the increasing hoarding resulting from futures market can also be proved unjustified from
results. Our results show that futures price elasticity of inventory is inversely related with the
carrying cost. Therefore, an unnecessary hoarding will increase the carrying cost leading to a
lower responsiveness of inventory to futures prices. This paper also finds out the effect of
expected production shocks on futures price elasticity of supply

The Guru Committee (2001) emphasized the role of futures trading for price risk management
and marketing of agricultural produce.
Farmers can derive benefit from futures markets as follows:

i) By participating directly/indirectly in the market to hedge their price risks.

ii) To take benefit of prices discovered on the platform of commodity exchanges by taking
rational and well informed cropping /marketing decisions.

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4. Findings and Analysis:
4.1 Major Issues/Constraints in farmers’ participation in futures market:

4.1.1 Awareness:
At farmers’ level:

a) The awareness about the futures market among the farmers was very low. About 45% farmers
have heard only the name of futures market or vaayda bazzars, but the majority is unaware about
the futures market utility. These farmers are unaware of any further information regarding
contract size, contract specification, hedging, speculation etc. Even the big farmers having large
farm land holdings lacked awareness of the futures market; hence hedging through aggregation
seems to be a very difficult task at this stage.

b) The farmers who had heard the name of futures market/vaayda bazzars had mindset that it is
not for the farmers but only for traders.

Table. No. 2 Source of Information in Madhya

Pradesh
 Sources Vidisha Indore Sagar
Traders 89.47% 89.47% 66.67%
Newspaper 26.32% 52.63% 50.00%
T.V/Radio 26.32% 36.84% 27.78%
Source: Field Survey
c) The major source of price and
market information for farmers
in Bikaner, Jaipur and
Ganaganager of Rajasthan, (fig.-
1) (where our sample size was
56) are local traders,
newspapers, electronic Media
(television/radio), and others1.
Farmers mainly seek price and
market information from mandi
traders and commission agents.
On the other hand in Indore,
Sagar nad Vidisha of Madhya
Pradesh (fig.-2) (sample size was
56) the major sources of price and market information are local traders, newspapers, electronic
media and others.

Table No.1 Source of Information in Rajasthan

 Sources Bikane Ganganagar Jaipur
1
Others includes APMC mandis, futures market brokers and mobile services
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 r
Traders 73.86% 55.56% 84.21%
Newspaper 89.47% 55.56% 26.32%
T.V/Radio 84.21% 72.22% 26.32%
Source: Field Survey

c) When we look it at overall picture (fig.4) Madhya Pradesh and Rajasthan, (56 samples from
each state) we see some
major difference in the
source/s of price and market
information. The APMC
mandi and the local traders
remains the major source/s of
information for farmer in
Madhya Pradesh but farmers
of Rajasthan are using
sources of information other
than local traders which are
print and electronic media,
there are also few farmers
who are also using mobile
service and futures market
brokers for their price and
market information. On the
contrary in Madhya Pradesh
the farmers due to lower
penetration of information
communication and
technology (ICT) have to
rely more on traders.

Table No. 3 Source of Information in

Madhya Pradesh and Rajasthan
Rajastha
 Sources Madhya Pradesh n
Traders 82.14 71.42
Newspape
r 41.07 64.28
T.V/Radio 32.14 60.71
Source: Field Survey
The government agricultural extension services centers and NGOs have failed in price and
market information dissemination. The farmers of Rajasthan due to higher income compared

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with their counterparts in Madhya Pradesh rely more on modern communication tools like
mobile phone other electronic media.

The per capita income of Rajasthan is higher by 17.43% at Rs.15219/- compared with their
counterpart in Madhya Pradesh at Rs. 125662/-.

Table No. 4 Maximum duration produce

holding by Farmers
Capacity to Stock No. of % of Total
(in Months) Farmers Farmers
1 to 1.5 37 33.04
2 to 2.5 43 38.39
3 to 3.5 21 18.75
4 to 5 11 9.82
source: Field survey
d) If empowered with price signals all farmers surveyed in Rajasthan and Madhya Pradesh
showed willingness to hold on their produce for at least one month (Table No.4). There are
33.04% of farmers who can hold their produce for 1 to 1.5 months where as the majority of
farmers which constitutes 38.39% can hold their produce for 2 to 2.5 months. We also find that
9.82% of farmers can hold their produce for 4 to 5 months.

e) The awareness about the Minimum Support Price (MSP) is high in Madhya Pradesh which is
about 82.14% but only 15.22% farmers feel that they have been benefited by MSP. On the other
hand in Rajasthan the awareness about the MSP is 60.71% which is quite low as compared with
Madhya Pradesh. In Rajasthan only 14.71% farmers feel that they have been benefited by MSP.
Farmers feel less benefited by MSP because at the time of bumper production MSP fails to
benefit/support the farmers as the government gives all kinds of quality related excuse and
surrenders farmers at the mercy of parasitic traders but at the time of lower production farmers
get better prices in market.

f) In Indore district an awareness camp was organized in year 2010 by an Exchange. But it did
not serve the purpose for which it was organized because the members of Exchange delivered
their information about future market in such a manner that most of the trader who were in the
camp could not understand what the Exchange members wanted to explain, then how could one
expect that the farmers attending the awareness camp would understand.

