Reforms in Agriculture Marketing Synergy Between APMCs and National Spot Exchange

1. Reforms in Agriculture Marketing Synergy Between APMCs and National Spot Exchange Amit Mukherjee Senior Manager

2. INDEX • Government’s perspective - Excerpts From Economic Survey • Empirical data: Learning from past experience • Electronic Spot Exchange: National Spot Exchange Limited • A peep into our journey - Concept to Reality www.nationalspotexchange.com

3. A Perspective of Government Excerpts From Economic Survey www.nationalspotexchange.com

4. DEVELOPMENT OF ELECTRONIC SPOT EXCHANGES The Government has allowed the National Commodity Exchanges to set up three spot exchanges in the country, namely the National Spot Exchange Ltd. (NSEL), NCDEX spot Exchange Ltd. (NSPOT) and National Agriculture Produce Marketing Company of India Ltd. (NAPMC). During 2009, there was significant expansion of spot exchanges’ trading facilities in India. These spot exchanges have created an avenue for direct market linkage among farmers, processors, exporters and end users with a view to reducing the cost of intermediation and enhancing price realization by farmers. They will also provide the most efficient spot price inputs to the futures exchanges. The spot exchanges will encompass the entire spectrum of commodities across the country and will bring home the advantages of an electronic spot trading platform to all market participants in the agricultural and nonagricultural segments. On the agricultural side, the exchanges would enable farmers to trade seamlessly on the platform by providing real-time access to price information and a simplified delivery process, thereby ensuring the best possible price. On the buy side, all users of the commodities in the commodity value chain would have simultaneous access to the exchanges and be able to procure at the best possible price. Therefore the efficiency levels attained as a result of such seamless spot transactions would result in major benefits for both producers and consumers. These Spot Exchanges will also provide a platform for trading of Warehouse Receipts. -Economic Survey 2009-2010, Chapter 8, Section 106 www.nationalspotexchange.com

5. Economic Survey : 2009-10 Spot exchanges have created an avenue for direct market linkage among farmers, processors, exporters and end users with a view to reducing the cost of intermediation and enhancing price realization by farmers.) On the agricultural side, the exchanges would enable farmers to trade seamlessly on the platform by providing them real-time access to price information and a simplified delivery process, thereby ensuring them the best possible prices. So far, Maharashtra, Karnataka, Gujarat, Rajasthan, Orissa and Madhya Pradesh have given licenses to the spot exchanges to undertake electronic spot trading. The agricultural commodities traded on the spot exchange platform are cotton, castor seed, desi chana, guar seed, RM seed, wheat, barley, red arecanut, maize, yellow peas, urad, lemon tur, soyabean, Jeera, ground nut, sugar, moong and pepper. In the process, Farmers’ realization has increased by 4-5 per cent. Box 5.2 : Development of electronic spot exchanges

6. Some Quotes from Economic Survey : July 2009 Extend spot commodity trading in electronic form to agricultural markets by involving APMCs. Economic Survey 2008-09 (Chapter 2: Box 2.4: Financial Markets: Funds for dynamic entrepreneurs) • The Government of India had appointed a committee under the chairmanship of Prof. Abhijit Sen, Member, Planning Commission to study the impact of futures trading, if any, on agricultural commodity prices. The Committee was appointed on March 2, 2007 and submitted its report on April 29, 2008. • The main findings and recommendations of the committee are: • Negative sentiments have been created by the decision to delist futures trades in some important agricultural commodities; • The period during which futures trading has been in operation is too short to discriminate adequately between the effect of opening of futures markets, if any, and what might simply be the normal cyclical adjustments in prices; Cont….

