Post Harvest Marketing-

Commodity Exchanges of the

Future
Presented by Aparajita Singh

5 October 2020
Contents
1. Understanding Agri-Markets and Transaction Costs
2. Introduction and Context Setting
3. Snapshot of Agri-Markets and Commodity Futures Trade in India

4. Overview of Changes In the Regulatory Landscape

a. The Farmers’ Produce Trade and Commerce (Promotion & Facilitation) Ordinance 2020
b. The Farmers (Empowerment & Protection) Agreement on Price Assurance and Farm
Services
c. The Essential Commodities (Amendment) Ordinance 2020
d. 1 Lakh Crore Agriculture Infrastructure Fund
e. Operational Guidelines for Formation and Promotion of 10,000 FPOs

4. Why should we care?

5. Commodity Exchanges and Post Harvest Marketing by FPOs

6. Landscape of Agtech in Post Harvest Marketing & Regulatory Enablers

7. Role of Agtech in Commodity Exchanges

8. International Best Practices

9. List of References
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Understanding Agri-Markets and
Transaction Costs
What are transaction
costs?
The various costs of
carrying out marketing
activities from price
discovery and
transportation to
searching for buyers
and selling are
considered market
transaction costs.
Current status of agri-marketing in India
§ through traditional spot markets
§ predominantly unorganized markets with
limited infrastructure What are the kinds of transaction costs?
§ three agricultural marketing channels are • Transaction costs can be household-
state-trading, cooperative marketing and specific, farm-specific, location-specific
private trade and crop-specific.
• Social categorization such as caste and
gender can play an inclusive and
exclusionary role concerning access to
land, credit and markets 3

Source- Pingali et al (2019)

Introduction and Context Setting

§ To facilitate free trade, price transparency and vertical coordination, the Government has taken
several steps such as change in marketing laws, warehousing facilities, strengthening commodity
futures and setting up of National Agriculture Market (e-NAM) scheme, an online virtual trading
platform to provide farmers with opportunity for transparent price discovery for their produce
through competitive online bidding system.

§ Currently, the Government is implementing Market Research and Information Network (MRIN)
Scheme covering 3356 wholesale mandis across the country linked to Agmarknet portal, wherein
Agricultural Produce Market Committees (APMCs) markets are reporting data on mandi arrivals
and prices of their traded agricultural commodities on daily basis.

§ Indian farmers incur Rs 92,651 crore per year in post harvest losses, the primary causes of which
are poor storage and transportation facilities. This is enough to feed 1.2 Cr people for a year at Rs
200 per person. Can these losses be avoided with the help of commodity exchanges of the
future?

§ India has a long history of trading forward and futures contracts. The first commodity futures
exchange of India was set up in 1875, in Mumbai, under the aegis of Bombay Cotton Traders
Association. A clearing house for clearing and settlement of the trade was set up in 1918.

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 Snapshot of Agri-Markets and
Commodity Futures Trade in India

• 281.37 million tonnes food grains • In 4 years of it’s existence, e-NAM has • The average share of FPO trade in
• 90 million farming households* registered 1012 FPOs which have total agricultural futures trade has
traded 3053 MT of agri-produce worth been miniscule (just 0.004 percent)
• 2477 mandis and 4843 sub-market Rs 8.11 Cr
yards between April 2016 and May 2018.
• 42 FPOs traded from their own • Even this activity is concentrated in
• On average, for every 12,000 collection center through FPO module.
farmers there is at most one mandi a few states and most of these FPOs
• As 10,000 FPOs spring up across the have only traded once.
excluding the state-wide disparity country, even if half of them register
with the e-NAM that reduces the
burden on existing mandis by half.

