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ADVANTAGES OF

COMMODITY FUTURES TRADING THROUGH


ELECTRONIC TRADING PLATFORM
FOR FARMERS OF UTTAR PRADESH

A Study of Potato and Mentha


The original final report of consulting assignment Submitted to

MULTI COMMODITY EXCHANGE OF INDIA LIMITED,


MUMBAI

FEBRUARY 2007

Consultant
K.G. Sahadevan, Ph.D Professor of Economics Indian Institute of Management
Prabandh Nagar, Off Sitapur Road Lucknow 226 013 E-mail: devan@iiml.ac.in

Acknowledgement

Executive Summary

Chapter 1 Introduction and Objectives


1.1. Introduction

1.2. Objectives of the Study

1.3. Scope of the Study

1.4. Methodology

1.4.1. Primary Data

10

1.4.2. Selection of Area

10

1.4.3. Selection of Sample

10

1.4.4. Secondary Data

11

1.5. Organization of the Report

12

Chapter 2 The Market Profile of Mentha and Potato


2.1. Introduction

13

2.2. The Profile of Potato Market

13

2.2.1. World Production of Potato

14

2.2.2. Significance of Potato in the Indian Economy

15

2.2.3. Significance of Potato in the UP Economy

18

2.2.4. Production Forecasts

23

2.2.5. Demand for Potato

23

2.3. The Profile of Mentha Oil Market

24

2.4. Conclusion

27

Chapter 3 The Supply Chain and Market Structure


3.1. Introduction

29

3.2. Potato Marketing Practices

30

3.2.1. The Risk-return Profile

30

3.2.2. The Supply Chain

31

3.2.3. Cold Storages

31

3.2.4. Potato Futures Markets

34

3.3. Mentha Oil Marketing Practices

35

3.3.1 The Risk-return Profile

35

3.3.2. The Supply Chain

36

3.3.3. Mentha Oil Futures

37

3.4. Constraints on Growth of Potato and Menth Oil Futures

38

3.5. Subjective Influences on Decision to Trade

41

3.6. Conclusion

45

Supply Chain and Futures Trading A study of Potato and Mentha

Chapter 4 On-line Trading in Mentha Oil and Potato Advantages to Farmers


4.1. Introduction

49

4.2. On-line Trading and its Advantages

49

4.3. Benefits of and the Need for Potato and Mentha Oil Futures

51

4.3.1. Price Instability

51

4.3.2. The Problem of Storage

53

4.3.3. Benefits of Potato and Mentha oil Futures to Farmers

55

4.4. Necessary Environment for Sound use of Futures

57

4.4.1. How to Involve Farmers in Futures Markets?

58

4.4.2. How to Ensure Credit to Farmers Through Warehouse Receipt

60

System?

4.4.3. Enhancing Market Access through Exchange Traded Warehouse

61

Receipts

4.5. Conclusion

62

Chapter 5 Conclusions and Policy Implications


5.1. Potentials of Mentha oil and Potato for Futures Trading

66

5.2. How Futures Benefit Farmers and Markets?

67

5.3. How to Strengthen Futures in Mentha oil and Potato?

68

5.4. Implications for Institutional Capacity Building

69

References

70

Appendix 1

71

Appendix 2

76

Appendix 3

77

Appendix 4

79

Supply Chain and Futures Trading A study of Potato and Mentha

ACKNOWLEDGEMENT
The study has benefited from the support extended by many officials of the Department of
Horticulture, Government of Uttar Pradesh without which it would not have been possible to
carry out the sample survey. I wish to acknowledge specifically for the timely help received
from Dr. S. P. Singh, Director; Dr. S. P. Joshi, Dy. Director (Statistics) and Mr. K. K. Maurya,
Potato Development Officer (PDO) at the Directorate of Horticulture, Lucknow; Mr. J.K.
Gupta, District Horticulture Officer (DHO) and Mr. H.R. Sahu, District Horticulture Inspector
(DHI), Lucknow; Mr. M. K. Khan, DHO and Mr. C. P. Awasthi, DHI, Barabanki; Mr. Motilal
Anuragi, PDO and Mr. Ram Nath Rajput, DHI, Farrukhabad; Mr. Lakhi Singh, Deputy
Director, District Horticulture Office, Moradabad and Mr. Jaikaran Singh, Superintendent,
District Horticulture Office, Rampur.
The study has also benefited from a series of discussions that I had with Dr. Chiragra
Chakrabarty, Head Training, Research and Development, Multi Commodity Exchange
of India (MCX) Ltd., Mumbai. I gratefully acknowledge Mr. Joseph Massey, DMD, MCX
Ltd., Dr. Chiragra Chakrabarty and Dr. Shanmugham, Chief Economist, MCX Ltd., for their
highly insightful and valuable comments on earlier versions of this report.
My special thanks are due to Dr. Ashok Kumar Singh, Project Assistant, for his excellent
support during the course of this study.
K.G. Sahadevan

Supply Chain and Futures Trading A study of Potato and Mentha

EXECUTIVE SUMMARY
The present study has four-fold objectives that concern the agricultural economy of Uttar Pradesh
(UP) particularly potato and mentha farming sectors. First, it examines the physical market and
supply chain of potato and mentha in UP. Secondly, it evaluates the benefits of futures in terms
of mitigating the market risk of various players in the entire supply chain and of improving price
realization. Thirdly, it analyses the potentials of potato and mentha as candidates for introducing
futures. Finally, it examines the advantages of on-line trading in terms of reach, access, transparency,
and price discovery.
Chapter 1 of the report deals with methodology of the study. The analysis and the conclusions drawn
are mainly based on the data and observations obtained through administering a schedule on a set
of samples. The field study which helped understand the market dynamics has two-fold objectives
viz., to understand the supply chain and marketing practices of potato and mentha farmers and
secondly to capture the subjective influences and perceptions about futures markets. The study
has chosen three districts each for potato and mentha. They are Farrukhabad, Moradabad and
Lucknow for potato and Moradabad, Rampur and Barabanki for mentha. The study has also utilized
published data of various governmental and private sector agencies.
Chapter 2 of the report profiles the agricultural economy of UP with particular reference to potato
and mentha and their supply conditions including cropping season, pattern, area under cultivation
and productivity, and their variety. Potato and mentha are economically significant not only for their
contribution to the livelihood of thousands of farmers and for their dominance in the agricultural
consumption basket of households but also for their growing linkages to fast growing potato
processing industry and highly diversified industrial use of mentha oil for confectionary, cosmetics
and pharma sectors. These characteristics make them very high potential candidates for futures
trading.
Chapter 3 deals with three important issues. First, it seeks to investigate the market structure, supply
chain and marketing practices in potato and mentha oil. Secondly, it tries to evaluate the utility of
futures to various constituents in the entire supply chain. Finally, it presents the survey results
on identifying the subjective influences on the decision of spot market players to take positions
in futures markets. Due to lack of an integrated and regulated system for marketing agricultural
produce, farmers are disadvantaged by very poor price realization. The existing marketing channel
is not capable enough to take care of smooth and economical transfer of potato and mentha oil to
the final consumer. Among the intermediaries linking the farmer to the consumer, cold storages are
crucial to farmers in the supply chain of potato. The storage capacity is not enough to absorb the
entire production in UP. The price risk in storage poses serious risks to storage owner as well and
the solvency of storage houses. In view of this, futures contracts in potato through its efficient risk
transfer can be a potential avenue to the storage houses for mitigating the market risk.