g) One of the national level Exchanges had organized a camp in year 2010 at Ganaganagar
district in which the state ministers also came and they tried to make farmers aware about the
futures market and its utility. They also promised that they would give every possible help to the

2
Source: Director of Economics & Statistics of respective Sate Governments, and Central Statistical Organization,
2005-06. Tele-density in Rajasthan i.e. about 32% as compared with Madhya Pradesh i.e. is about 15%. (source:
Mint, newspaper, pg.14, Wednesday, January 26, 2011)
[17]
farmers but they never came back again, the farmers were expecting that they would come and
help them by showing how the whole process takes place in the futures market.

h) The average price realization (Table No: 5) to the farmers as per our survey of Rajasthan in
year 2010 was Rs. 2114/- and the average exchange spot price for the same period was Rs.
2169/-. So we can say that farmers of Rajasthan got up to 97.5 % of the average spot price
whereas in Madhya Pradesh the average price realized (Table No: 6) to the farmers was Rs
1936/- and the average exchange spot price for the same period was Rs. 2119/-. So the farmers of
Madhya Pradesh got up to 91.34% of the average spot price. If the farmers of Rajasthan would
had taken hedging decision and had hedge their produce they could have realized 19.65% more
than what they got in the spot market. If the same decision was taken by the farmers of Madhya
Pradesh then they could have realized 28.04% more than what they got in the spot market. This
can be seen as opportunity lost for not hedging at the exchanges.

Table No. 6 Average spot & futures prices of chana (gram) in Madhya Pradesh (2010)
Month Average price Average % price realized by Average futures % potential
realized by Exchange farmers as compared price at the time incremental price
farmers (as per spot price with exchange spot of sowing (six realization if hedged
survey) prices months Earlier) at exchange
March 1908.48 2020.33 94.46 2728.07* 30.04
August 1963.46 2218.89 88.49 2500.07** 27.03
Average 1935.97 2119.61 91.34 2614.07 28.04
Note* If hedge in the month of October 2009 ** if hedged in the month of March 2010
Source: Field Survey and secondary data form Futures Exchange

Table No. 5 Average spot & futures prices of chana (gram) in Rajasthan (2010)
Month Average price Average % price realized by Average futures % potential
realized by Exchange farmers as compared price at the time of incremental price
farmers (as per spot price with exchange spot sowing (six realization if
survey) prices months Earlier) hedged at
exchange
April 2159.20 2204.80 97.93 2728.07* 20.85
May 2037.78 2133.52 95.51 2777.15** 26.62
July 2145.71 2226.51 96.37 2424.07*** 11.49
Average 2114.23 2169.16 97.47 2642.76 19.65
Note:* if hedged in the month of October 2009 ** if hedged in the month of December2009
*** if hedged in the month of February 2010
Source: Field Survey and secondary data form Futures Exchange
At traders level

a) There is a high awareness among the traders about the futures market as 70% (where our total
sample size was 18) of the traders knew about the futures market and about 50% participate in
the futures market occasionally or regularly.

b) The number of traders participating in the futures market as hedgers is very low. Most of the
traders are view based traders or speculators.

[18]
c) The price signals have benefited the traders as they can take the decision on selling, buying,
holding and releasing the commodities or contracts.

At processor level

a) There is high level of awareness about futures market among processors. About 83% of
processors knew about futures market, out of this about 40% of processors knew hedging and
rest were speculators (our total sample size was 12).

b) The price signals really help processors as it takes them 4-5 days for processing of chana so
they participate in the futures market to ensure their regular supply and minimize their price risk.

At warehouse level

a) There is 100 % awareness among warehouse about futures market. They participate in the
futures market regularly. Out of the six warehouses surveyed only two were participating as a
hedger.

At bankers level

a) There is low level of awareness among the bankers regarding futures market as only two
bankers out of the six interviewed knew about the futures maket.

b) They generally never take any decision regarding loan or financial transaction based on
futures prices or price signals of the exchanges.

c) They are aware about lending against the warehouse receipts of certified warehouses. They
lend up to 75% of the total values of commodity stored in the warehouse.

At Co-operative level

a) There is very low awareness about futures market among Co-operatives. As only two Co-
operatives out of the six surveyed knew about futures market. Out of the two, one co-operative
perceived commodity futures as a tool just for speculation.

b) Awareness about the futures market is known to national level Co-operative, IFFCO.

At NGOs level

a) There is no awareness among the NGOs surveyed, and they were very reluctant to participate
in futures market as they had mindset that futures market is full of speculation and it is a gamble.

