Kunal Shah VP Commodities Research

1. India’s rising population and stable production. Drop in yield in many crops & areas to address GM crop are the answer to boost productivity? Boosting agro trade in cash and futures market. Globe Oil, 2014 Kunal Shah VP Commodities Research Road Ahead for Indian Agriculture Market & boosting agro trade.

2. Indian Population growth rate and declining share of Agriculture in GDP. . Source: Registrar general of India , NB Research • Agriculture share in GDP going down and population is growing at vg annual growth rate of 1.75%.

3. Production have stagnated in last 3-4 years in many commodities. .

4. All India crop wise yield `

5. Raising Agriculture Productivity per land unit & govt. policy and regulation. • Promoting new technologies and spending on agriculture research • Improving water resources and irrigation facilities • Liberalizing constraints to marketing, transport, export and processing of commodities, Amendment in existing acts like APMC, GST • Rural development. • Increasing income of over 160 million people who are below poverty line by increasing agriculture growth. • Ensuring agricultural growth responding to food security • Green revolution of 1970’s • Self sufficiency in food grains, Adequate Warehousing and storage facilities • Developing cash and future commodity markets • Allow wider participation • Making existing contracts more liquid encouraging more hedging volume • Launching new commodities. Key Area of Concern .

6. How to increase the productivity? . R&D, Biotechnology and GM Seeds Seeds Area (Limited) Agriculture Production Nutrition Productivity Irrigation farm management systems to improve soil quality, enhance water use, manage crop residue and improve the environment through better fertilizer management. Agronomy Process

7. Edible Oil production, Import & Demand . Sources:

8. GM Seeds Answer to boost productivity? . Sources: Cropnosis, Bloomberg Intelligence

9. GM Seeds answer to boost productivity? . • Sources: Cropnosis, Bloomberg Intelligence

10. Introduction of Goods and Service Tax • Multiple taxes on a product or service are eliminated and a single tax comes into place, the tax structure is expected to be much simpler and easier to understand. • GST will eliminate all other forms of indirect taxing. This will effectively mean that the tax paid by the final consumer will come down in most cases. • GST rollout may result in reduction in the prices of commodities as manufacturers and distributors would pass on the benefits of the lower costs of carrying on their businesses to the consumers in a competitive environment. • When the cost of production falls in the domestic market, Indian goods and services will be more price-competitive in foreign markets.  • It is estimated that GST can contribute 1 -1.5% to India’s GDP growth.

11. Amending APMC Act • Under the original APMC Act of different States, • (a)  A State is geographically divided and mandis are established at different places within the State; • (b)Farmers have to sell their produce through auction at the mandis; • (c)  To operate in a mandi, a trader has to get a license; • (d)Wholesale, retail traders (e.g. owner of a shop in a mall) and food processing companies cannot buy farm output directly from the farmer. They have to get it through the mandi.

12. APMC Act . • APMC market rules were sought to be amended so as to cut down the prices for agricultural produce by bringing down numerous taxes and fees levied by states from the time the product makes it way from the farm gate to the market place. • In a status report submitted to the department of agriculture, eleven states in India has started the market reforms by imposing single point levy of market fees which could help in a long way to bring down food prices especially fruits and vegetables. • Prices of food items rise due to the commissions these brokers charge at various levels as well as for the act of hoarding some of them indulge in. This means that, while consumers pay sky-high prices for food, farmers get a pittance for that produce. • The amendment in the rules would also lift the bar on establishment of new markets by other players like co-operative societies, NAFED, Safal etc. bringing competition in the marketing of fruits and vegetables.

13. Warehouse Receipt As An Instrument For Financing In India • Warehouse Receipts contribute to the creation of cash and forward markets and thus enhance competition. They can form the basis for trading commodities, since they provide all the essential information needed to complete a transaction between a seller and a buyer. • The farmer obtains a Warehouse Receipt that can be used as collateral for short-term borrowing to obtain working capital.That way, the farmer does not need to sell the product immediately to ease cash constraints. • The availability of secure Warehouse Receipts may also allow owners of inventories to borrow abroad in currencies for which real interest rates are lower, particularly if loans are made against inventories of an export commodity • .Warehouse Receipts can be used by farmers to finance their production, and by processors to finance their inventories. • AWarehouse Receipt system provides a way to reduce the need of government agencies in procurement of agricultural commodities

14. Warehousing and Cold Storage facilities • The total warehousing capacity in India is 108.75m tonnes, whereas 35m tonnes of capacity are required in the 12th Five-Year Plan. • India has nearly 23m tonnes of cold storage facilities India requires an additional 9-10m tonnes of cold storage capacity to address annual post-harvest losses of around Rs1tr (US$18.6bn). • Due to lack of cold storages in India, substantial quantities of vegetables and fruits are spoiled every year • The level of wastage of agricultural food items is estimated to be 30-35% amounting to about Rs. 30,000/- crores in the country.

15. Central counterparty clearing house • In India, futures contracts in commodities are required to be settled through clearing and settlement department of the commodity exchanges and there is no separate central counterparty clearing house. There is an impending need to guarantee execution of settlements on behalf of the respective counterparties in the exchange where a chain reaction of defaults (breaches of contract) can be prevented. • Clearing house reduces complexity by reducing the number of counterparty relations and increases efficiency by establishing the margin and collateral requirements for its members, centralising the necessary calculations, automatically collecting or paying the respective amounts and preventing disputes   • The clearing entities’ discipline and independent roles from the exchange is indispensable for the purpose of improving commodity market credibility and develop an environment enabling trading activities by market participants with a stronger sense of security. .

16. Role of Commodities future market. • Plays pivotal role in price discovery of commodities with rollout in GST, Central counterparty clearing house & warehouse receipts. • The Chinese government has always attached great importance to Dalian commodity exchanges development. By the end of 2013, DCE had had 173 member companies, 180 designated delivery warehouses,  1,776,307 investor accounts (including 50,008 corporate client accounts). • Commodity exchanges have provided excellent platform for hedgers and structure of future markets have always invited more and more hedging community which has lead to better price discovery. (in spot markets only forwards are available) • In last few years we have seen in India prices of commodity have gone up more sharply after its delisting. In case of soft commodities like spices, prices of most spices (not listed on futures exchange) have just shot up sharply as compare to listed spices on the exchanges. Exchange provides platform for easy and wider participation. • We recommend with changes in necessary acts more commodity should be listed on , with possibly more liquidity and wider participation should be allowed.

17. Markets are ahead of the events and we wait for event and time the market Thanks A lot

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