Supply Chain and Futures Trading A study of Potato and Mentha

The sample survey conducted on potato and mentha farmers, and cold storages recorded the
awareness about futures, user status, the reason for not using futures and perception about
futures. The farmers responses indicate that certain subjective factors have deeply influenced
their decisions to use futures. The formation of negative attitudes among them and the inadequate
initiatives of the market authorities and regulators to change many of the unhealthy prejudices and
negative perceptions about futures trading have limited the penetration of the markets. The prevailing
market environment therefore poses serious threat to the services offered by the exchange while
opportunities are abound due to enormous size of the market that remain unexplored. This calls for
a proactive approach in alleviating all misconceptions and improving attitudes of the existing and
potential customers.
It is observed that the prevailing imperfections in the supply chain of potato and mentha oil and
consequent price disadvantage to the respective farming community make futures markets more
relevant and beneficial to them. The analysis of the spot market price trends of potato and mentha
oil after the launch of futures in them shows that there was substantial improvement in these prices.
This advantage is very clearly visible in mentha oil market in three counts especially after the launch
of futures trading; (a) the spot market prices of mentha oil have strengthened, (b) the area under
mentha cultivation and its production have shown substantial increase and (c) the average export
price of mentha oil has recorded substantial increase. Yet another issue examined in the present
study is the potato and mentha farmers access to futures markets. The study has emphasized on
the role of commodity pool investors (aggregators) as a feasible remedy. Experiences of many
countries show that farmers associations, marketing agencies and co-operatives could be potential
aggregators in farm sector. This however requires initiative of the government, regulator and
exchanges towards establishing pool operators in commodity futures markets.
Chapter 4 has thrown some lights on the potential role that cold storages in potato markets, and
dealers and commercial distilleries in mentha oil markets can play in this regard. The final chapter
of the report presents the summary of conclusions of the study and their policy implications. The
government, the regulator and exchanges have a role in transforming futures market to more
participative and broad based. The most important step in this direction would be the establishment
of aggregators who can operate as pool operators in futures markets. Farmers associations, cooperatives and national and state level marketing federations can assume the role of aggregators.
Moreover, in view of the prevailing misconceptions and lack of awareness about futures markets,
there is need for a comprehensive awareness raising and training programmes. There are ways to
improve the supply chain which in turn help farmers realize better prices. Farmers organizations
in addition to improving the supply chain can also ensure indirect participation of small farmers in
futures markets. More importantly, development of a formal financing system in agriculture through
crop collateral will go a long way in ensuring a fair deal to small farmers in the market. This calls for
building necessary institutional capacity for warehouses, credible collateral management system
and institutional credit flow in agriculture. Commodity exchanges have a crucial role to play in
developing a sound warehousing and collateral financing system.
Supply Chain and Futures Trading A study of Potato and Mentha

CHAPTER 1

INTRODUCTION AND OBJECTIVES

1.1. Introduction
Instability of commodity prices has always been a major concern of the producers, processors,
merchandisers as well as the consumers in an agriculture-dominated country like India. Farmers
direct exposure to price fluctuations, for instance, makes it too risky for them to invest in otherwise
profitable activities. There are various ways to cope with this problem. Apart from increasing the
stability of the market by direct government intervention, various actors in the farm sector can better
manage their activities in an environment of unstable prices through derivatives markets mainly
futures and options on futures. These markets serve a risk-shifting function, and can be used to
lock-in prices in advance instead of relying on uncertain price developments in future. Apart from
being a vehicle for risk transfer among hedgers and from hedgers to speculators, these markets
also play a major role in price discovery.
Futures markets have played a vital role in the development of agricultural sector in many countries
in the world. The US, the UK, and even some of the developing countries in Africa especially Kenya
and Zambia and Asian countries like Philippines, Malaysia have benefited from futures markets.
Most of these countries have utilized agricultural commodity futures for reducing direct government
subsidy to farmers. The Chicago Mercantile Exchange (CME); Chicago Board of Trade (CBOT);
NewYork Mercantile Exchange (NYMEX); International Petroleum Exchange (IPE), London; London
Metal Exchange (LME); Euronext London International Financial Futures Exchange (LIFFE); Tokyo
Commodity Exchange (TOCOM); Central Japan Commodity Exchange (C-COM); Sidney Futures
Exchange; Singapore Exchange (SGX); Bursa Malaysia Derivatives; Bolsa de Mercadorias &


Supply Chain and Futures Trading A study of Potato and Mentha

Futuros (in Brazil), the Buenos Aires Grain Exchange, etc are some of the leading commodity
exchanges in the world engaged in futures trading.
Even in China as part of liberalization of internal market many exchanges were set up for promoting
futures trading in many commodities and most of them like Shanghai Futures Exchange; Zhengzhou
Commodity Exchange, Dalian Commodity Exchange, etc. have witnessed tremendous growth
during the last five years.
Commodity futures markets offer certain economic benefits. First, futures trading is a very efficient
means of determining the future price level for a commodity. The price discovery is the best and the
consensus market forecast of future prices of commodities traded in the market as there are many
potential buyers and sellers competing freely. There are innumerable small and large numbers of
producers of commodities across the world competing in world or in national markets. These widely
dispersed producers find it difficult to know what prices are available. Moreover, the opportunity for
farmer, processor, trader and consumer to ascertain their likely cost and develop long range plans
is limited. Therefore, the price discovery is of crucial importance to farmers as it helps them predict
their earnings and plan their future investments accordingly. It also enables consumers, traders and
processors to get very highly reliable future price information which help them in quoting a realistic
price and execute their buy and sell contracts. Thus the price discovery essentially provides
all segments in the society with a guide to what various commodities are worth now as well as
todays best estimate for the future. Therefore, the price discovery has the potential to minimize
uncertainties with regard to future prices in commodity markets.
Secondly, futures contracts are used for price risk management. Commodity futures markets offer
farmers, commodity dealers, processors, and consumers a means of passing the price risks inherent
in their businesses to traders who are willing to assume these risks. In other words, commercial
users of the markets can hedge, which is to enter into an equal and opposite transaction in order
to reduce the risk of financial loss due to a change in price and, by doing so, lower their costs of
doing business. This results in a more efficient marketing system and, ultimately, lower costs for
consumers.
Finally, there are certain indirect benefits of futures markets. Since futures markets are national
on-line markets offering continuous auction of contracts it automatically ensure an integrated price
structure throughout the country and also ensure balance in supply and demand position throughout
the year. Moreover, they act as focal point for the collection and dissemination of price statistics and
other vital market information which provide valuable signals to all players in the markets.
Multilateral agencies like World Bank and UNCTAD have been taking initiatives for building
capacities in many countries to develop a market driven price and income support system through
futures markets. India being an agricultural dominated economy futures markets have significant
Supply Chain and Futures Trading A study of Potato and Mentha

relevance and can play a supporting role. However, enough attention has not been paid to this
segment. The market is in very nascent stage. However, India has not utilized the benefits of futures
in significant scale yet in many commodity segments. The government is still relying heavily on
explicit and implicit subsidies to farm sector. The subsidy has become unsustainable in view of
its wider fiscal implications. The Ministry of Consumer Affairs, Food and Public Distribution, and
Forward Markets Commission have been envisaging far reaching reforms in commodity futures
markets in India.
Government has initiated the process of deregulation of domestic trade in commodities in 1997
by lifting prohibition of futures trade in a large number of commodities and facilitating setting up of
national multi-commodity exchanges. Subsequently, the government has abolished prohibition of
forward trading on all the remaining banned commodities in April 2003. These two initiatives have
triggered massive growth of futures markets in India. By the end of 2003, three on-line corporatised
multi-commodity futures exchanges became operational. Currently there are 24 exchanges in India
with derivative contracts on more than 120 commodities available for trade. The aggregate turnover
of all the exchanges has shot up from Rs. 28419 crore in 1998-99 to Rs. 129364 crore in 2003-04
and further to Rs. 571760 crore in 2004-05 (Forward Markets Commission, 2005). The total value
of trade during 2005-06 has crossed Rs. 1000000 crore. Simultaneously, both market participation
and trading practices underwent revolutionary changes. The new generation exchanges brought in
technology and worlds best trading systems and practices which helped them garner more than
90 per cent of the total volume in less than two years. The traditional and localized commodity
exchanges, in spite of some of them introducing on-line trading, are struggling to retain their
supremacy in their specific commodity domain. The international pepper exchange located in Kochi
which has the reputation of being the only pepper futures exchange in the world has already lost
substantial portion of their business to the new multi-commodity exchanges. The writing on the wall
is clear to other localized exchanges as well. Indications are that many of them may eventually give
way to the on-line multi-commodity exchanges and face closure.
The National Agricultural Policy -2000 has also emphasized the need for promoting futures as
a market driven mechanism for ensuring fair price and income to farmers. The Ministry and the
Forward Markets Commission which regulates futures trade have commissioned many studies and
received expert views on measures to be initiated for revamping the age old markets. The World
Bank funded project implemented in 2001 has brought to light through a number of consulting
reports the direction of reforms to be initiated for strengthening the futures markets in India. Yet
another joint project initiative, Commodity Futures Market Development Project, of the Ministry and
the United States Agency for International Development (USAID) has just concluded.
Currently, there is a renewed interest in futures markets. The Government has been eying for a
market driven pricing and risk management system in agriculture for ensuring stable income to
farmers which would help ease pressure of subsidy on fiscal situation. Moreover, the governments