[19]
4.1.2 Lot size

a) The minimum lot size for Chana (Gram) for trading in futures market is too large (10 MT),
which is generally not possible from small, marginal farmers and even the produce of few large
farmers is not enough to meet the minimum lot size of chana for trading in futures market.

b) The average productivity of chana in the surveyed area is 5.98 quintals/acre and average land
under chana cultivation is 8.84 acres. So it would be difficult for farmers to meet quantity
specification of the exchanges. The average productivity of chana in Madhya Pradesh is
5.81quintals/ acre and average land under chana cultivation is 10.24 acres where as in Rajasthan
the average productivity of chana is 6.22 quintals/ acre and average land under chana cultivation
is 7.44 acres. A farmer having an average land under chana cultivation is 8.84 acres and if the
average productivity is 5.98 quintals/per acre then his average produce would be 52.86 quintals
of chana which is much below the minimum lot size of 10 MT. In Madhya Pradesh the average
land holding under chana cultivation is 10.24 acres with the average productivity of 5.81
quintals/acre and in Rajasthan the average land holding under chana cultivation is 7.44 acres
with the average productivity of 6.22 quintals/acre, so the average produce from a farmer in
Madhya Pradesh is 59.38 quintals and the average produce from a farmer in Rajasthan is 46.28
quintals which is much below the minimum lot size required to trade on exchanges.

c) The quality is also a constraint. As we can get the quantity even by pooling but the difference
in the quality is also a constraint the quality should be as per the futures market. For this we can
have the inbuilt quality at the farm level so that we can have the quantity and the quality at the
same time. This has been detailed in the model proposed for aggregation in our report.

4.1.3 Poor liquidity condition:

a) The average cost of cultivation of chana per acre in the surveyed area is Rs. 8008/- per acre. In
Madhya Pradesh the cost of chana is Rs 6307/- per acre whereas in Rajasthan the cost of
cultivation is Rs 10348/- per acre. A farmer with average land holding of 8.84 acres needs
Rs. 70791/- for chana cultivation. In Madhya Pradesh the average cost of chana cultivation per
acre is Rs. 6307/- and average land holding under chana cultivation is 10.24 acres so a farmer in
Madhya Pradesh will require Rs.64584/- for chana cultivation. In Rajasthan the average cost of
cultivation is Rs. 10348/- per acre and average land holding under chana cultivation is 7.44 acres
so in Rajasthan a farmer will require Rs. 76989/- for chana cultivation.

b) The average cost of chana cultivation in Rajasthan is Rs.1662 per quintal which is 34.65%
higher as compared to that of Madhya Pradesh which is Rs.1086 per quintal. Also the
productivity of Rajasthan (6.22 quintals/acre) is just slightly more than that of Madhya Pradesh
(5.98qunitals/acre). The average spot price realization of the farmers of Rajasthan is Rs.2169/-

[20]
per quintal on the contrary the average spot price realization on Madhya Pradesh is Rs.2119/- per
quintal. So the farmers of Rajasthan are more prone to price risk than Madhya Pradesh.

c) The farmers mostly do not have that much of liquidity at the time of sowing. They generally
do their farming activities by taking loans either from organized (banks) or unorganized sector
(i.e. money lender or the traders) so they are forced to sell their produce immediately after
harvesting in order to repay the loan taken from the different sources and hence farmers can’t
even wait for a short period of time. Farmers have to fulfill others responsibilities and social
customs, such as marriages, deaths, illness etc, which are not under their control which force
them to sell their produce immediately after harvesting. They also have to plan their annual
expenditures as per their produce. Farmers have agriculture only as their source of income or
livelihood.

d) In year, 2010, farmers sold about 83% of their total produce in first lot just after harvesting. In
the second lot about 16% of their produce was sold within one month. The rest about 1% was
sold after two and half months after second lot. But there were very few farmers (about 7%) who
had third lot to sell.

4.1.4 Lack of Infrastructure

a) The lack of infrastructure in the rural area such as warehouses, roads, electricity, computers,
internet connectivity etc. is also a constraint restricting them from participation in future market
for them.

b) In our survey we found that there were no storing facilities available in the villages due to
which some farmers had to sell their produce immediately after harvesting.

c) The lack of nearby agricultural produce market and poor connectivity of the rural areas to the
urban areas is also a major constraint at an average the farmer has to travel 60 KMs to sell their
produce. The large farmers who have a bulk produce prefers to travel this distance but small and
marginal farmer finds it difficult so they sell their produce to the large farmer or to the local
trader.

d) The futures trading has become online so there are certain infrastructures like computers with
internet connectivity are required to participate in the same or to have a glance on the price
signals.

4.2 Some key constraints regarding participation in futures market:

4.2.1 Regulatory constraints
At Bankers level

There is regulatory restriction of the financial Institutions (Banks) regarding participation in

futures market. Restriction on participation of financial institutions also weakens the liquidity on
commodity exchanges and gives rise to risk of price manipulations in trading.

[21]
At NGOs level

NGOs or Voluntary Organizations are registered with not-for-profit motive and therefore they
can’t open DEMAT account for profit generating activity like futures trading. As a result these
organizations are not the perfect match required for an aggregator on behalf of farmers. The
farmers also cannot open DEMAT accounts as they don’t have PAN Cards with them.

4.2.2 Policy Constraints

Policy interventions by the Government have an impact on the direction and magnitude of price
movements in commodities. Frequent policy changes by the Government generally results in
unbalancing of the market equilibrium and leads to the shift of the balance of favor from one to
their counterparts.

Institutional Constraints

Institutional entities like NGOs, cooperatives, agribusiness companies, farmer organizations can
as technical support providers for farmer to participate on commodity market because of
complex procedural requirements and the technical complexities involved in commodity
derivatives. But due their limited capacity for managing price risk management it may not reach
to the beneficiary mainly the disadvantage farmers.

Hedging the prices for the upcoming harvest through futures market requires the farmer to pay in
the initial and Mark-to-Market (MTM) margins upfront. These kind requirements are proving as
a difficult hurdle for the farmers to cross as they have a poor liquidity but willing to hedge their
price risks.

