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INDIA: Futures Trade in Farm Commodities – Wrangle Continues

Ranjit Devraj

NEW DELHI, Apr 24 2008 (IPS) - The reluctance of a high-level committee set up by the Indian government to spell out whether futures trading in agricultural commodities has resulted in an escalation of food prices has revealed deep divisions over the issue.

Abhijit Sen, leader of the committee and a member of India’s planning commission, said on Monday that he favoured continuance of an existing ban on sensitive staples such as rice, wheat and two types of pulses -pigeon pea (tuvar) and black gram (urad).

But Sen appeared to be isolated in his views with several members of the committee saying there was not enough data to show a clear link between futures trading and the present hike in food prices.

Most members appeared to go along with the neo-liberal policies of the government of Prime Minister Manmohan Singh. An interim report, released Monday, says that “it cannot be concluded emphatically whether futures trading has in any way fuelled increase or volatility in prices of agricultural commodities.”

“Well-functioning futures markets have the potential of bringing about price stability over medium to long term,” the interim report said.

Whatever conclusion the committee finally arrives at, farmers’ bodies and food security specialists maintain that unchecked trading and speculation have played a pivotal role in the spiralling prices of food staples in India – a primarily agricultural economy.


“It is time the government rejected this neo-liberal and corporate-led agriculture model and replaced it with a farmer-centric one,” leading famers’ rights activist Krishan Bir Chaudhary told IPS.

Reacting to the interim report, Chaudhary said that the government was waffling over the serious issue of food prices and that the Sen committee was skirting the issue of India’s poorly regulated markets allowing traders and corporate entities to reap massive profits through irregular trading.

“The government is aware what the real problem is… futures trading in farm commodities under Indian conditions makes prices highly vulnerable to market fluctuation as well as manipulation,” Chaudhary a senior member of the ruling Congress party said.

Besides online trading, unofficial (dabba) trading – in which speculators are not required to maintain margins for trading in commodity futures and also do not to pay transaction fees or taxes – is popular at India’s exchanges. The government’s Forwards Marketing Commission has been unable to regulate this trading.

Under these circumstances, what the government needs to do is ban futures trading in all agricultural commodities, Chaudhary stressed, because, in any case, it was not the farmers who were the beneficiaries but traders and corporate houses “that have been licensed to hoard and manipulate prices.”

“Agents of the corporate houses are even now scouring the rural areas, offering to buy up farm produce at prices far lower than what are being quoted on the futures exchanges or in the spot market, or at the newly created retail chains,” Chaudhary said.

Although India achieved record grain production of 219.32 tonnes in 2007- 08 – including 94.08 tonnes of rice, 74.81 tonnes of wheat, 36.09 tonnes of coarse cereals, and 14.34 tonnes of pulses – prices have soared uncontrollably and placed them out of the reach of vast sections of the population.

“Yet, the government is not totally critical about the neo-liberal architecture of the new economy that it has imposed upon the nation,” Chaudhary said, “Now it is taking a piecemeal approach, banning exports and liberalising imports of selected commodities.

The government’s annual Economic Survey 2007-08, released ahead of the budgetary exercise clearly says: “Direct participation of farmers in the commodity futures market is somewhat difficult at this stage as the large lot size, daily margining and high membership fees work as a deterrent to farmers’ participation in these markets.”

Internationally known food security expert Vandana Shiva said the “uncontrollable rise in food prices is clearly the outcome of economic policies framed within the neo-liberal paradigm.” Shiva accused the government of intervening “to create monopolies in the food system – from seeds to domestic production and trade to food processing, liberalisation of food imports, export-oriented agriculture and corporate retail.”

Shiva told IPS that the findings of the International Assessment of Agricultural Science and Technology for Development (IAASTD), a major new report by over 400 scientists, released last week, applies especially to a populous agricultural country like India which has embarked on the path of neo- liberalisation.

The IAASTD report pointed to the possibility of “high levels of rural poverty, hunger and malnutrition, gender inequality and social exclusion, environmental degradation, and a growing rural-urban divide,” developing in the East and South Asia and the Pacific (ESAP) region.

Where Indian is concerned, Shiva said, price increases are the direct result of India integrating its food economy with global trade in commodities under pressure from the World Trade Organisation (WTO). Also a factor is the bilateral U.S.-India Agricultural Agreement signed in 1996 which allowed for the ‘corporatisation’ of India’s agriculture and the creation of retail chains.

Shiva pointed to the entry into India – which had attained an admirable record of food self-sufficiency, marked by overflowing granaries – of giant corporations like Cargill, AWB, Conagro, ITC and Lever. Farm bulk procurement has led to scarcities in a “low-cost market economy based on small traders and small retailers.”

Shiva also blamed the diversion of land to produce biofuels. India currently has plans to put 11 million hectares of land under jatropha cultivation to produce bio-diesel while the sugar cane industry is set to divert four million hectares out of food production and into ethanol.

There has also been a large-scale diversion of food growing land in India to export-oriented cash crops. Agricultural export zones now entice farmers to give up grain production and plant export crops of vegetables, fruits and flowers. “This is part of the perceived division of labour under globalisation, where the rich North grows food staples for the South and the South grows luxury products for the North,” Shiva said.

Chaudhary said the government was reluctant to ban futures trading in farm commodities because of a powerful lobby of traders that had reaped millions of dollars through speculative online trading in agricultural futures ever since this was allowed four years ago.

Turnover figures at the commodity exchanges for the 2006-07 financial year alone touched 926 million dollars.

“This is a system that puts the lives of a vast chunk of the population at the mercy of a handful of speculators,” said Chaudhary. “But they have tasted blood and are not going to let go so easily.”

 
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