Supply Chain and Futures Trading A study of Potato and Mentha

commitments under WTO Agreement on Agriculture to phase out direct price and income support
to farmers required, inter alia, introduction of a market driven price stabilization mechanism through
futures trade in organized exchanges. This re-orientation of government policy towards agricultural
product markets has been given thrust in the National Agricultural Policy 2000. In pursuance of this
policy, government has removed ban on futures trading for all commodities in 2003.

1.2. Objectives of the Study


The Indian farmers are handicapped by many systemic inadequacies. The price distortions due
to long supply chain in marketing their produce has long been exposing them to lower price
realizations making their investments nonviable and unattractive. The National Agriculture Policy,
2000 has emphasized on liberalization aiming at augmenting farmers income and on efforts to
ensure that farmers receive prices commensurate with their efforts and investments. In line with its
commitment for enlarging the coverage of futures markets to minimize price fluctuations as also for
hedging risks, the government lifted all restrictions and permitted futures trading in all commodities
in 2003. However, in spite of India being one of the pioneers in commodity futures questions and
concerns are still being raised by many about the economic benefits of futures and especially its
utility to the farmers.
The present study seeks to examine the following aspects of the farm sector of Uttar Pradesh (UP)
with a special focus on two crops viz., potato and mentha.
1. To evaluate the benefits of futures in terms of mitigating the market risk of various players in the entire

supply chain and of improving the price realization of the farmers

2. To examine the physical market and supply chain of potato and mentha in UP
3. To analyse the potentials of potato and mentha as candidates for introducing futures and to

substantiate the rationale for futures in these commodities

4. To examine the advantages of on-line trading in terms of reach, access, transparency, better price

discovery and price dissemination.

1.3. Scope of the Study


The scope of the study is limited to the agricultural economy of UP with focus on potato and mentha
crops. While examining the advantages of on-line futures trading in general emphasis will be on its
benefits to potato and mentha farmers of UP in particular.

1.4. Methodology
The study is primarily an empirical one. It has relied on two sources of data.

Supply Chain and Futures Trading A study of Potato and Mentha

1.4.1. Primary Data


The analysis and the conclusions drawn are mainly based on the data and observations obtained
through administering a schedule on a set of samples. The field study which helped understand
the market dynamics has two-fold objectives viz., to understand the supply chain and marketing
practices of potao and mentha farmers and secondly to capture the subjective influences and
perceptions about futures markets among various stake holders. The decisions of farmers and
various other market intermediaries to trade on potato and mentha futures are assumed to be
greatly influenced by the perceptions that they have conceived about the utility and modus operandi
of the futures markets.

1.4.2. Selection of area


The study has chosen three districts each for potato and metha. Three leading potato producing
pockets in UP are located in these identified districts. The distrct-wise area and production of potato
and mentha are provided in appendix 1 and 2 respectively. They are Fatehgarh in Farrukhabad
district, Sambhal in Moradabad district and Bakshi-ka-Talab and surrounding areas in Lucknow
district. Similarly, three major mentha farming centres are identified which are Sambhal in Moradabad
district, Sadar in Rampur district and Fatehpur in Barabanki district.

1.4.3. Selection of Sample


The criteria used for selection of sample farmers are the volume of annual production and area under
cultivation. Farmers who prefer to hedge their output and initiate futures position independently on
the trading platform of Multi Commodity Exchange of India Ltd (MCX) should ideally have certain
minimum output. Considering the standard trading and delivery unit for potato on MCX platform
being 30 metric tonne (MT) and the average production per acre being 15 MT farm size of 10
acre has been considered as suitable sample for the study. Therefore, each sample potato farmer
chosen for the study has the potential to take 5 units of contracts. This ensures that they are
potential players as genuine hedgers in potato futures markets.
Samples are chosen at random from the population of farmers holding more than 10 acres under
potato cultivation. Ten samples are chosen from each area with the help of the officials of the
respective District Horticulture Office. The judgment of the District Horticulture Inspector (DHI) with
regard to identifying progressive farmers was duly considered in all these areas while selecting
the sample. Since DHIs are government officials who stay regularly in touch with farmers they are
assumed to have complete and authentic domain information. Cold storages are very important
intermediary in potato marketing channel. They constitute a very strong link between the farmers
and big dealers in ready markets and processors from various parts of the country. They have a
potential role to play in developing potato futures markets and can help small farmers as a pooled
investor/aggregator. The samples of three cold storages which fulfill two important criteria are
chosen at random from each area. These sample storage houses have not less than 90,000 quintal
capacity and are operating at not less than 80 per cent of their capacity. This ensures that all of them
10

Supply Chain and Futures Trading A study of Potato and Mentha

are active and potential player as pooled investor in potato futures market.
Similar procedure has been followed in collecting samples of mentha farmers in Sambhal in
Moradabad district, Sadar in Rampur district and Fatehpur in Barabanki district. Potential samples
are identified based on volume of mentha oil output and area under mentha cultivation. Considering
the standard trading and delivery unit for mentha oil on MCX platform being 360 and 720 kilogram
(kg) respectively and the average production per acre being 45 kg a farmer, holding 8 acre for
mentha has been considered as suitable sample for the study. Therefore, each sample mentha
farmer chosen for the study has the potential to take at least 1 unit of contract. This ensures that
they are potential players as genuine hedgers in mentha oil futures markets. Samples are chosen
at random from the population of farmers holding at least 8 acres under mentha cultivation. Ten
samples are chosen from each area with the help of the officials of the respective District Horticulture
Office. Moreover, contract farmers of potato and mentha are excluded from the sample as they are
not exposed to market risk and hence do not require any hedging mechanism. Nevertheless, the
study underlines the importance of futures markets to contract farming as futures prices serve as
the potential benchmark for the contractual procurement.
There are intermediaries operating in the highly export driven mentha oil market. The local dealers
and distilleries are very important among them. Distilleries are essentially exporters. During the
field study efforts were made to interact with some of them in Massauli (Barabanki), Sambhal
(Moradabad) and Rampur. They were not willing to share any information relating to their business
for obvious reasons.
Perceptions of various target groups in both potato and mentha oil about the futures markets are
important. Their attitudes determine not only the penetration of the market but also the success of
futures in achieving the most efficient price discovery. The schedule has captured certain subjective
influences on their decision to participate in the markets. Moreover, based on the exchange traded
data performance of potato and mentha oil futures contracts with respect to risk reduction and
ready-futures markets integration are empirically evaluated.

1.4.4. Secondary Data


The study has utilized published data of various governmental and private sector agencies, and
international organizations like FAO, International Potato Centre, etc. The ready market prices of
potato (Farrukhabad) are sourced from UP Agricultural Produce Marketing Board (Mandi Parishad)
while for mentha the spot prices in Sambhal released by MCX Ltd., are utilized for the analysis.
Most of the state level data are sourced from Directorate of Horticulture, Lucknow and District
Horticulture Offices of the respective sample districts in UP.