4.3 Aggregation opinion

At present aggregation seems a difficult

IFFCO, a national level co-operative, has a
task because awareness among farmers is view that the aggregation under such co-
very less. Only about 25% of farmers of operatives like IFFICO can be possible. As the
the total surveyed farmers were interested farmers have more trust on such Co-operative
to participate in the aggregation process. because they provides fertilizers and
These 25% farmers had heard the name of agricultural equipments on subsidized rates and
futures market/vaayada market and they is working with farmers for a long period of
time, due to which farmers have more trust on
showed interest after we explained them
them as compared with other co-operatives and
about the futures market and its utility. other organizations. They also feel that if a
Rest 75% farmers were not interested to successful live example can be quoted then the
farmer’s participation in commodity market
through
[22] aggregation may increase.
participate in the futures market for hedging through aggregation because of the following
reasons:

4.3.1 Lack of common consensus among farmers – There is lack of consensus among the
farmers regarding group farming. The farmers interviewed for our study had never participated
in group farming because it can lead to conflict among them. There is also a sense of competition
among the farmers which has resulted in lack of consensus among farmers regarding group
farming. One of the farmers quoted “that it is hard to keep my four sons together then how
tough it would be to keep different farmer together for group farming, that also for an
economic reason”.

4.3.2 Socio-economic disparity - Different farmers have different socio economic condition
such as big farmers don’t want to work with small ones, every farmer has difference of opinion
regarding farming activities, is also a major factor which restricts the participation of farmers in
the group farming. The rigid social strata also hinder this process as the upper caste farmers are
not willing to mingle with their lower counterparts.

4.3.3 Fear of fraud – There is a chance of fraud from different stakeholders involved in the
process of aggregation like trades, processors, warehouse owners, or any individual from the
village society/ farming community etc. Such events have happened in the study area as one
uncertified warehouse has flown away with the farmers produce in Vidisha district of Madhya
Pradesh in 2010. Occurrence of such activity has resulted in decline in trust among farmers
regarding warehouses in the area.

4.4.4 Participation of famers: About 78% of the surveyed farmers had view that if they
participate and incur loss in the first time in the futures market then they would not participate in
the futures market.

4.5 Some common opinion regarding participation in futures market:

a. Farmers’ Group consensus and group conflict problem could arise in aggregation due to
illiteracy among farmers.
b. The socio-economical disparity among the farmers is also a major constrains in
aggregation.
c. The farmers trust lies with banks, co-operative societies and individual from their own
villages or community.
d. The farmer expects mutual trust, better price, and advance money for farming.
e. Farmers’ Group consensus and group conflict problem could arise in aggregation due to
illiteracy among farmers.
f. There is common fear that if the farmers cannot be benefited first time by the futures then
they would not come back.

[23]
 g. There is a feeling among farmers that if a successful model/live example even on a small
scale of aggregation is shown to them then the farmers’ participation may increase.

5. Model for Aggregation:

The model which we are proposing for the aggregation is as following:

We will be forming farmers’ interests group (FIG). The FIG formed should be of the farmers of
likeminded and coming from similar socio-economic class. The group would carry their farm
activity separately on their farm lands. But they would use the same agricultural inputs and
perform similar on and off farm activity on the same time. This would help them to have uniform
quality and the quantity which would enable them to participate in the futures market.

Now the produced commodity would be aggregated by the farmers of the FIG and would be
handed over to the aggregator who would trade the commodity at the exchange. For doing so he
will charge a service fee to the FIG.

6. Conclusions:
At present the farmers’ direct participation in the futures market seems to be very difficult due
following reasons:

1. The awareness among the farmers about the futures market is very low or negligible.
2. The lack of infrastructure like warehouses, quality certification agency at the farm level
and rural urban connectivity is the major constraint in the farmer’s participation.
3. The lot size is too big for small and marginal farmers even the big farmers find it hard to
meet the lot size and quality specifications.
4. The farmers are financial very fragile and they can’t pay the margin money and MTM
margin as these are very high.

The issues regarding aggregation are:

1. There is no common thought process/consensus among the farmers regarding the farming
practices.
2. As per the opinion of the Co-operatives there has been no history of group farming in the
study area i.e. Madhya Pradesh and Rajasthan. In our opinion taking one of the Co-
operatives in Bikaner (Rajasthan) quoted “if you want to know about group farming then
you should go to Gujarat as it is only possible there”. Then on being asked why it can’t
happen here he replied “The air and water (i.e. culture) of Gujarat has something
different that it brings the farmers together which lacks in Rajasthan”.
3. The socio-economical disparities among the farmers are also a major constrains in
aggregation.

[24]
 4. The farmers trust lies with banks, co-operative societies and individual from their own
villages or community. The reason behind this trust is that banks have been the major
source of loan and other government benefits are distributed through them. The Co-
operatives have been the source of fertilizers and other agricultural inputs at the
subsidized rates. At the same time they also give agriculture related information and live
demos to them which have won the trust for them. They also help to get them a good
price in the APMC markets which further consolidate the trust of farmer in the Co-
operatives. The faith in the individuals from their own community or village gives them
the confidence that the individual is one of them only so won’t be cheating his own
fellows or the village.
5. There is a fear of fraud among the farmers as such events have taken place in our study
area. As mentioned in our finding that an un-certified warehouse in Vidisha district of
Madhya Pradesh had flown away with the farmers produce in 2010. This has shaken the
trust of the farmers towards the warehouses in the region.

