The Solvent Extractors’ Association of India (SEA) has requested the government to reconsider allowing futures trading in crude palm oil (CPO) and crude soyabean oil to support farmers.
In a letter to various ministers in the Centre, Sanjeev Asthana, President of SEA, said a robust futures market is crucial for price risk management, orderly development of agricultural markets and providing reliable price signals to all stakeholders, including the government.
Since December 2021, the suspension of futures trading in seven agricultural commodities has been extended periodically, now until December 20, 2024.
Cause for concern
Asthana said SEBI’s notice dated October 27, 2023, extending the ban on futures trading in certain commodities, including edible oils, has raised significant concerns among SEA members.
Stating that many have suffered substantial losses due to heightened market volatility, he said importers have faced immense challenges, including financial losses, due to the absence of trading on commodity exchanges.
Depriving the industry
Studies have repeatedly demonstrated that futures trading is not a significant driver of inflation. The trade and industry were therefore anticipating the resumption of trading, particularly in internationally traded commodities such as CPO and crude soyabean oil. Absence of futures trading deprives the industry of essential hedging mechanisms and price discovery, exposing businesses to greater price volatility and disrupting operations. Moreover, the absence of futures trading also denies the government crucial price signals, leaving an information gap, he said.
“The industry was hopeful that the suspension would be lifted to enable smoother operations, but the continuation of this restriction has further weakened an essential risk mitigation tool,” he said.
Referring to the current price of soyabean, Asthana said it is below the minimum support price (MSP) of ₹4,892 a quintal. The current price of rapeseed is marginally above the MSP of ₹5,950 a quintal. Resuming futures trading in soyabean, rapeseed, and their derivatives would enhance price stability and provide much-needed support to farmers. Historically, futures markets have proven effective in supporting price mechanisms, reducing the government’s need to intervene by purchasing under the Market Intervention Scheme, he said.
“We earnestly appeal to the government to reconsider this decision and direct SEBI to resume futures trading in all commodities or, at the very least, in internationally traded commodities like CPO and crude soyabean oil,” he added.