Snapshot of the FPOs and e- FPOs and future

agri-market NAM markets

*As per the Agriculture census 2015-16, the number of operational holdings in India is 146.45 million. The same has been 5
used for allocations in the PM Kisaan scheme. The Agricultural Statistics at a Glance, 2018 has only been able to identify 90
million agricultural households.
Overview of Changes In the Regulatory Landscape

REFORM THEN NOW

(Empowerment & Produce Trade and

Ordinance 2020 and Farm Services Ordinance 2020 Any place of production, collection, and aggregation of farmers’ produce including: (i) farm
(Promotion &

Monopoly of APMC markets and inefficient price discovery due to a gates, (ii) factory premises, (iii) WDRA accredited warehouses, (iv) silos (v) cold storages &
The Farmers’

Facilitation)
Commerce

limited number of buyers (vi) FPOs collection centres declared as Deemed Markets or Sub-Market yards
Additional costs for buyers in the form of Mandi Fee, Kacha adatiya,
Pakka adatiya commissions and state market fees which cumulatively Competitive and organized marketing as opposed to restricted marketing with no additional
amounts to atleast 4-5% of the cost. commissions or state market fees
Farmers find it difficult to approach consumers or food processing The Ordinance provides for a farming agreement prior to the production, to help farmers sell
Price Assurance
Agreement on

companies directly and mostly go through a licensed trader directly to sponsors directly.
The Farmers

Protection)

The Ordinance prohibits sponsors from acquiring ownership rights or making permanent
Adequate protection required for farmers in such contracts modifications on a farmer’s land or premises
A speedy dispute resolution mechanism required to protect interests of Provision for speedy dispute settlement while ensuring no action can be taken against the
all parties agricultural land of farmer for recovery of any dues.
Trade opportunities can be optimally monetized as there is no risk of government legal
Infrastructure (Amendment)
Commodities
Operational Guidelines 1 Lakh Crore The Essential

A major trade barrier for manufacturers, processors, and MNCs. action and ample scope for market participation
These amendments in the Act will now bring in more traders, arbitragers and processors to
Lack of liquidity in the market the market and pump in additional liquidity in the market.
Price was highly controlled and price fluctuations due to low liquidity ECA has an important role to play in buffering the price fluctuations.
Middlemen had monopoly over the role of aggregator and assayer to With proper infrastructure in place, FPOs can play this role efficiently and bargain for better
Agriculture

provide graded commodities to buyers. prices for farmers.

Fund

Limited warehouses which leads to distress selling and deprives farmers Investment in warehouses, packhouses and machinery for cleaning, sorting, grading and
of collateral financing packaging of commodities will open new avenues and enable warehouse receipt financing
Capacity building, training and skill development for FPOs will be carried out through nodal
institutions such as Bankers Institute for Rural Development (BIRD) under NABARD, or LINAC
for Formation and
Promotion of

Lack of structured programs to skill FPOs’ managerial resources under NCDC.

10,000 FPOs

Only 12 percent of NABARD FPOs, which consist of 84 percent of the total Government’s decision to dedicate Rs. 10,000 crore on formalizing micro food enterprises
FPOs in the country promoted by NABARD and SFAC , are currently (MFEs) provides FPOs the stepping-stone to expand their role from commodity aggregation
engaged in value addition. to value addition.

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Why should we care?

Market linkage would make small farmers them less vulnerable to

price risk and enable them to sell their products at higher prices.

Greater investment in agricultural ecosystem

A mechanism for aggregation and financing

Hedging price and distribution of risk

Ensuring food security via commodity markets

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Commodity Exchanges and Post Harvest
Marketing by FPOs
SOWING DECISION
• Commodities exchange will help farmers plan based
on forward looking cropping patterns instead of
basing planting decision on previous year’s crops
ACCESS TO MARKETS
• Connecting FPOs to large
buyer base

HELP PREVENT DISTRESS SELLING

MARKET INTELLIGENCE
Comparing various prices and selling at a
platform which offers better prices between
spot and futures (subject to factors like cost
of carry)

HEDGING PRICE RISK

PRICE INFORMATION
• Taking decision on when to sell
ALTERNATIVE SOURCE OF FINANCE
• Goods stored in warehouses serve as a
base for taking collateral funding

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 Landscape of Agtech in Post Harvest
Marketing & Regulatory Enablers
- Over the last five years, B2B agri-marketplaces, farmer to consumer brands, and farmer platforms
have started receiving a bigger chunk of funding