Supply Chain and Futures Trading A study of Potato and Mentha

11

1.5. Organization of the Report


The report is organized into four chapters. Chapter 1 covers objectives, methodology and data of the
study. Chapter 2 examines the importance of mentha and potato in the agricultural economy of UP.
Given the fact that UP is the biggest producer of these two horticultural crops their physical markets
have national level relevance in terms of determining prices. The chapter presents a brief profile of
the agricultural economy of UP with a focus on these two crops and their supply conditions including
cropping season, pattern, area under cultivation and productivity, and their variety. Chapter 3 has
four-fold objectives. First, it seeks to investigate the market structure, supply chain and marketing
practices in potato and mentha based on the data and observations obtained through sample
survey. Secondly, it tries to evaluate the utility of futures to various constituents in the entire supply
chain. Thirdly, it presents the survey results on identifying the subjective influences on the decision
of physical market players to take positions in potato and mentha oil futures markets. Finally, it
proposes a marketing approach to the exchange in the light of the evidence on prevailing market
perceptions among prospective players and the prevailing supply chain in both potato and mentha.
Chapter 4 examines the potentials of mentha and potato as candidates for introducing futures and
the advantages of online futures trading with regard to its benefits to mentha and potato farmers
in Uttar Pradesh. The chapter, in addition to discussing the utility of futures to farmers in general
and potato and mentha farmers in particular, has elaborated on the necessity of creating various
infrastructures and institutional capacities including commodity aggregators and warehouse receipt
systems for helping farmers benefiting from futures markets. The final chapter summarises the
findings of the study along with their implications.

12

Supply Chain and Futures Trading A study of Potato and Mentha

CHAPTER 2

THE MARKET PROFILE OF MENTHA AND POTATO

2.1. Introduction
This chapter intends to examine the economic importance of mentha and potato in the agricultural
economy of UP. Given the fact that UP is the biggest producer of these two horticultural crops their
physical markets have national level relevance in terms of determining prices. The chapter presents
a brief profile of the agricultural economy of UP with a focus on these two crops and their supply
conditions including cropping season, pattern, area under cultivation and productivity, and their
variety.

2.2. The Profile of Potato Market


The importance of potato has been succinctly summarized by John Reader in Man on Earth, 1998.
It reads as follows.
In the space of just 400 years, the potato has become a staple crop of many people around
the world whose antecedents had subsisted perfectly well upon grain crops for anything up to
4000 years. The reason for this somewhat surprising development is that the potato is the best
all-around bundle of nutrition known to mankind. Its ration of carbohydrate to protein is such that
anyone eating enough potatoes to satisfy their energy requirements will automatically obtain most
of the protein they require. Furthermore, the biological value of potato protein (an index of the
nitrogen absorbed from a food and retained by the body for growth and maintenance) is 73, second
only to eggs at 96; just ahead of soybeans at 72, but far superior to corn (maize) at 54 and wheat
Supply Chain and Futures Trading A study of Potato and Mentha 13

at 53. Potatoes also contain significant amounts of essential vitamins (the British, in fact, used to
derive 30% of their vitamin C intake from potatoes.) Exceptional productivity is another virtue of the
potato. A field of potatoes produces more energy per hectare per day than a field of any other crop.
Potatoes grow well from sea level to 14,000 feet on a wider variety of soils, under a wider range of
climatic conditions, than any other staple food. The potato matures faster in 90 to 120 days, and will
provide small but edible tubers in just 60 days. All in all, the potato is about the worlds most efficient
means of converting plant, land, water and labour into a palatable and nutritious food.

2.2.1. World Production of Potato


According to the data released by Food and Agriculture Organization (FAO) (FAOSTAT, September
1998), potato production worldwide stands at 293 million tons and covers more that 18 million
hectares. With the break-up of the former Soviet Union, China is now the worlds largest potato
producer. India ranks number four. Other leading potato producing countries are Ukraine, Poland,
Germany, Belarus, Netherlands, France, UK, Canada, Turkey and Romania. Although potato
production in Europe has fallen since the early 1960s, this decline has been more than offset by the
growth in Asia, Africa and Latin America, thereby explaining the rise in global potato tonnage.

Quantity( MT)

Major Potato Producing Nations

The latest available estimate released by Central Potato Research Institute (CPRI) Shimla, the
average world production during 2001-03 is to the tune of 313.7 million tons with area covering
more than 19 million hectares. As per CPRI estimates India is ranked three in terms of production
while occupying fourth position in terms of area under its cultivation. The country-wise production
statistics are provided in table 2.1.

14

Supply Chain and Futures Trading A study of Potato and Mentha

Table 2.1: Potato statistics of India vis--vis other countries


Area (average of 2001-2003)
Rank

Country

Production (average of 2001-2003)


Ha

Rank

Country

Mt

China

4,630,454

China

68,892,594

Russia

3,195,433

Russia

34,860,837

Ukraine

1,599,000

India

23,191,200

India

1,255,667

USA

20,513,490

Poland

921,129

Ukraine

17,487,833

Belarus

570,133

Poland

16,211,420

USA

504,890

Germany

11,073,854

Germany

283,267

Belarus

7,929,433

Romania

280,116

Netherlands

6,925,751

10

Peru

259,985

10

UK

6,511,333

World

19,124,181

Total

313,770,638

Source: Potato Statistics, Central Potato Research Institute, Shimla

2.2.2. Significance of Potato in the Indian Economy


Potato has significant share in the overall agricultural production in the country. At current prices,
fruits and vegetables share close to 25 per cent of agricultural production and within the fruit and
vegetable segment the share of potato was estimated to be around 8 per cent during 1998-99.
The disaggregated data on value of output from agriculture are provided in table 2.2. At 1993-94
prices, the value of potato is estimated to be Rs. 4161 crore against total production of fruits and
vegetables amounting to Rs. 57988 crore and value of overall agricultural output amounting to Rs.
2.38 lakh crore (National Accounts Statistics, 2002, CSO).
(at current prices, Rs. crore)
Table 2.2: Value of Output from Agriculture
Item

1993-94

1996-97

1998-99

2000-01

Cereals

74523

107499

128505

145824

Pulses

12281

17204

19591

15758

Oilseeds

24096

34459

36926

25246

Sugars

14627

19474

23076

27647

Fibres

8961

14437

13691

11142

14

17

19

4066

6227

8152

7011

Condiments & spices

6740

10451

14815

14471

Frutes & vegetables

38420

62275

90025

85732

Potato

3311

5528

7481

2640

Other crops

5397

9250

9495

9796

By products

14360

19616

23413

24745

1396

1838

2659

2405

204874

302744

370365

369795

Indigo, dyes
Drugs & narcotics

Kitchen garden
Value of output from agriculture

Source: National Accounts Statistics 2002, CSO, GOI.

Supply Chain and Futures Trading A study of Potato and Mentha 15

Although potatoes are widely grown in India the climatic variations across the country determined
its distribution and cropping patterns. More than 80 per cent of the potato crop is raised in the winter
season (Rabi) under assured irrigation during short winter days from October to March. It is mostly
concentrated along the Indo-Gangetic Plain to the northeast, where most potatoes are grown during
the short winter days from October to March. Generally one crop is grown in this belt during winter,
planted from late October to early November and harvested in January through February. However,
in UP and in some of the eastern states farmers go for two crops in succession, the first during
September to November-December, and the second from November to March.
The Storage Period
Jan

Feb

Main
Harvest

Mar
Rabi

Apr

May

Jun

Jul

Aug

Sep

Storage

Oct
Early
Harvest

Nov

Dec
Rabi

The autumn crop, planted around mid-October and harvested in February or March, is important
to the Punjab area to the west, adjacent to Pakistan (where it is the most important seasonal
potato crop). Rainy season (Kharif) potato production is taken in Karnataka, Maharashtra, Himachal
Pradesh, Jammu and Kashmir and Uttaranchal. Potato cultivation in the south is generally limited
by an excessively hot climate. The optimal temperature range for potato is from 15 to 25 C (59
to 77 F). However, night temperature is critically important to tuber development and should not
exceed 20 C (68 F). Plateau regions of South-eastern, central and peninsular India, constitute
about 6 per cent area where potatoes are grown as a rainfed crop during rainy season (July to
October). However, in a small area covering mainly the Nilgiri and Palani hills of Tamilnadu, the crop
is grown round the year both as irrigated and rainfed crop.
Areas of high relative concentration of potato cultivation include:

The states of Uttar Pradesh, West Bengal, and Bihar accounting for more than 75 percent of

area under cultivation and about 80 percent of total production;

Punjab state to the west, adjacent to Pakistan, where roughly seven percent of area and

production occur;

Higher altitude areas to the north, where a summer crop accounts for about five percent of total

production;

The southern peninsula, where approximately six percent of the total crop is grown on relatively

high altitude plateaus, such as the Nilgiri and Palini hills of Tamil Nadu, under alternating rain-

fed and irrigated conditions throughout the year.