7. Recommendations:

1. Aggregation can be solutions to the farmers’ participation but initially awareness about
the commodity markets need more attention, as without awareness the aggregation seems
to be a difficult task.
2. The continuous awareness campaign regarding futures market among farmers should be
started with association of District Co-operative Boards, Cold Storages, and Regional
Rural Banks.
3. The awareness programs should be in local languages and in lucid manner for the
farmers.
4. There is also a need of awareness among Bankers, Co-operatives, NGOs and other
potential aggregators about the futures market and its direct and indirect benefits must be
explained and how the these price signal can be utilized in their decision making.
5. Agricultural lending process should be more simplified and farmer’s friendly by the
organized sectors.
6. There is a need for establishing and strengthening the required infrastructure such as
warehouse, electricity, roads, and information system (like computers with internet
connectivity) at village level.
7. There is need of in-depth study to understand the socio-economic and cultural mix of
different geographical areas and the aggregation model should be developed on the basis
of the studied area.

[25]
 8. There are issues which need focus and in-depth study are like Profit and Loss sharing, say
in the decision taking at commodity market, service fee charged to farmers and method of
working with farmers which can win the trust and faith of the farmers as an aggregator.

Annexure-1

Table No. 7: Volume & value of trade commodity derivatives

Volume Value
Year
(In Mn. Tonnes) (in Rs. Crores)
2001-01 21.77 34,495
2002-03 31.46 66,530
2003-04 49.30 1,29,363
2004-05 194.21 5,71,759
2005-06 678.88 21,55,122
2006-07 612.93 36,76,926
2007-08 557.34 40,65,989
2008-09 686.34 52,48,956
2009-10 1014.29 76,64,754
2010-11 (Oct- 711.74 61,61,659

[26]
 2010)

Table No. 8 Some important figures at a glance (Rajasthan)

Average Land Holding (In Acre) 14.57
Average Land Under Chana Cultivation(In Acre) 7.44
Average Cost of Cultivation Per Acre (In INR) 10348.16
Average Productivity Per Acre (In Quintals) 6.22
Awareness About M.S.P (In %) 60.71
Farmers Who Feel Benefited with MSP (In %) 14.71
Awareness About Loan Against their Produce Stored in Warehouses (In %) 53.57
Volume of Chana Sold in at First Lot/Time (In %) 76.22
Volume of Chana Sold in at Second Lot/Time (In %) 20.66
Volume of Chana Sold in at Third Lot/Time (In %) 2.70
Maximum Period of Time for which the Farmers Stock Their Produce (In Months) 2.01

Table No. 9 Some important figures at a glance (Madhya Pradesh)

Average Land Holding (In Acres) 22
Average Land Under Chana Cultivation (In Acres) 10.24
Average Cost of Cultivation Per Acre (In INR) 6,307
Average Productivity Per Acre (In Quintals) 5.81
Awareness About M.S.P (In %) 82.14
Farmers Who Feel Benefited with MSP (In %) 15.22
Awareness About Loan Against their Produce Stored in Warehouses (In %) 73.21
Volume of Chana Sold in at First Lot/Time (In %) 88.69
Volume of Chana Sold in at Second Lot/Time (In %) 13.11
Maximum Period for which the Farmers Stock Their Produce (In Months) 2.04
Table No. 10 Some important figures at a glance (Rajasthan & Madhya Pradesh)
Average Land Holding (In Acre) 18.18
Average Land Under Chana Cultivation(In Acre) 8.84
Average Cost of Cultivation Per Acre (In INR) 70789.06
Average Productivity Per Acre (In Quintals) 5.98
Awareness About M.S.P (In %) 71.43
Farmers Who Feel Benefited with MSP (In %) 15.00
Awareness About Loan Against their Produce Stored in Warehouses (In %) 66.96

[27]
 Volume of Chana Sold in at First Lot/Time (In %) 82.80
Volume of Chana Sold in at Second Lot/Time (In %) 16.67
Volume of Chana Sold in at Third Lot/Time (In %) 1.27
Maximum Period of Time for which the Farmers Stock Their Produce (In Months) 2.06

Table No. 11 Cost of delivery at warehouse for futures trading by traders

Purchase price of chana /Quintal 2200.00
2% commission/quintal to Commission agents 44.00
0.25% weighing charge/quintal 5.50
1.60% Market Committee Fee /Quintal 35.20
0.50% for Cash Discount/Quintal (If Any) 11.00
Sub-Total (Total Amount Valid for VAT) 2295.70
Vat 1 % per Quintal 22.96
Total Amount Paid as TAX 2318.66
Labour Cost and Transportation Cost/Quintal 15.00
Warehouse cost Rs.4.5/quintal/month (for Three Months) 13.50
Grand Total 2347.16

Annexure- 2

Survey Number: ……………… Location: ……………….

Farmer Survey Questionnaire
1. BASIC INFORMATION:
Name: …………………………………………Address: …………………………………………………
Village: …….……………………… ……..Taluka: ……………………………..District: ………………
Contact Number: Landline ………………………………Mobile ……………………………………...…
Landholding: ................................acre Crops Grown: Kharif: ……………….Rabi………………...........