7. Some Quotes from Economic Survey : July 2009 • Indian data analyzed does not show any clear evidence of either reduced or increased volatility; • The vibrant agriculture markets including derivatives markets are the frontline institutions to provide early signs of future prospects of the sector. • The committee recommended for upgradation of regulation by passing of the proposed amendment to FC(R) Act 1952 and removal of infirmities in the spot market. • - Economic Survey 2008-09: Chapter 7: Para 7.126: • There is a need to narrow the gap between producer prices and consumer prices through proper marketing support. The development of marketing infrastructure and storage and warehousing and cold chains and spot markets that are driven by modern technology will go a long way in addressing this need. • - Economic Survey 2008-09: Chapter 7: Para 7.130 www.nationalspotexchange.com

8. Empirical data Learning From past Experience www.nationalspotexchange.com

9. Impact analysis : NSEL prices higher than mandi price: case study: Castor Seed at Kadi, Gujarat www.nationalspotexchange.com

10. Impact analysis : NSEL prices higher than mandi price: case study: Castor Seed at Palanpur, Gujarat www.nationalspotexchange.com

11. Impact analysis : NSEL prices higher than mandi price: case study: Castor Seed at Patan, Gujarat www.nationalspotexchange.com

12. www.nationalspotexchange.com

13. Learning from one year of operation • Farmers’ realization has gone up • Mandi cess collection has gone up • VAT collection has gone up due to reporting of all transactions at initial stage • Some mandis, which were non operational, have become active when we started our operation in such mandis • We have received good support from mandi authorities in terms of : • Allottment of shops/ godown in the mandi • Awareness drive among farmers • We have received regulatory support from State Govts: • Rebate in market cess to the extent of 25 % of existing rate by Govt. of Maharashtra • Rebate of 30 % in market cess by Government of Karnataka www.nationalspotexchange.com

14. Proof of concept available NSEL operational at 56 locations in different states: Gujarat, Maharashtra, Karnataka, Rajasthan, MP, Bihar, Orissa But, its real impact will be visible across the nation, if its operation is scaled up to 1000s of locations This is possible through a structured synergy between APMCs and National Spot Exchange Model for Scaling up the operation www.nationalspotexchange.com

15. APMCs : In perspective • They have done a wonderful job in organizing trade for farm produce and providing marketing infrastructure to farmers • They were set-up to provide a platform, where a farmer can sell his marketable surplus to traders, who in turn will sell to retailers and end users located in the vicinity. • By design, market for agri produce was conceptualized as a localized market and so, the concept of market area, market yard, etc. came into being, while for VAT and other taxes, entire state was considered as a market place. • Hence, APMCs continued to be a localized haat or market place, while in the meantime, commodity markets became pan India as well as global. • Today Indian mangoes are being sold in UP shopping malls, commodities produced in one state frequently move to another state • Hence, APMCs also need to re-define their role so as to provide better price and marketing support to farmers. www.nationalspotexchange.com

16. Suggested model: Synergy between APMCs and National Spot Exchange • APMCs: • Ideal Model for Backward Integration: Connecting farmers to market • National Spot Exchange: • Ideal Model for Forward Integration: Connecting buyers located across the country through Electronic Terminal • Synergy between APMCs and National Spot Exchange: • APMCs may become members of National Spot Exchange • National Spot Exchange may set-up its trading terminals at APMC market yard • Farmers bringing produce to mandi yard will be able to observe price in local auction vis a vis price prevailing on National Spot Exchange terminal • Wherever prices are high, they will sell their produce there • NSEL may have its delivery center and payment counter at mandi yard itself, where farmer can deliver and get his payment, if he has sold on NSEL platform. • If a farmer wants to avail loan against pledge of warehouse receipt, NSEL will facilitate the same. • NSEL will collect mandi cess from buyers and pay to APMCs • Under this model, National Spot Exchange and APMCs will complement each other www.nationalspotexchange.com

17. NSEL : Way Forward E procurement : MSP reach is limited to specific states, In states like Bihar, Orissa, etc. farmers do not have access to government MSP procurement NSEL can conduct E Procurement in all these States NSEL did cotton procurement last year on behalf of Nafed worth Rs. 206 crores NSEL can do it in all states, where government procurement machinery does not exist today. When government agencies is ready with its infrastructure, we can withdraw www.nationalspotexchange.com

18. NSEL is conducting sale of Wheat by FCI under OMSS NSEL can provide reach of FCI to various locations FCI and other Government agencies can sell food grains/ coarse grains through NSEL at multiple locations in small lots. This will help in reducing price inflation and also extend reach of such auction, connecting the actual users directly NSEL: Way Forward www.nationalspotexchange.com

19. Advantages to the Farmers www.nationalspotexchange.com

20. Electronic Spot Exchange National Spot Exchange limited www.nationalspotexchange.com

21. About NSEL MISSION “To develop a pan India, institutionalized, electronic, transparent Common Indian Market offering compulsory delivery based spot contracts in various agricultural and non agricultural commodities, with a view to reduce the cost of intermediation by improving marketing efficiency and thereby improving producers’ realization coupled with reduction in consumer paid price.”