- There is a shift from “farming to maximize yield” to “farming to maximize profit”

- This segment includes logistics and analytics that can be applied at the point of harvest from
farmgate to buyer/processor e.g. transport

Regulatory Enablers of Agtechs in Post Harvest Marketing

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Role of Agtech in Commodity Exchanges
ENSURING STANDARDIZATION OF PRODUCE
QUALITY ASSAYING
Agtechs can assist FPOs in
FPOs require training as well ensuring and monitoring
guidance on accessing
that production quality
facilities with proper assaying
equipment
standards as per exchange
standards are maintained
from sowing to harvest.

FINANCING AND MARKET

ASSISTING TRADING ON FUTURE INTELLIGENCE
PLATFORMS FPOs need access to
Guidance on futures, storing working capital as
goods in non-exchange well price information
warehouses, price of crops
dissemination, arbitrage
opportunity and guiding on
hedging, training on quality
parameters, grading, sorting, TRANSPORTATION
packaging, storage FPOs require assistance in
connecting with logistics or
transport aggregators to get
produce to delivery centers or
warehouses
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International Best Practices
§ Reports from the Dalian Commodity Exchange in China demonstrate broad based farmer training
programmes and information sharing to encourage futures market.

§ Indian futures market can learn lessons from China in terms of the support that the state
provides to the futures market. For example- the state trades in the market, trains farmers to use
futures market both directly and indirectly. The state has several joint partnerships with the
exchange.

§ China also adopted a futures plus insurance model where farmers buy insurance to ensure the
minimum selling prices/earnings. The insurance company makes payments to compensate when
commodity prices are less than agreed futures price levels. The price data related to the insurance
contracts shall be based on DCE futures data. Reinsurance by buying options from futures brokerage
companies and the futures brokerage companies conduct the relevant hedging operations at DCE.

§ Data sharing between government and private players

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WHAT NEXT?
 List of references
• Agriculture Census Division, the Department of Agriculture, Cooperation and Farmers Welfare, Government of India (2019). Agriculture Census 2015-16
• Chatterjee, T., Raghuanthan, R., & Gulati, A. (2019). Linking farmers to futures market in India. Working Paper 383, Indian Council for Research on International Economic
Relations
• Government of India (2020, February 8). Cabinet approves Central Sector Scheme of financing facility under Agriculture Infrastructure Fund. [Press Release]
• Deana, S. (2019, September 3). Agtech Landscape: Tracking 1600+ Startups Innovating on the Farm and in the Supply Chain. Forbes.
• Directorate of Economics &Statistics, Agricultural Statistics Division of the Department of Agriculture, Cooperation and Farmers Welfare, Government of India (2019).
Agricultural Statistics At A Glance 2018.
• Directorate of Economics &Statistics, Agricultural Statistics Division of the Department of Agriculture, Cooperation and Farmers Welfare, Government of India (2019,
February 28). Second Advance Estimates of Production of Foodgrains for 2018-19
• Gulati, A. (2020, August 17th). Getting Agri-Markets Right. The Indian Express
• Ministry of Agriculture & Farmer Welfare, Government of India (2020, February 4). Linking Farmers with Markets [Press Release]
• Ministry of Finance, Government of India (2015). A National Market for Agricultural Commodities- Some Issues and the Way Forward. In Economic Survey 2014-15.
• Nirmal, R. (2020, January 21). How many farmers are there in India? Government has no clue
• Overview of Commodity Futures Exchanges and It’s Governance in India
• Pandey, K. (2018, August 28th). Poor post-harvest storage, transportation facilities to cost farmers dearly. Down To Earth
• P. Pingali et al. (2019), Transforming Food Systems for a Rising India, Palgrave Studies in Agricultural Economics and Food Policy, https://doi.org/10.1007/978-3-030-14409-
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• Singh, A. and Shah, S. (2019, June 20). The Road Ahead for Farmer Producer Organisations in India. Dvara Research Blog.
• The author thanks Tarun Katoch, Gulrez Ahmed and Sanjay Mansabdar for their valuable inputs and time.

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