2. GRAM PRODUCTION DETAILS:

2008-09 2009-10
Area Under Cultivation
Cost of Cultivation/Acre (In INR)
Quantity Produced (In Quintals)
Quantity For Self Consumption

[28]
3. What is your liquidity condition at the time of the following: (in Rs)

1) Sowing…………………………….. 2) Harvesting………………………….

4. SOURCE/S OF PRICE & MARKET INFORMATION:

(Please tick all the information sources availed by you for getting price information on “Gram”)
Source of Information/s 2008-09 2009-10
Local Traders
News Papers
Television/Radio
Govt. Agriculture Extension Office
Local N.G.Os
Co-operative Society
Others (APMC, Mandi etc., Please
Specify)

What were the main sources of price and market information five years back from now:
………………………………………………………………………………………………………………..
Price Expectations at various Crop Stages
[In terms of Price per 100 kg (Quintal)]
Year 2008-09 2009-10
STAGE Month Price Month Price
Sowing
Harvesting

Have you seen ticker boards in your mandi which shows the exchange rate prices at the future markets?
(Yes/No)
How it is beneficial to you ?
………………………………………………………………………………………………………..............
..........................................................................................................................................................................

5. SALES & PHYSICAL OPERATIONS:

Sales in Physical Market
(Qty in Quintals; Price per Quintal; *Location - Mandi Name / Own Village / Home)

Stage 1st Time 2nd Time 3rd Time 4th Time

Quantity
Month
Price
Location

Motivation for Sale

(Please tick one or more relevant reasons for sale of your produce)
2008-09 2009-10
Stage Urgent Desired Lack of Commitment Urgent Desired Lack of Commitment
Cash Price Storage to Produce Cash Price Storage to Produce

[29]
 Needs Attained Capacity Needs Attained Capacity
1st
Time
2nd
Time
3rd
Time
4th
Time

If Any Other Reasons Specified:

(i)……………………………………………………………………………………………………………..
(ii) ……………………………………………………………………………………………………………
6. If you are given some price signals would you wait for some time and sell your produces latter?
(Yes/No)
(Specify)
………………………………………………………………………………………………………………
…………………………………………………………………………………………………….
7. Which is the nearest mandi to you and how far it is?
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………..
8. Whether the mandi is transparent in its working? (Yes/No)
Reason/s
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………..

9. PRICE RISK MANAGEMENT:

Awareness of Physical Market Measures
Yes No Farmer Comments
Are you aware of MSP for
different gram varieties
declared by the
government?
If yes, were you able to
realize the price greater
than the declared MSP?
Is there any facility in
your village for collective
storage of your produce?
If yes, have you used it to

[30]
 store Gram (chana) during
any of the last three years?

Awareness of Upcoming Risk Management Tools

Yes No Farmer Comments
Are you aware of the
Commodity market
/Commodity Exchanges in
India?
If yes, please name any two of
them.
Are you aware of mechanisms
to lock your target price for
Gram?
Are there any institutions/
organizations which help you
to know the market outlook
for Gram?

Awareness of Futures Trading on Commodity Exchanges

Farmers Response
What is the lot size of gram futures contract on
Commodity Exchange?
The futures contract used in Commodity Exchange
is based on which variety of Gram?
What is the initial margin money requirement for
gram futures contract?
Why the price of gram increased since last two
years
What prices are you expecting for Gram in the
coming season? How will you ensure that you are
able to get your target price?
Are you aware of the possibility of getting loan
against your produce stored in warehouse?

6) Did the M.S.P have helped you for better price realization? (If yes then to what extent)
………………………………………………………………………………………………………
……………………………………………………………………………………………………....
8) Have you been ever involved in group farming activity before? (Yes or No, Experiences of the group
activity good or bad):
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

9) Are you interested to form or be a part farmer interest group to sow and harvest chana (Gram) (have
to use similar kind of agricultural practices for the production): Yes/No

[31]
Reason/s:
1) ………………………………………………………………………………………………………
2) ……………………………………………………………………………………………………….
3) ……………………………………………………………………………………………………….
4) ……………………………………………………………………………………………………….

8) If someone aggregates your produce to get you a better price through the future contracts what would
be your expectations form him:
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
……………………………………………………………………………………………………………….

9) Who would you trust most as an aggregator: (Please rank as their preference)

1) Individual (form your village/community) ( )

2) NGO ( )
3) Cooperatives ( )
4) Farmer Interest Group ( )
5) Banks ( )
6) Warehouse ( )
7) Processer ( )
8) Others (Please Specify) ( )

10) If you won’t get the price as per the contract (a little less than the contract prices say 2% to 4%) then
how would you react?
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

11) Is farmer interested to participate in future market (Yes/ No)

(a) If Yes/ No, state reasons

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

12) According to you main merits & demerits of futures trading in chana are:

Merits: Demerits:

Price Locking/Hedging (Y/N) Can’t get more than locked price (Y/N)
Insulation from price fluctuation (Y/N) …………………………………..........
………………………………………. …………...……………………………

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………………………………………. ………………………………………..

12) What problems (if any) would you likely to face in case of participation in future market?
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

Date: …………………………..

Survey Number: …….. /Date: ……... Location: ……………….