In India, the CPRI which was set up in 1949 has been instrumental for major breakthrough in
potato cultivation and productivity. A Large number of varieties are made available with many of
them developed by CPRI. By 2002, CPRI has released 35 varieties in addition to the existing 32
varieties (see appendix 3 for the list). A comparative statistics which cover the growth during the last
16

Supply Chain and Futures Trading A study of Potato and Mentha

forty years is provided in table 2.3. While productivity increased by 256 per cent total production
increased phenomenally by 843 per cent during the period 1963-2003. With access to irrigation,
chemical inputs such as fertilizers, continued expansion in post-harvest infrastructure in the form of
roads and cold storage facilities, producers continue to find potatoes an extremely attractive crop
to grow. Strong demand both in the countryside and in rapidly growing urban areas continues to
stimulate increases in area planted.
Table 2.3: India: Potato Production Trends
1961-63

2001-03

Comparison

Total Area Cultivated (000 Hectares)

383

1,281

334%

Per Capita Area Cultivated (Square Meters)

8.3

12.2

148%

Average Yields (Tons per Hectare)

7.3

18.7

256%

2,844

23,980

843%

6.1

22.8

372%

Total Production (000 Tons)


Per Capita Production (Kilograms)

Notes: Data are three-year averages, comparison of 2001-03 to 1961-63.


Population estimates for per capita data: 1961-63 = 46.29 crore; 2001-03 =104.95 crore
Source: FAOSTAT.

The trend in production of potato has been stable in UP, West Bengal, Bihar, Haryana and Punjab
states. The all India production of potato has been growing at CAGR of around 3 per cent during
the last ten years. Potato occupies a major share in overall vegetable production in the country.
As shown in table 2.4 in terms of area it shares more than 25 per cent while close to 35 per cent
in overall vegetable production. This signifies the dominant role potato plays in the agricultural
economy of the country.
Table 2.4: Area, production and yield of potato in India
Year

Area
(000 Hect.)

% Of Veg.
Area

Productivity
(Mt/hect.)

Production
(000 Mt)

% of
Total Veg.
Production

1991-92

1135.1

20.3

16.0

18195.0

31.1

1992-93

1240.0

24.6

14.9

18479.0

29.0

1993-94

1047.1

21.5

16.6

17392.4

26.4

1994-95

1069.4

21.3

16.3

17401.3

25.9

1995-96

1109.0

20.8

17.0

18843.3

26.3

1996-97

1248.8

22.6

19.4

24215.9

32.3

1997-98

1208.9

21.6

14.6

17652.3

24.3

1998-99

1280.2

21.8

17.6

22494.7

26.1

1999-2k

1340.9

22.4

18.6

25000.1

27.5

2000-01

1211.3

19.4

18.4

22242.7

23.7

2001-02

1259.5

20.5

19.4

24456.1

26.1

2002-03

1337.2

22.0

17.3

23161.4

27.3

2003-04

1484.7

25.1

18.8

27925.8

32.9

2004-05

1542.3

26.1

18.9

29188.6

34.4

2.96

1.33

CAGR %

2.35

Supply Chain and Futures Trading A study of Potato and Mentha 17

Source: Directorate of Economics and Statistics, Ministry of Agriculture, GOI


Indian Horticulture Database 2005, National Horticulture Board, GOI

Production Trend of Potatoes

Production(Million Tonnes)

35
30
25
20
15
10
5
0
2004-05

2003-04

2002-03

2001-02

2000-01

1994-95

1990-91

1984-85

1979-80

1974-75

1970-71

1960-61

1950-51

2.2.3. Significance of Potato in the UP Economy


Agriculture is the backbone of the Uttar Pradesh (UP) economy. It has contributed 32.4 per cent of
state domestic product (SDP) during 2001-02. UP enjoys a very significant place in the agricultural
economy of the country. It is a leading producer of pulses, cereals and vegetables. Table 2.5
presents the states sector-wise contribution to the overall agricultural production in the country.
While the state shares 21 and 18 per cent respectively of the total cereals and pulses production, its
contribution to total vegetable production in the country is estimated to be 17 per cent during 200102 (Agricultural Statistics at a Glance, 2003 and 2004, Ministry of Agriculture). Among vegetables
UP leads in the production of potato and green peas.
Table 2.5: Area and Production of different crops in Uttar Pradesh & India (2001-02)
Area in thousand hectares Production in thousand MT
Crop

Uttar Pradesh

India

Area

Production

Area

Production

Rice

6071

12856

44900

93340

Wheat

CEREALS
9256

25498

26340

72770

Sorghum

323

309

9800

7560

Pearl millet

851

968

9530

8280

Maize

931

1517

6580

13160

Other cereals

282

611

3610

4380

Total Cereals

17714

41759

100760

199490

18

Supply Chain and Futures Trading A study of Potato and Mentha

PULSES
Gram

841

817

6420

5470

Pigeon Pea

394

456

3330

2260

Lentil

625

500

1470

970

Other pulses

823

603

10790

4670

Total Pulses

2683

2376

22010

13370

Groundnut

108

90

6240

7030

Rapeseed &

566

574

5070

5080

Soybean

11

6340

5960

Sunflower

10

11

1180

680

OILSEEDS

Mustard

Other oilseeds

535

347

3810

1910

Total Oilseeds

1230

1030

22640

20660

2035

117982

4410

297210

1.4

33.5

466.2

14209.9

FRUITS
Sugarcane
Banana
Citrus

0.9

618.5

4789.1

Guava

17.3

136.1

154.6

1715.5

Litchi

0.2

0.2

58.1

355.9

Mango

253

1950

1575.8

10020.2

Papaya

0.3

16.4

73.7

2590.4

Other fruits

15.2

144.6

643.1

5176.4

Total Fruits

288.3

2282.8

4010.1

43000.9

1.5

59.6

502.4

8347.7

209.4

258.1

5678.2

3.4

50.7

269.9

4890.5

VEGETABLES
Brinjal
Cabbage
Cauliflower
Okra

3.2

54.8

347.2

3324.7

147.4

1179.2

303.3

2038.2

101.3

458.1

7462.3

Onion

25.2

278.5

495.8

5252.1

Potato

389.9

9570

1259.5

24456

22.6

259.8

131.9

1130.3

Green Peas
Tomato

Sweet Potato
Other vegetables

173.8

3281.6

1890.6

19526.2

Total vegetables

777.9

15044.8

6155.7

88622.1

FLOWERS

6.33

5350

106.5

25647

SPICES

42.4

3.4

3224

534.6

Source: Agricultural Statistics at a Glance 2003 & 2004, Department of Agriculture & Cooperation, Ministry of Agriculture,
Government of India
Indian Hoticulture Database- 2003, National Horticulture Board

