Futures trading suspension: No reduction in retail prices of agricultural products
New Delhi| This information has come to light in a study by Birla Institute of Management Technology (BIT) Greater Noida, IIT Kharagpur and IIT Bombay. The study by BIMTEC and IIT Kharagpur is based on the analysis of soybean, soya oil, mustard seeds and mustard oil. The IIT Bombay study examined the effects of suspension of futures trading contracts on the agricultural ecosystem of mustard, refined soya oil, soybean, gram and wheat. BIT analyzed trade data for mustard, soybeans, soybean oil, and mustard oil between 2016 and 2024. The study revealed that very high price fluctuations were seen during the futures trading suspension.
According to the study, the suspension affected the hedging capacity of these agricultural products in international markets. Hedging means reducing investment risk. It uses financial instruments or market techniques to reduce the risk of adverse price fluctuations. The lack of domestic hedging options will cause domestic hedgers to turn to international futures markets which will expose them to base risk.
EIT Bombay, speaking to farmers and agricultural production organizations (FPOs) from Maharashtra, Madhya Pradesh, Rajasthan, concluded that there was a positive correlation between future contracts for agricultural products and local market prices.
These contracts did not even lead to an increase in food prices. Whereas these contracts had an important contribution in reducing price fluctuations in the market. But no evidence of this was found.
Studies have said that the effect of suspension of futures trading i.e. futures contracts of agricultural products is that it completely messes up the agricultural price system, due to which farmers suffer losses due to instability in food prices. Due to this, instability in the prices of agricultural products makes it difficult to decide the price.
In fact, after the suspension of futures trading, volatility in many of them went up several places. This proves that it was not futures trading but domestic and international demand and supply that were affecting commodity retail prices. In such a situation, suspension of futures trading is not a permanent solution.