Trader Survey Questionnaire

1. BASIC INFORMATION
Name: …………………………………………Address: …………………………………………………
Village: …….……………………… ……..Taluka: ……………………………..District: ………………
Contact Number: Landline ………………………………Mobile ……………………………………...…
2. What are the commodities you trade in?
………………………………………………………………………………………………………………
……………………………………………………………………………………………………………….

3. Most Popular channel for procurement of Chana……………………………………………

4. What are the problems faced by you during procurement of chana regarding quality and quantity
standardization………………………………………………………………………………………………
………………………………………………………………………………………………………………

5. Farmers participation & Village Information:

Description Daily (Approx) Monthly (Approx)

1. No. of farmers who
participate in your
trading activities
2. No. of villages from
which farmers participate

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 in your trading activities

6. How much is your monthly and annual commodity transaction of Chana? (In Quintals)

Monthly turnover/transaction: ………………………

Annual turnover/transaction: ………………………..

7. Average quantity of chana stored ………………………….. ……………… (In tonnes)

8. What is your average stock turnover time: ……………………….. ………………….. (In months)

9. Do know about Commodity Futures Market? (Yes/No)

10. Do you know the details of contract specifications and how trading takes place? (Yes/No)

11. Total number of traders participating in chana contracts in your district:

(a) Spot contract……… (b) Future contract………… (Total traders……)

12. Percentage of traders participating in chana futures in your district…………

13. Do you participate in future trading……………………………………………… (Yes/ No)

14. Have you ever participated on a commodity exchange? (Yes/No)

15. What is the frequency of your participation?

a) Daily b) Once in a week c) Once in a month d) Quarterly e) Rarely

16. Exchange/s preferred for participation…………………………………………………………………...

17. Did the futures trading benefited you……………………………………………… (Yes/ No)

How/why: ……………………………………………………………………………….

18. What are the benefits that you and farmers will derive by participating in futures market?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

19. Do the price trend reflect the risks in the business?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

20. What are the problems which keep a farmer away from the future markets/commodity exchanges?
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
…………………………………………………………………………………………………

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21. Can you become an aggregator for farmers to enable their participation in the futures markets?
(Yes/No)

Why do you feel so?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

22. If you become an aggregator, then what would be your expectations from the farmers?
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

23. If you become an aggregator then you would be putting up some service fee to the farmers. How
much percent it would be and justification for that?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

24. What procedure you will follow to maintain trust and transparency while being an aggregator?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

25. How would you win and maintain the loyalties of the farmer as an aggregator?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

26. In case of 2-4 % of loss in future market, how would you react?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
……………………………………………………………………………………………………………….

27. According to you what would be the farmers reaction in case of 2-4 % of loss in future market? What
would you do to maintain the harmony among aggregated farmers in group?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

28. What are the major merits & demerits of futures trading in chana?

Merits: Demerits:

[35]
…………………………………….. …………………………………...
……………………………………. …………………………………...
…………………………………… …………………………………...

29. Any specific opinions/comments regarding the participation of farmers and processor in future
markets?

Survey Number: ……… /Date: ……… Location: ……………….

Processer Survey Questionnaire

1. BASIC INFORMATION
Name: …………………………………………Address: …………………………………………………
Village: …….………………………. …….. Taluka: ……………………………..District: ………………
Contact Number: Landline ………………………………Mobile ……………………………………...…
2. How many times you procure chana in a year (Specify) …………………………………………….

3. Monthly requirement of chana for your processing plant………………………. (In tonnes)

4. What are the problems faced by you during procurement of chana regarding quality and quantity
standardization
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

5. Your preferred channel for procurement of Chana ………………………………………………………

6. Are you aware about Commodity Futures Markets or Commodity Exchanges? (Yes/No)

7. Do you know the details of contract specifications and how trading takes place? (Yes/No)

8. Have you ever participated on a commodity exchange? (Yes/No)

[36]
9. What is the frequency of your participation?

a) Daily b) Once in a week c) Once in a month d) Quarterly e) Rarely

10. Exchange/s preferred for participation…………………………………………………………………...

11. Did the futures trading benefited you……………………………………………… (Yes/ No)

How/why: ……………………………………………………………………………….

12. What is the most popular source of awareness about future trading?
………………………………………………………………………………………………………………

13. What are the problems/constraints preventing you from participating on futures market of chana
(please specify)……………………………………………………………………………………………...
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
……………………………………………………………………………………

14. What are the benefits that you and farmers will derive by participating in futures market?
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

15. According to you what are the problems that discourages a farmer from participating on futures
exchanges?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
……………………………………………………………………………………………………………….

16. Can you become an aggregator for farmers to enable their participation in the futures markets?
(Yes/No)

Why do you feel so?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

17. If you become an aggregator, then what would be your expectations from the farmers?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

18. How would you win and maintain the loyalties of the farmer as an aggregator?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

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19. What procedure you will follow to maintain trust and transparency while being an aggregator?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

20. What are the major merits & demerits of futures trading in chana?

Merits: Demerits:

……………………………………… …………………………………...............
…………………………………….. …………………………………................
……………………………………. ………………………………....................

21. Any specific opinions/comments regarding the participation of farmers and processor in future
markets?

Survey Number: …………. Location: ……………….