UP has the distinction of leading potato producer in the country. The state contributes almost 35 per
cent of total production in the country. The state-wise production statistics are provided in table 2.6.
In terms of productivity the state is way ahead with 22.3 tonne per hectare as against the national
average of 18.8. UP is also a major supplier to potato processing industry mostly located in western
Supply Chain and Futures Trading A study of Potato and Mentha 19

and southern part of the country. Many areas in the state including Agra, Farrukhabad, Kanauj are
known for high quality processing variety potatoes. Potatoes are also being exported from the state
to many countries including Sri Lanka, Saudi Arabia, etc.
Many varieties are grown in UP in addition to Desi. Desi variety is generally cultivated by small
farmers to meet the local market requirements. The variety chosen by the farmer depends on the
market he targets. For example, Rajender 1 and Rajender 2 are mainly to cater to the markets in
Bihar while processing varieties Kufri Chipsona-1 and Kufri Chipsona-2 are grown extensively in
Agra, Farrukhabad, Kannauj and other leading production areas for meeting the requirements of
the processing industry. Other popular varieties cultivated in UP are Kufri Anand, Kufri Bahar, Kufri
Jyoti, Kufri Chandramukhi, Kufri Lalima and Kufri Badsha. The agro zone-wise varieties are listed
in table 2.7.
Table 2.6: State-wise area, Production and Productivity of Potato
States

Area (in 000 hectare)

Production (in 000 MT)

Productivity (in MT/ha)

1991-92

2003-04

2004-05

1991-92

2003-04

2004-05

1991-92

2003-04

2004-05

Uttar Pradesh

323.0

422.1

440.0

6145.6

8825.6

9821.7

19.0

20.9

22.3

West Bengal

206.3

306.0

320.6

4531.8

7591.7

7106.6

22.0

24.8

22.2

Bihar

305.0

318.1

318.1

3250.0

5656.7

5656.7

10.7

17.8

17.8

Punjab

46.6

71.9

72.9

923.1

1439.7

1470.2

19.8

20.0

20.2

Gujarat

16.8

35.8

43.3

412.5

780.0

978.2

24.6

21.8

22.6

Madhya Pradesh

31.7

46.6

52.2

368.0

698.7

782.5

11.6

15.0

15.0

Karnataka

35.4

59.5

60.0

650.0

526.7

603.2

18.4

8.9

10.0

Assam

61.7

78.0

73.1

473.3

543.1

589.1

7.7

7.0

8.1

NA

NA

22.1

NA

NA

448.5

NA

NA

20.3

13.8

17.9

18.4

205.0

440.1

441.7

14.9

24.6

24.0

194.8

128.9

121.7

1235.7

1423.5

1290.2

6.3

11.0

10.6

1235.1

1484.7

1542.3

18195.0

27925.8

29188.6

14.7

18.8

18.8

Uttaranchal
Haryana
Others
Total

Source: Indian Horticulture Database 2005, National Horticulture Board, GOI.

Leading Potato Producing States(2004-05)


9821.7

7106.6

7500

5656.7

978.2

782.5

603.2

589.1

448.5

Uttaranchal

1470.2

Assam

2500

Karnataka

5000

Madhya Pradesh

Production in 000 MT

10000

441.7

20

Supply Chain and Futures Trading A study of Potato and Mentha

Haryana

Gujarat

Punjab

Bihar

West Bengal

Uttar Pradesh

Table 2.7: Agro Zone-wise Varieties Recommended by NHRDF


Agro-ecological Zone

Recommended Variety

North-Western Plains

Kufri Chandramukhi, Kufri Jawahar, Kufri Kuber, Kufri Alankar,


Kufri Badsha, Kufri Dewa, Kufri Pukhraj, Kufri Sheetman, Kufri
Sutlej

North Eastern Plains

Kufri Ashoka, Kufri Kuber, Kufri Chipsona 1, Kufri Chipsona 2,


Kufri Lalima, Kufri Pukhar, Kufri Red, Kufri Sutlej

West Central Plains

Kufri Safed, Kufri Sindhuri, Kufri Chandermukhi, Kufri Jawahar,


Kufri Kuber, Kufri Chamatkar, Kufri Kisan, Kufri Sindhuri

Plateau Region

Kufri Chamatkar, Kufri Jawahar, Kufri Jyotir, Kufri Kuber, Kufri


Lauvkar, Kufri Pukhraj

North Western Hills

Kufri Giriraj, Kufri Jyoti, Kufri Kundan, Kufri Jeevan, Kufri Kumar

North Eastern Hills

Kufri Giriraj, Kufri Jyoti, Kufri Megha, Kufri Khasigaro, Kufri


Naveen

North Bengal, Sikkim Hills

Kufri Jyoti, Kufri Kanchan, Kufri Sherpa, Kufri Giriraj,

and Southern Hills

Kufri Muthu, Kufri Swarna, Kufri Neela, Kufri Neelamani

Source: National Horticultural Research and Development Foundation, Nasik

The district-wise potato production figures are given in table 2.8. As per the production estimates of
the Directorate of Horticulture, Government of UP close to 45 per cent is contributed by six districts
of UP in 2005-06. They are Agra (9.85), Firozabad (8.64), Farrukhabad (8.06), Kannauj (6.77),
Badaun (4.70) and Hathras (4.57). The share of another ten districts adds to 66 per cent of total
production in the state. They are Barabanki (2.75), Mathura (2.44), Mainpuri (2.44), Aligarh (2.39),
Moradabad (2.36), Etawah (2.31), Ballia (2.22), Shahjahanpur (2.12), Allahabad (2.09) and Etah
(2.02).
Table 2.8: District-wise Potato Production in Uttar Pradesh
(Area in hectare, production in MT and productivity in MT per hectare)
District

1995-96

2000-2001

2005-2006(EST.)

Area

Prod.

Pvty

Area

Prod.

Pvty.

Area

Prod.

Pvty.

574

13527

23.566

791

16684

21.092

733

16443

22.432

Muzaffarnagar

2942

69331

23.566

2603

54902

21.092

2653

59512

22.432

Meerut

7983

165695

20.756

7353

158950

21.617

6114

99004

16.193

Bagpat

366

7879

21.526

264

4559

17.267

Bulandsahar

5282

124988

23.663

6563

141276

21.526

7350

125156

17.028

Ghaziabad

5176

121978

23.566

4547

97879

21.526

6309

117524

18.628

Gaut. Budh
Nagar

336

7233

21.526

267

4610

17.267

Saharanpur

Aligarh

5502

124526

22.633

5531

145737

26.349

10291

239163

23.240

Hathras

12544

370688

29.551

15940

455964

28.605

Mathura

5866

132764

22.633

6137

161704

26.349

8391

244061

29.086

Agra

8747

260941

29.832

18662

569023

30.491

39800

983936

24.722

Firozabad

12502

325552

26.040

18508

435012

23.504

33975

863135

25.405

Mainpuri

10486

243443

23.216

10328

236553

22.904

11760

243996

20.748

Etah

7760

141791

18.272

7058

130121

18.436

10234

202132

19.751

Bareilly

5677

105450

18.575

4664

100140

21.471

6030

117760

19.529

Badaun

15788

293830

18.611

16612

304282

18.317

23119

469662

20.315

5995

111356

18.575

5151

110596

21.471

6423

212171

33.033

844

15677

18.575

581

12475

21.471

638

14335

22.469

Shahjahnpur
Pilibhit

Supply Chain and Futures Trading A study of Potato and Mentha 21

Bijnor
Moradabad
Jyoti-phule Nagar
Rampur
Farukhabad

1040

21155

20.341

958

18924

19.754

888

21576

24.297

10675

263096

24.646

8239

227899

27.661

9179

235294

25.634

4647

91797

19.754

4303

92261

21.441

2700

54920

20.341

2182

43103

19.754

1722

41840

24.297

54518

1316937

24.156

29221

766876

26.244

31442

804947

25.601

Kannauj

32479

807850

24.873

37507

676401

18.034

Etawah

8754

203968

23.300

5967

135008

22.626

10961

230477

21.027

Auraiya

2857

64642

22.626

3810

91253

23.951

Kanpur N.

824

19657

23.856

10327

251617

24.365

6280

162853

25.932

Kanpur D.