22. National Spot Exchange: An Introduction • A National level Electronic Transparent institutionalized spot market. • A market place where farmers can sell at best possible price and corporate, processors and end users can buy at the best possible and competitive rates. • Provides counter party guarantee in respect of all trades. • Provides services like quality certification, storage of goods and other customized value added services. • Provides facility of bank finance against commodity deposits www.nationalspotexchange.com

23. National Spot Exchange: Participants www.nationalspotexchange.com

24. National Spot Exchange: The Process www.nationalspotexchange.com

25. Some Clients of NSEL: Government Companies www.nationalspotexchange.com

26. A peep into our journey Concept to Reality www.nationalspotexchange.com

27. Significant Milestones • February 2005 : MoU signed between Nafed, Financial Technologies and MCX • May 2005: Incorporated on 18th May, 2005 • June 2007 : • Gazette Notification issued by the Government. • Ministry of Agriculture, Govt. of India recommended NSEL project • October 2007: Obtained license from Gujarat Government • November 2007: Signed MoU with Govt. of Rajasthan • November 2007 : Signed MoU with IL & FS for common service centers being set – up under National E Governance Project to be connected to NSEL project • January 2008 : Obtained license from Maharashtra Government • May 2008: Obtained license from Karnataka Government for setting up spot exchange in the State of Karnataka • June 2008: NSEL signed a Memorandum of Understanding with the Gujarat Agro-Industries Corporation Ltd (GAIC) to create a strategic alliance for development of agri-business and, providing an electronic market platform in the State. contd…

28. June 2008: NSEL starts its Membership drive July 2008: Commencement of Mock trading October 2008: Commencement of Live Trading on 15th October December 2008 : Nafed Board approves sale of cotton through NSEL and the contract was launched by NSEL as approved by Nafed Board to help exporters, mills and merchants across the country January 2009: Commenced cotton procurement in AP under PSS on behalf of Nafed July 2009: CCI follows the steps of Nafed and becomes member of NSEL to sell cotton bales on NSEL platform on the same terms Nov 2009: Government of Orissa granted license. Commencement of operation in Orissa December 2009: Signed agreement with Nafed for cotton procurement under PSS operation in Andhra Pradesh December 2009: Obtained license from Government of Rajasthan March 2010: FCI started using this platform for sale of wheat Significant Milestones

29. Signed MoU with: Government of Madhya Pradesh Government of Rajasthan Government of Maharashtra Government of Orissa IL&FS Obtained license from: Government of Maharashtra Government of Karnataka Government of Gujarat Government of Madhya Pradesh Government of Orissa Government of Rajasthan Live trading in 26 commodities in 12 states going on Current Status

30. NSEL by End of FY 2009-2010 • Total number of Members: 338 • Total Trading Terminals across the country: 1900 • Number of States currently operational: 11 • Total number of Commodities being traded: 25 • Total Number of commodities contract: 206 • Total number of Delivery location: 57 • Total deliveries handled during FY 09-10 year: Rs. 3045 crores. • At present, a number of Government companies are using our facilities. MMTC, PEC, CCI, FCI and Nafed are our members • Our plan is to scale up our operations to 1000 locations within next 3 years. www.nationalspotexchange.com

31. Commodities Launched www.nationalspotexchange.com

32. Commodities Launched Live trading in 25 commodities in 12 states www.nationalspotexchange.com

33. Thank You National Spot Exchange Limited , 102 A, Landmark, Suren Road, Chakala, Andheri (East), Mumbai - 400093. Tel: +91-22-67619900 Fax: +91-22-67619931, E-mail: info@nationalspotexchange.com