Warehouse Survey Questionnaire

1. BASIC INFORMATION
Name: …………………………………………Address: …………………………………………………
Village: …….……………………… ……..Taluka: ……………………………..District: ………………
Contact Number: Landline ………………………………Mobile ……………………………………...…
2. How much is your monthly and annual commodity warehousing of Chana? (In Quintals)

Monthly transaction: …………………………

Annual transaction: …………………………..

Capacity of the warehouse: …………………..

3. Farmers participation & Village Information:

Description Daily (Approx) Monthly (Approx)

1. Details of the persons Farmer: Farmer:
who use your storage Trader: Trader:
space Others: Others:
2. No. of villages from
which people come to

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 store the goods

4. What is the average quantity of commodities stored by… (In quintals)

a. Farmers
b. Traders
c. Processors
d. Others

5. Are you also a trader of the commodities? Yes/No

e. If yes do you trade in spot or futures market

f. Reasons………………………………………………………………………………….

6. Do you know about Commodity Futures Markets? (Yes/No)

7. Do you know the details of contract specifications and how trading takes place? (Yes/No)

8. What are the benefits that you and farmers will derive by participating in futures market?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

9. What are the problems which keep a farmer away from the future markets/commodity exchanges?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
……………………………………………………………………………………………………………….

10. Can you become an aggregator for farmers to enable their participation in the futures markets?
(Yes/No)

Why do you feel so?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

11. If yes, then what would be your expectations from the farmers?

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………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

12. How would you win and maintain the loyalties of the farmer as an aggregator?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

13. What procedure you will follow to maintain trust and transparency while being an aggregator?

………………………………………………………………………………………………………………
……………………………………………………………………………………………………………….

14. What would be farmer’s reaction in case of 2-4 % of loss in futures market? What would you do to
maintain the harmony among aggregated farmers in group?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

15. What are the major merits & demerits of futures trading in chana?

Merits: Demerits:

…………………………………….. …………………………………...
……………………………………. …………………………………...
…………………………………… …………………………………...

16. Any specific opinions/comments regarding the participation of farmers and processor in future
markets?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………..

[40]
O.T. Number: …………… Location: ……………….

Checklist for Opinion Taking

Name of the organization………………………………………………………………………………….…

Name of the Person Interacted With…………………………………………………………………………

Designation…………………………………………………………………………………………………..

1. Is your organization working with farmers (Yes/ No)

If yes, since………………………………………………………………………………………………….

2. Number of farmers associated with your organization……………………………………………………

3. Do you feel that farmers can repay their loans if they participate in the commodity markets? Why So?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
……………………………………………………………………………………………………………

4. Do know about Future Markets or Commodity Exchanges? (Yes/No)

5. Do know about Future Contracts and its trading in the commodity exchanges? (Yes/No)

6. As per you what are the problems which keep a farmer away from the future markets/commodity
exchanges?
………………………………………………………………………………………………………………

[41]
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
…………………………………………………………………………………………………

7. Can you be an aggregator of farmers in the commodity markets? (Yes/No)

Why do you feel so?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
……………………………………………………………………………………………………………….

8. If yes, then what would be your expectations from the farmers?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

9. What procedure you will follow to maintain trust and transparency while being an aggregator?

………………………………………………………………………………………………………………
……………………………………………………………………………………………………………….

10. How would you win and maintain the loyalties of the farmer as an aggregator?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

11. What are the practical problems in the farmer’s participation in the futures market as per you?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

12. Can you convince and peruse farmers to work in group following similar kind of farming techniques
so that they can have a uniform quality of production? (Yes or No)

Reason/s for your answer

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

13. In case of 2-4 % of loss in future market, how would you react?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
……………………………………………………………………………………………………………….

[42]
14. What would be farmers reaction as per you in case of 2-4 % of loss in future market? What would you
do to maintain the farmers group for aggregation?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

15. According to you main merits & demerits of futures trading in chana are:

Merits: Demerits:

…………………………………….. …………………………………...
……………………………………. …………………………………...
…………………………………… …………………………………...

16. Any specific opinions/comments regarding the participation of farmers and traders in future markets?

………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………..

References:

 Report of UNCTAD study Group on Emerging Commodity Exchanges: Development

Impacts of Commodity Futures Exchanges in Emerging markets by UNCTAD, 3 rd
September, 2007.
 Report on “Commodity policies for Development: A new framework for the fight against
poverty”, 8th December, 2005
 Report on “The Role of Futures Market in Aggravating Commodity Price Inflation and
the Future of Commodity Futures in India” by Sushismita Bose (Money & Finance,
March 2009)
 Report on Commodity trading advisors(CTAs) for the Indian commodity market By
Sheeba Kapil (Indian Institute of Foreign Trade, New Delhi, India), and Kanwal Nayan
Kapil (Management Development Institute, Sukhrali, India), International Journal of
Emerging Markets Vol. 5 No. 2, 2010.
 Agricultural commodity markets in India: Policy issues for growth By Susan Thomas
(May 21, 2003).
 The Temporal Lead Lag and Causality between Spot and Futures Markets: Evidence
from Multi Commodity Exchange of India By K. Srinivasan & Malabika Deo
,Pondicherry Central University, India (8 December, 2009).

Websites:

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www.fmc.gov.in , www.mcxindia.com, www.usda.gov

[44]