London, 1 August 2011

Apex industry body ASSOCHAM has urged the government to direct FMC and NCDEX to curb excessive speculation on agricultural commodity prices in commodity exchanges fuelling the food inflation.

Black pepper prices have risen by a whopping 33 per cent from Rs 22,980 to Rs 30,500 during March-July without much local and international demand except artificial future demand created by speculators and trader cartels on NCDEX, said a report released by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

In a communication to minister of state for consumer affairs K.V. Thomas, ASSOCHAM called for an appropriate and stern action against such cartels in the interest of original traders, farmers and the common man.

“Large investors are indulging in misuse of narrow commodity contracts as rules and regulations at present are not strict enough to stop such malpractices,” said Mr D.S. Rawat, secretary general of ASSOCHAM.

An extreme price volatility and price hike in commodities like channa, guargum, guarseed, dhaniya has been witnessed during May-July as depicted in the table given below:

Source: ASSOCHAM

Future contract for black pepper have never been in negative in the history of NCDEX but have been closing at a negative badla of minus one per cent and above since February, said the report.

“Black pepper trade must be monitored closely to keep prices in moderate range and check food inflation.”

Hoarders and speculators get attracted to commodities as they are believed to move in an opposite direction to equity market thereby providing a hedge against inflation.

“Resultantly, original traders are not able to hedge their risk, farmers are not getting benefits of price rise while, manipulators make merry,” said the report.

Speculative activities are a primary source of volatility in commodity prices and controlling these activities through regulations would bring more stability to the commodity market.

Futures trading in food items distort price signals and encourage speculation and hoarding, thereby contributing to food inflation. ASSOCHAM has suggested the central government to co-ordinate with state governments while taking measures against hoarding and black-marketing.

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