Shetkari Sanghatana, the farmer’s union started by the late Sharad Joshi , on Monday (January 23) launched an indefinite agitation outside the office of the securities and exchange Board of India (SEBI) in Mumbai. Anil Ghanwat , president of the Swatantra Bharat Party , the political wing of the unionhas said the protest was against the continued suspension of derivatives trading in seven agri commodities.
How does the derivatives trade in Commodities work ?
Agricultural commodities like cotton, paddy, soyabean, Soya oil, mustard, seed etc., are traded on the National commodities and Derivatives Exchange (NCDEX) and Multi commodity exchange ( MCX). Derivatives are short term financial contracts that are bought and sold in the market. Profits are made in the derivatives trade by predicting price movements of the assets that underlies the contract. The derivatives trade can be in futures and options. In a future contract, a supplier pledges to sell a certain quantity at a fixed price at a future date.
When SEBI banned trading in Agri Commodities?
On December 20,2021 the capital Markets regulator suspended futures trading in seven commodities, viz., Wheat, paddy, moong, chana, soyabean, and it’s derivatives, mustard seed and it’s derivatives and palm oil and it’s derivatives on the exchange. The SEBI order allowed the squaring of contracts but said no new contract would be allowed in these commodities . Of the seven commodities, chana and mustard seed were already banned at the time. The trading was initially suspended for a year , but in December 2022, the ban was extended for another year , i.e., until December 20, 2023.
Why this ban ?
The ban on the launch of futures contracts was intended to stop speculative trade in these commodities. The central government was worried about food inflation and the ban was part of the efforts made to control it.
Why are farmers protesting?
The futures trends provided by the exchange are an important indicator for farmers. Physical markets or mandis often follow the trend , and farmers base their offloading plans on it. More that individual farmers, the farmers Producer Companies (FPCs) trade on the exchanges.
The Shetkari Sanghatana has always been against government intervention in agri markets. According to Ghanwant and other members of the Union, the SEBI’s action is anti – farmer and has been taken at the behest of a few traders who want to control the markets. Given the exchanges work on technology and allow for participation of traders from across the country, price discovery is better than in physical markets, they say.
The union has said that the ban on the futures trade has taken away the only price indicator they had. Ghanwat and others have claimed that ever since the ever since the ban kicked in , price discovery and realisation in the markets has been low. Trade bodies including the solvent and extractors Association (SEA), a body of manufacturers and importers of elible oil, too have protested against the ban.