UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT

Transcription

1 UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT Expert Meeting on the Trade and Development Implications of Financial Services and Commodity Exchanges (Part I) Item 3: Trade and Development Implications of Commodity Exchanges 3 September 2007 "Development implications of commodity exchanges" by Mr. Lamon Rutten Joint Managing Director Multi Commodity Exchange of India (MCX) Ltd The views expressed are those of the author and do not necessarily reflect the views of the UNCTAD Secretariat, nor do they imply the expression of any opinion whatsoever on the part of the secretariat of UNCTAD concerning the legal status of any country, territory, city or area, or of its authorities or concerning the definition of its frontiers or boundaries.

2 Development implications of commodity exchanges Lamon Rutten Joint Managing Director UNCTAD Expert meeting on trade and development Implications of financial services and commodity exchanges Geneva, 3 September 2007

3 An introduction

4 Commodity exchanges: Inform Empower Mobilize Catalyze And this is true for all commodity eco-systems: agriculture, livestock, mining and metals, and the energy sector. Commodity exchanges provide their services in an equitable manner: they level the playing field between big and small, powerful and oppressed.

5 I. The power of information

6 Creating a vector for information flow With MCX, it is global farm mandi Futures trading prepares farmers for WTO regime Harvinder Khetal Tribune News Service Chandigarh, December 4 -- In the one year since it was established in November 2003, the Multi Commodity Exchange of India Ltd (MCX) has set the farmers on a revolutionary path of business by giving them an opportunity of hedging in the futures market.

7 As part of its CSR activities, MCX has a number of pilot projects, e.g. with India Post, TERI, MSSRF, meant to develop and demonstrate sustainable ways for getting markets to the farmer. Currently: - ways to effectively disseminate prices (now reaching over 3,300 mandis, and a growing number of other sites e.g., 100+ village resource centers, and within 3 months, 1,450 Akshaya centers) - ways to build aggregation mechanisms around ICT.

8 India : Commodity exchange offers trading benefits to cotton farmers Fibre2fashion.com, 19 Apr 2007 Multi Commodity Exchange of India (MCX), India's first multi-commodity, online exchange launched its operations in November It is now providing knowledge to small cotton farmers of Gujarat on trading benefits in futures and reducing business risk. These centres will provide latest commodity prices even to small farmers which in turn may help them to take right decisions. Improved price information is making an impact

9 A technology-savvy market solution can succeed where donor efforts have failed MCX has created its own, non-subsidized market information system, collecting spot prices from many dozens of markets three times a day and making them available to the whole of India almost instantaneously, through multiple means. Aid donors have wasted tens of millions of dollars to try and create such market information systems, without much success. Once subsidies stopped, programmes collapsed.

10 II. Empowering the masses

11 Empowerment comes through two effects of exchanges: greater choice; and stronger ability to optimize risk exposure We are moving from a world in which the big eat the small to one in which the fast eat the slow. Klaus Schwab Living at risk is jumping off the cliff and building your wings on the way down. Ray Bradbury

12 A new ecosystem empowers the poor to enter the mainstream of development

13 One example of the impact of the ecosystem approach We are enabling a new, bureaucracy-free form of agricultural finance: - Our collateral management firm, NBHC, has master agreements with a number of banks. - Under these agreements, when a farmer or trader deposits goods that meet MCX quality requirements, a loan can be provided automatically. - Our staff fills out the forms, and the next day the money will be at the bank. - We will soon start installing ATMs at our warehouses to make a visit to the bank completely unnecessary.

