Summary, Conclusion, and Policy Recommendations

This chapter presents the summary, conclusions, and policy recommendations. Futures market efficiency needs to be interpreted succinctly considering a few instrumental factors, viz. liquidity, heterogeneity in participation, delivery logic of the contract, among others. To this end, the regulator needs to strengthen the settlement and delivery processes of the contract that might curb in speculative behavior of agents. This would benefit the growers and sustain a healthy trade environment. For a desired impact of the price dissemination project, theoretically, futures market a priori needs to be efficient to make the price dissemination faster than the spot. This can improve the functioning of underlying spot market by impounding available information and reflecting an economic value of the commodity. However, information access is a costly affair to farmers that entails a robust market microstructure to improve a seamless interaction between the futures and spot. Thus, the futures market may rationalize its existence on account of a legitimate price expectation for growers. Dissemination of real-time futures and spot price information is very important—through installation of a greater number of electronic price-ticker boards under the price dissemination project of the Commission/competent authorities. Commodity exchanges can make producers aware of the utility of exchange-traded products. Mandi modernization program needs to be implemented or scaled up for integrating both regulated spot and futures markets. To this end, setting up of a national-level common/unified agricultural market coupled with speedy implementation of price dissemination project might reduce information asymmetry across the primary and secondary markets. Exchanges need to redesign contract specifications of forward/futures instrument with respect to position limit, contract/lot size, delivery order, price band, price limit, tick size, basis variety, and basis center, margining and delivery schedule along with single/multi-product hedge contract design to enhance the degree of participation. Artificial hoarding and off-market trades sometimes defeat the very purpose of the trading in commodities. A prudent regulatory architecture may, therefore, introduce necessary amendments to the code of conduct of exchanges and brokers and curb in the speculative intent of market agents. Support of the government including of Food/Civil Supplies Corporations, State Agricultural Marketing Boards, and Small Farmers’ Agribusiness Consortium is important to promote pro-growers programs on how to market their produce and optimize their risk–return metrics. Market infrastructure institutions, such as warehousing and collateral management agencies, can promote pledge-/commodity-based financing against the negotiable warehouse receipt issued against stored commodities. Exchange regulation and surveillance can be an area of concern for the regulator to accommodate a larger section of producers or commercial users of commodities in the trade. Exchanges need to adopt good governance practices to strengthen their operations and formalize performance goals in alignment with their mission and vision.