8563

190030

22.192

1467

33192

22.626

2366

93263

39.418

Fatehpur

4237

84587

19.964

5734

81665

14.242

6145

118807

19.334

Allahabad

17029

342964

20.140

12396

253771

20.472

10554

209064

19.809

Kaushambi

3570

50844

14.242

4882

91313

18.704

Pratapgarh

6741

83561

12.396

7200

102544

14.242

4620

87360

18.909

Jhansi

291

5844

20.082

275

5860

21.311

269

6034

22.432

Lalitpur

387

7772

20.083

330

7033

21.311

332

7448

22.432

Jalaun

265

5322

20.083

179

3815

21.311

176

3948

22.432

Banda

394

7913

20.084

97

2067

21.311

304

6819

22.432

Chitrakut

267

5690

21.311

398

8928

22.432

Hamirpur

85

1707

20.082

30

640

21.311

39

875

22.432

Mahoba

90

1918

21.311

234

5249

22.432

Varanasi

5689

102584

18.032

4163

94330

22.659

3347

72481

21.656

Chandauli

966

21889

22.659

1141

24709

21.656

Jaunpur

10242

168624

16.464

11685

250421

21.431

8926

170924

19.149

Gazipur

9686

125376

12.944

9857

224523

22.778

4909

128689

26.215

Mirzapur

2330

41571

17.842

2160

46971

21.746

322

7223

22.432

Sonbhadra

658

11740

17.842

808

17571

21.746

1055

23666

22.432

Ravidash Nagar

2465

43979

17.841

1448

31488

21.746

1286

28847

22.432

Ballia

7175

141549

19.728

7388

137026

18.547

7386

222104

30.071

Azamgarh

5828

84786

14.548

5707

105849

18.547

5571

167526

30.071

Mau

2298

45335

19.728

1796

33311

18.547

1501

45137

30.071

Gorakhpur

4958

52246

10.538

4362

61713

14.148

4222

94708

22.432

Maharajganj

2881

30359

10.538

2886

40831

14.148

1871

41970

22.432

Deoria

2007

21149

10.538

2126

30079

14.148

2043

45829

22.432

Kushi Nagar

2679

28231

10.538

1870

26457

14.148

1394

31270

16.184

Basti

5467

57610

10.538

3684

46532

12.631

703

15770

22.432

1827

23077

12.631

3676

82460

22.432

Sid.nagar

3054

32182

10.538

3076

38853

12.631

2359

52917

22.432

Gonda

5121

88194

17.222

2742

53735

19.597

2942

65995

22.432

1904

37313

19.597

1545

34658

22.432

3596

61930

17.222

2077

40703

19.597

996

22342

22.432

Kabir Nagar

Balram Pur
Baharaich
Shravasti

2000

39194

19.597

484

10857

22.432

Lucknow

6445

125048

19.402

5107

69423

13.594

3515

55312

15.736

Unnao

5611

108867

19.402

5491

74642

13.594

6574

135740

20.648

Raibarily

5271

102270

19.402

5900

80202

13.594

5560

99096

17.823

Sitapur

4468

86690

19.402

3847

52295

13.594

3329

58595

17.601

Hardoi

9497

164830

17.356

11334

155661

13.734

11432

186502

16.314

Lakhimpur Kheeri

1658

32169

19.402

1208

16421

13.594

1589

27969

17.601

Faizabad

4987

70117

14.060

4110

66905

16.279

2866

56128

19.584

Ambedker Nager

4820

67769

14.060

4685

76266

16.279

4482

87775

19.584

Sultanpur

6118

105364

17.222

6684

108806

16.279

7458

146058

19.584

Barabanki

14192

304617

21.464

14338

277827

19.377

14011

274391

19.584

356828

7165468

20.081

394083

8398203

21.311

445197

9986781

22.432

Total Up

Source: Directorate of Horticulture, Govt. of Uttar Pradesh, Lucknow.

22

Supply Chain and Futures Trading A study of Potato and Mentha

2.2.4. Production Forecasts


Recent collaborative research involving International Food Policy Research Institute (IFPRI),
Washington and International Potato Center (CIP) has included a detailed analysis of historical
trends and future projections for potatoes in developing countries. Estimated growth rates in potato
production for the period 1993-2020 are 2.02% according to the baseline scenariobased more
on past projections, and 2.71% for the high demand and production scenariobased more on
historical trends. As these projections were done as part of a global model for the worlds major food
commodities, they also permit estimates of the future value of production. Similar projections are
carried out by CPRI with regard to production, yield and area in India.
These calculations show that the potato will most likely maintain, if not increase, its relative economic
importance in the food basket for developing countries in the decades ahead. The high growth rate
of potato production in India is likely to continue, primarily as a marketed cash crop more than as a
rural staple. As per the CPRI projections given in table 2.9 production of potato is expected to touch
30 million tonne by 2009-10 and to cross 40 million tonne by 2020. Although very little of the potato
crop is processed on a larger industrial scale, homes and small businesses which sell snack foods
will sustain the demand for increased production.
Table 2.9: Potato Projection up to 2020
Area (000 ha)

Production (million t)

Yield (q/ha)

Based on 2003-04
2009-10

1554.0

29.255

188.25

2014-15

1730.1

34.544

199.67

1926.2

40.791

211.76

2019-20

Based on average of 2000-01 to 2002-03


2009-10

1465.4

29.317

200.06

2014-15

1631.4

34.619

212.20

2019-20

1816.3

40.878

225.06

Source: Potato Statistics, Central Potato Research Institute, Shimla

2.2.5. Demand for Potato


According to FAOSTAT (1998) potato consumption in developing countries has increased significantly
over a period of time from 9 kg/capita in 1961-63 to 14 kg/capita in 1995-97. These averages are
still but a fraction of per capita consumption levels of 86 kg/year in Europe or 63 kg/year in North
America, suggesting that ample room exists for continued consumption increases. Recent statistics
suggest that this trend is already underway in parts of the developing world. Potato is a rich source
of starch and it is consumed mainly for its calorific value. Potato also contains significant amounts
of vitamins and minerals. In Asia, per capita potato consumption jumped from 12 kg/capita in 199192 to 14 kg/capita in 1994-96 (International Potato Center, Lima, Peru). The annual per capita
consumption in India is estimated to be about 23.5 kg in 2003. The current trend is being driven

Supply Chain and Futures Trading A study of Potato and Mentha 23

in part by a shift in food habits, as demand for potatoes increases with greater absolute numbers
of people with relatively high incomes. The potato in India is not primarily a rural staple, but as in
much of Asia, a cash crop which provides significant income to rural farmers. Indias population
is approximately 28 percent urban, a proportion which has remained fairly stable over the past
decade, but urban Indians with higher incomes are providing much of the growing demand for
potatoes (FAOSTAT, 1998). The potato processing industry is still undeveloped, but has strong
potential to grow in response to domestic and international markets.

It is estimated that about 25 % of the potatoes, which are spoiled due to several reasons, may

be saved by processing and preservation of various types of processed products.

Potatoes can be processed for preservation and value addition in the form of wafers/ chips,

powder, flakes, granules, canned slices

A potato crisp is a thin slice of potato, flat or wavy, fried in vegetable oil and salted or seasoned

to taste.

Potato granules are used for the preparation of various recipes, to add to vegetable and non-

vegetable recipes and to enhance the quantity as well as to enrich the food value

There is a huge potential for processed potato products such as potato flakes, potato powder,

frozen potatoes, frozen french fries

Potato chips/wafers are one of the most popular snack items consumed throughout world. It is

by far the largest product category within snacks, with 85% of the total market revenue

India is one of the largest snack markets in the Asia-Pacific region contributing three percent to

the total Asia-Pacific snack market revenue.

There is an increased opportunity for the players in Potato chips to act as contract manufacturers

for the leading global brands entering the Indian market

The range of potato chip production includes high technology lines having a production capacity

from 80 up to 2,000 kg/h of finished product.

The range of French Fry production includes high technology lines having a production capacity

from 300 up to 6,000 kg/h of finished product.