14 III. Mobilizing resources

15 One problem that we see in our operations in India. Indian agriculture (19th Century) Indian agriculture (21st Century)

16 Realizing our vision for agriculture The synergy of exchanges, warehouses and a modern information/communication system will make it possible to cross over into a new era for agriculture. exchanges Unresponsive and non-competitive agriculture warehouses communications Bridging the efficiency gap Flexible and profitable agriculture

17 Using technology, MCX and its parent company, FTIL, We have trading are bridging the rural-urban divide. stations in places where roads do not reach

18 Technology is stepping out of its elitist closet and shaking hands with the bricks-and-mortar infrastructure of the Indian countryside. It has the potential to touch and change the lives of at least 100 million Indians. Jignesh Shah, MD/CEO of MCX, and the driving force behind the FTIL Group

19 Electronic exchanges a vector for agricultural growth and development Electronic exchanges bring efficiency, and create a national/global integrated market. Without a focused effort to empower farmers, the benefits of better organized supply chains will largely bypass them. Electronic marketing and risk management will make rural ICT initiatives financially sustainable. the farmer of the future would probably begin his day by connecting to the Net Hindu Business Line, 24 March 2004

20 One example the potato sector (Economic Times, 16 November 2006) Cold-storages join party as retailers cook potato futures POTATOES are getting off the couch and into the thick of action. Large veggie retailers Reliance Fresh and Pantaloon have begun buying potato futures on MCX to get delivery of high-quality spuds certified by the exchange. With volumes in potato futures increasing rapidly, cold-storage owners appear delighted with this unique business model. Futures trading in Agra potatoes has become a winner for MCX, vegetable retailers and traders alike, with almost 40,000 tonnes traded daily. Reliance and Pantaloon have begun buying from our platform. They get two advantages by buying futures: One, they can be completely confident of the potato quality when they take delivery at Agra or Tarkeshwar; two, they save on commission paid to traders and middle men, said Sanjit Prasad, vice-president of business development at MCX. As the quality of its delivered potatoes is the crux of MCX s branding exercise, the exchange is taking no chances. All selected warehouses will be fitted with a meter to constantly monitor temperature and moisture. The meter will be connected through a radio antenna with MCX s servers in Mumbai. As a result, the minute any meter records a drop in ambient conditions, alarm bells are expected to ring fast for speedy remedial action.

21 IV. The commodity exchange as a catalyst

22 The exchange as a change agent In the three years of its existence, MCX has grown to a 2.5 billion dollar a day turnover with a direct presence in 800 cities and towns in India, and an indirect presence (through its brokers) in hundreds more. Although still new, its impact has been felt: - Many physical markets now only start once MCX starts trading, as everyone wishes to know current market conditions - Many farmers stop selling when they see that futures prices are too much above the prices that traders offer them - Farmers are now demanding the quality of seeds that allow them to produce goods of a quality that can be delivered to MCX - Farmers are making planting decisions on the basis of MCX prices.

23 The exchange as a change agent (2) - As a result, new money has started flowing to rural areas, and a few hundred thousand jobs have been created directly, through the 20,000 trading terminals (plus many Internet terminals) connected to MCX, and indirectly, through mobile-connected sub-brokers and many support staff. - City-based financial investors are now going out and are buying on the countryside (and investing in storage) when traders offer prices that are too low. - New investments are being made in modern storage, grading and other logistic supports. - Banks are coming in, providing new forms of crop finance. Farmers are empowered through better information, higher competition among buyers, and more flexibility.

24 the ultimate scope can be huge (and all this is in our projections) Agro practices & diseases Agriculture price & arrivals All are E-Networked Crop insurance Warehousing & Quality Certifying information Agro inputs Demand, supply, crop forecast & news Weather advisory Markets, credit facilities Markets & Seasons Procurement Information Rural employment & government schemes

25 Conclusion Be the change you wish to see in the world. Mahatma Gandhi

26 Revolutionizing the commodity sector An electronic commodity exchange like MCX is an incarnation of the modern economy, with technology seamlessly integrated in business operations. This technology is a vector for change. The possibilities offered on and by the exchange create incentives for people to invest, and open up new opportunities. By its very nature, a commodity exchange will help to make growth inclusive: it will act as a catalyst for bringing the new to the old world. Even small farmers can become part of the national and global market place, for inputs, credit and outputs. This model can work in many other countries. Governments and international agencies should thus consider how they can use commodity exchanges to leverage their own programmes.

27 The world we have created is a product of our thinking; it cannot be changed without changing our thinking. Albert Einstein Thank You Lamon Rutten Joint Managing Director Lamon.Rutten@mcxindia.com