India Resumes Sugar Futures Trading

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Jan. 4 – The Indian government decided to lift the ban against sugar futures trading on December 27 as a result of a bumper cane crop during the year. The policy change comes at a time when prices of some commodities such as onions and other vegetables have surged in the country.

A Bloomberg report on December 28 pointed out that it might be time for the Indian government to realize that stopping futures trading on agricultural commodities may not be working effectively enough to contain local prices.

The Indian government started to forbid sugar futures trading in May 2009. However, during the eight months in the wake of the ban, sugar prices grew by 75 percent, reaching a record high in January 2010.

Since commodity futures trading began in India in 2003, many politicians have been asking for bans against it to prevent speculators from pushing the prices up. The move to impose bans is also becoming a sign that the government is determined to curb rising prices.

However, a 2008 report released by a government-appointed panel reveals no statistical evidence that agricultural commodity futures are responsible for the climbing prices. Related data even show that in recent years, commodity prices usually did not drop after the government prohibited commodity futures trading.

In addition to sugar, India also halted futures trading in wheat, rice and two kinds of lentils in early 2007. The trading was not restored until 2009. The two kinds of lentils – pigeon peas and black matpe beans – saw their prices almost double while the ban was in practice, since the local production failed to meet the rising amount of consumption.

The government bans on commodity futures trading significantly impacted the trade value of the National Commodity & Derivatives Exchange, India’s largest agriculture commodity futures bourse. The daily trade value dropped to between Rs. 40 billion and Rs. 45 billion in 2007 from Rs. 65 billion to Rs. 70 billion in 2006, among which the daily trade value of sugar used to take up Rs. 1 billion to Rs. 3 billion.

Jayant Manglik, president of Religare Commodities, believes that the supply and demand situation in the real market – instead of what is happening on a commodity exchange – is the major factor leading to price variation, so he does not see any reason why the government cannot resume the banned trading on other commodities.