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Agricultural commodities in Bangladesh seldom receive fair prices in the market. The producers have to sell their produce to the middlemen at lower price. Currently, in view of high production costs, the producers are noticeably changing their line of thinking in order to stay afloat. Actually, the existing market mechanism does not work in favor of producers. Moreover, intervention of middle man is one of the key obstacles to ensuring fair prices of produce. This is a common scenario that at the time of harvest, prices of paddy and potato fall drastically in Bangladesh. In what way the farmers’ interest has to be made sure during a price fall situation. With a view to address the long-lasting problems of the producers, the government is thinking of establishing a commodity exchange market. This kind of market helps the producers get fair prices of produce and favors the consumers as well.
The commodity exchange market concept is not new in the world. Some Asian nations like India, Pakistan, and Nepal introduced the commodity exchange market for greater interest of producers and consumers. Such markets are in operation in some African countries. A commodity exchange is a market in which multiple buyers and sellers trade commodity-linked contracts on the basis of rules and procedures laid down by the exchange. It typically acts as a platform for trade in futures contracts or for standardized contracts for future delivery. Experts say that around 40 per cent of agriculture products get damaged from the production stage to market level in Bangladesh.
Based on futures contract held between buyers and sellers, exchange of commodity would be executed. A futures contract is a legal agreement to buy or sell a particular commodity asset, or security at a predetermined price at a specified time in the future. There are four types of futures contracts - Commodity futures, Currency futures, Interest rate futures, and Stock and Stock market index futures. Commodity exchange in Bangladesh under commodity futures would be given on priority basis where exchange of metal, fuel, soft (agricultural) commodities would be taken place. The commodities trading are conducted in mainly two kinds of markets: the spot market and the derivatives market internationally. The thinking for feasibility study for introducing commodity exchange market came during caretaker government in a meeting held on 16 April 2007. After a long gap of 13-year, the step was recently taken.
Considering the current situation, commodity exchange market in Bangladesh should include more agricultural commodities. Evidences abound to suggest that agricultural products never make prediction about future prices. It is important to note that the developed nations emphasize on farm commodities in commodity exchange market. Around fifty years ago, Bangladesh economy was heavily dependent on agriculture sector. Even now, the sector puts contribution on GDP around 15 per cent where close to 50 per cent of total labour force is employed. But, the pace of development in farm sector in the last couple of decades is not satisfactory compared to other sectors. High production cost, presence of middlemen, failure to get reasonable prices are among the primary causes behind the slow pace. According to a newspaper report, for the past three decades the average growth of the agriculture sector has hovered around 3.2 per cent—as compared to manufacturing 7.5 per cent and the services sector 6.2 per cent. For the past two decades, overall average employment in agriculture remained at around 70 percent—as compared to manufacturing 12.4 per cent and services 23.5 per cent. The average share of agriculture as a proportion of GDP growth for the past decade ranged from 17.5 per cent (2009) to 12.68 per cent in 2019. The daily also reported that in comparison, the share of the manufacturing sector steadily rose from 25.3 per cent in 2009 to 29.65 per cent in 2019, while the share of the services sector remained almost constant-53.2 per cent in 2009 and 58.8 per cent in 2019.
The decision for the floating commodity exchange market in Bangladesh has been taken following trading done by Bangladesh in international markets. The volume of international trade stands about $ 95 billion. In order to facilitate international trade, the commodity exchange concept is a wise decision. Neighboring country India launched commodity exchange in 2003. Multi Commodity Exchange of India Limited (MCX) is India’s premier commodity exchange where the commodities such as gold, silver, crude oil, natural gas, copper, aluminium, lead, zinc, nickel, brass, cotton, crude palm oil had been included. Pakistan Mercantile Exchange (PME) started operations with three-month gold futures contracts in 2007. Rice, sugar, wheat, crude oils, and cotton yarn had been selected for exchange of commodities in PME house. South Asian land locked country, Nepal began commodity exchange operation in 2009 through the Mercantile Exchange Nepal Ltd (MEX). The products that are traded in MEX house are crops, food grains, vegetables, spices, walnut seed, metals and bullion.
The first trading through commodity exchange operation was observed in Amsterdam of Netherlands in 1530; later the market was redesigned in 1608. The United States of America (USA) kicked off commodity exchange market in 1864 with commodities - wheat, corn and cattle. The Chicago Broad of Trade (CBOT) is the oldest commodity exchange in the world. The CBOT is originally center in agricultural commodities trading such as wheat, corn and soybean.
In order to address LDC graduation challenges, boosting agriculture sector, industry sector and service sector is indispensable. Market imperfection, that exists now, is highly likely to disappear through the launching of commodity exchange market. Commencing of commodity exchange market in Bangladesh is timely step considering frequent price fluctuation. As some Asian nations have already gained the ability to show better performance, Bangladesh had better launch commodity exchange market soon. Even though, commodity exchange market is on operation in some African nations- Ethiopia, Kenya, Ghana. Agriculture-based commodities should be listed at the time of debut the market. Agro-based commodity exchange market in Bangladesh surely protects the producers from price fall and buyers from price hikes. Improved infrastructure, skilled manpower, adequate capital are essential for floating the maiden commodity exchange market in Bangladesh.
The writer is an economic affairs analyst. He can be contacted at [email protected]
