The Hindu Business Line : Dispense with futures trading in rubber: CRMA

Kochi, Aug. 27 The Cochin Rubber Merchants’ Association (CRMA) has said the Forward Markets Commission (FMC), being a regulatory body, should ensure smooth and transparent trading activity in the exchanges and should not in any way act as a propagator of speculative trading activities.

Reacting to a statement in a section of the local media attributing to the FMC Chairman, Mr B.C. Khatua, that the ignorance of the antagonists of futures trading in rubber as the main reason to the opposition to its continuance, Mr N. Radhakrishnan, President of CRMA, said the trading sector did not appreciate it.

In a letter to the FMC Chairman, he said: “We are afraid that your refusal to divulge details of the entire trading activities held in the exchanges will deprive the public of their right of information in the matter”. In order to protect the interest of speculators and their trading activities in the absence of required number of hedgers, your suggestion to conceal the full activities in the trading platform will act against the interest of the stakeholders in rubber.

Presenting the views of the association, one among many advocating for a ban on futures trading in rubber, Mr Radhakrishnan said the main objective of the commodity trading was to help the farmers get maximum price for their produce through the price discovery mechanism purported to be available at the commodity exchanges. The protection of the interest of the consumer and exporter was only secondary in nature, he said.

Tested system

He said that a time tested system, which helped the rubber farmers to market their produce to industries across the country through the network of more than 9,000 dealers, was working satisfactorily for over six decades when the rubber futures was suddenly thrust upon the stakeholders without much consultation by the FMC.

The growers suffered extensively as one exchange dominated the trade in the beginning with the active assistance of a handful of rich and influential traders. Their interaction with spot traders became difficult due to the volatility created in the daily prices by the speculative forces in futures exchanges. Thousands of small speculators lost heavily as they could not compete and resist the onslaught of the few speculative traders. The exchanges which came later into rubber futures could not break much business due to reasons known to them, he said.

The growers, he said, used to get higher average prices in the country each year for several decades compared to the international prices till the introduction of futures trading in rubber in 2003. Futures became active in the latter part of 2004 only. In the subsequent years, the average yearly Indian prices fell below international prices. The loss suffered by growers on this account is over Rs 1,000 crore in the past two years.

The rubber prices which touched its nadir at Rs 25 a kg in 2001 due to heavy carry over stocks, went up in the subsequent years due to the timely intervention of the Central and state governments which announced incentives for exports and imposed import restrictions. Increase in international prices which reached up to Rs 130 a kg in 2006 helped prices to climb up to Rs 115. Hence, this hike had nothing to do with the operation of futures market in India as propagated by protagonists of futures trading in rubber, he alleged.

The daily spot traders who interacted with growers and consumers lost heavily due to the uncertainty created in futures market by a few speculative traders. On the other hand, the prices were brought up artificially during the peak supply season and brought down during lean supply season against economic ethics, he said.

According to him not even 1,000 among the one million small and marginal growers are participating in this system. Among the small and medium scale industrial units numbering over 4,500 not even 20 industries are in the fray. Out of 9,000 daily physical traders less than 200 are active in the futures market.

Strong impact

He said that India produced 8,52,895 tonnes of rubber in 2006-07 of which RSS 4 consisted of approximately 4,25,000 tonnes. Out of the 20 grades marketed, only RSS4 grade is traded in the futures exchanges. Yet, its impact is so strong that the fate of other grades got more or less influenced by the price of the RSS4 grade. Around 85 per cent rubber is produced by small and marginal farmers who own less than two hectare and majority of them produce mostly lower grade sheets.

The volatility of prices created in futures market is instantly felt in their produce as the yardstick of market prices depend on RSS 4 grade. Moreover, inferior grades of sheet rubber are consumed by tiny and small scale industries and they also suffer due to the volatility created in futures market, he said.

Rubber is a produce the movement of which is controlled by Rubber Board. The production and consumption of it remain almost at tandem and are also estimated well in advance by the noard. As per the norms fixed by the Kabra Committee, a produce like rubber should not have appeared in the list of commodities for futures trading, he said.

Judging by the association’s past experience, Mr Radhakrishnan said “we are of the firm opinion that stringent measures will not in any way help to contain the volatility in prices and, therefore, we plead for dispensing with futures trade in natural rubber”.

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