Abstract:
In order to make the plantation sector vibrant and to sustain its
past glory, and also to safeguard the welfare of the various market
participants, the Government of India has come up with various
interventions. Futures market is one of the interventions by the
government with the objective of delivering two key economic functions
namely better price discovery and price risk management. However, the
impact of futures trading on the prices realised by the growers in general
and its bearing on growing price instability in particular, is yet to receive
the attention of scholars. Beyond domestic fundamentals (supply and
demand conditions) a host of other variables do influence the price
level and the change therein (instability). These include global demand
and supply, exchange rates, food price inflation and WTO commitments
and others. This paper attempts to compare the price trends in the
plantation crops before and after the commencement of futures trading
at national level during 2003-04. The performance of these crops (pepper,
cardamom, coffee, rubber) Vs non exchange traded commodity like tea
has also been compared using statistical and econometric tools.
Findings of the study indicates that in case of exchange traded
plantation crops, except natural rubber, the observed price instability
and volatility were higher before commencement of futures as compared
to the period since futures trading was introduced. In case of nonexchange
traded commodity (tea), the level of price volatility was much
lower as compared to other crops. The impact of futures markets by way
of price discovery and price risk management made the spot prices of
these commodities to realign their path to have a co-movement. Some
policy suggestions have been made for the welfare of the plantation
sector to revive its pride.