2.3. The Profile of Mentha Oil Market


Mentha (mint) is a seasonal cash crop grown in entire tarai and western districts of U. P. mainly
Nanital, Rampur, Moradabad, Badaun, Bareilly and recently extended to eastern districts viz.
Barabanki, Lucknow and sitapur districts. UP is the leading producer of mentha in India with 80 per
cent share and the rest 20 per cent is grown in Punjab and Haryana. It is usually sown in February
and harvested from mid-May onwards. It is a water-intensive crop and requires about 20 irrigations
during the crop cycle. Mentha oil is obtained by steam distillation of mentha arvensis leaves. The oil
is a natural source of menthol which is one of the most actively traded commodities in the chemical
markets in India.

24

Supply Chain and Futures Trading A study of Potato and Mentha

In India there are four main species of mentha. They are mentha arvensis also called mentha
Shivalik which is the source of Japanese mint oil; mentha perperita which provides pepper mint oil;
mentha spicata as raw material for spear mint oil and mentha citrate for extracting bergamont oil.
Mentha oil yields an average of 40-50% menthol and 50-60% dementholised oil which are used in
confectionery, cosmetics and medicines.
India is the largest producer and exporter of mentha oil in the world followed by China, Brazil
and the US. India has an approximate share of 70-75% of the global mint oil production. With the
growing demand in the domestic as well as international markets, the production of mentha oil has
increased manifold. The area under mentha cultivation has touched as much as 70,000 hectare
and production of oil to the extent of 14,000 MT during 2004. India exports mentha oil to Argentina,
Brazil, European Union, Japan and the US. The export figure has crossed 3000 MT worth more
than Rs. 100 crore.
Table 2.10: Area under Mentha Cultivation and Mentha Oil Production in India
Year

Area Hectare

Production of Mentha Oil (in MT)

1965

65-70

1970

600-650

46

1975

4000-4500

260

1980

8000

500

1981

10000

800

1985

18000

1400

1988

25000

2200

1990

35000

5000

1992

38000

5400

1995

45000

7000

1996

35000

5500

1997

55000

11000

1999

62000

12000

2001

65000

13000

2003

72000

15000

2004

70000

14000

Source: FICCI, New Delhi.

Table 2.11: Indias Export of Metha Oil


Year

Quantity (MT)

Value (Rs. Crore)

1992-93

1510

26.06

1993-94

1410

30.16

1994-95

1583

43.57

1995-96

1352

47.50

1996-97

2371

134.50

1997-98

3016

95.94

1998-99

2825

70.54

1999-2K

2734

96.73

Supply Chain and Futures Trading A study of Potato and Mentha 25

2000-01

2725

93.75

2001-02

2945

96.97

2002-03

Data not available

2003-04

151.32

2004-05

111.22

2005-06

131.60

Source: Indian Agriculture -2003, Indian Economic Data Research Centre, Delhi.

Director-General of Foreign Trade, Ministry Commerce, GoI

Table 2.12: District-wise Production of Mentha Oil in Uttar Pradesh


(area in hectare, production in MT)
Districts

2000-01
Area Prod.(Oil)

2004-2005
Pvty.

Area Prod.(Oil)

2006-2007(PROJ.)
Pvty.

Area

Pvty.

Barabanki

18250

1825

0.100

29500

2950

0.100

29595

2959

0.100

Moradabad

16150

1615

0.100

19000

1900

0.100

19061

1906

0.100

Rampur

8250

825

0.100

12000

1200

0.100

12039

1204

0.100

Badaun

4632

463

0.100

6000

600

0.100

6019

602

0.100

Sitapur

2400

240

0.100

3000

300

0.100

3010

301

0.100

Bareilly

1810

181

0.100

2500

250

0.100

2508

251

0.100

Faizabad

2210

221

0.100

3000

300

0.100

3010

301

0.100

Pilibhit

230

23

0.100

500

50

0.100

502

50

0.100

Other Distts.

508

51

0.100

2200

220

0.100

2206

221

0.100

54440

5444

0.100

77700

7770

0.100

77950

7795

0.100

Total

Source: Directorate of Horticulture, Government of UP, Lucknow.

26

Supply Chain and Futures Trading A study of Potato and Mentha

District-wise Share in Mentha Oil Production in UP


100%

Share (%)

80%
Rest of UP
60%

Sitapur
Badaun

40%

Rampur

20%
0%

Moradabad
2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

Barabanki

Year

The leading production centres in India are Fatehpur (Barabanki), Sambhal (Moradabad), Sadar
(Rampur), Chandausi (Moradabad), Badaun, Bareilly in UP. Almost 80% of annual production in
India originates from UP alone.
Barabanki is the leading mentha oil production centre in UP. Fatehpur, Ramnagar and Massauli
areas in the district have high concentration of mentha farms. As per the data received from District
Horticulture Office, Barabanki the total production of mentha oil from the district is to the tune of
34.20 lakh litres with an area of 40,236 hectare under mentha cultivation in the district in 2005-06
(table 2.13).
Table 2.13: Production of Mentha oil and Area under Mentha Cultivation in Barabanki
Year

Area (in hectare)

Production (in lakh litre)

2001-02

27,495

29.7

2002-03

28,000

29.8

2003-04

30,500

31.6

2004-05

31,000

33.17

2005-06

40,236

34.20

Source: District Horticulture Office, Vikas Bhawan, Barabanki

2.4. Conclusion
Potato and mentha play a very significant role in the agricultural economy of Uttar Pradesh. They
are economically significant not only for their contribution to the livelihood of thousands of farmers
and for their dominance in the agricultural consumption basket of households but also for their
growing linkages to fast growing potato processing industry and highly diversified industrial use
of mentha oil for confectionary, cosmetics and pharma sectors. These characteristics make them
very high potential candidates for futures trading. The relevance of introducing futures in these
commodities in the light of their supply chain will be dealt in detail in the next chapter. Mentha oil

Supply Chain and Futures Trading A study of Potato and Mentha 27

and potato fulfill the following conditions which make them suitable for introducing futures trade.

The supply and demand for these commodities are large enough to attract many potential

futures markets players.

As India is a leading producer of both the commodities they have the potential to attract

international trading interests in the futures markets.

These commodities are well standardized and storable. While mentha oil is high value and low

volume commodity which is storable without any special and expensive infrastructure

requirements, a large chain of cold storages network in UP is taking care of the storage of

potatoes.

Private and free markets forces operate in both commodities without monopolistic or government

control.

The most important among other conditions is their seasonal supply and large price variation

between crop season and off season creating large price risks to producers and consumers

alike.

28

Supply Chain and Futures Trading A study of Potato and Mentha

CHAPTER 3

THE SUPPLY CHAIN AND MARKET STRUCTURE

3.1. Introduction
The present chapter has four-fold objectives. First, it seeks to investigate the market structure,
supply chain and marketing practices in potato and mentha based on the data and observations
obtained through sample survey. Secondly, it tries to evaluate the utility of futures to various
constituents in the entire supply chain. The long supply chain in both potato and mentha markets
in UP is identified as the potential source of exploitation of farmers. Thirdly, it presents the survey
results on identifying the subjective influences on the decision of physical market players to take
positions in potato and mentha oil futures markets. Finally, it proposes a marketing approach to
the exchange in the light of the prevailing market perceptions among prospective players and the
structure of supply chain in both potato and mentha.
As explained in chapter 1, samples are chosen from three major potato markets one each from
Farrukhabad, Moradabad and Lucknow districts of UP. Cold storage houses are major market
intermediaries which provide integrated pre-harvest and post-harvest support to especially large
scale farmers in UP. They are operating as whole-sale market places in all the production areas.
In order to understand the marketing practices and supply chain a small sample of cold storages
from each of these areas are chosen based on the criteria explained earlier. These three sample
locations are Fatehgarh, Sambhal and Bakshi-ta-Talab. Similarly, three major locations of mentha
farming viz., Sambhal in Moradabad, Sadar in Rampur and Fatehpur in Barabanki are chosen for
collection of samples.

Supply Chain and Futures Trading A study of Potato and Mentha 29

3.2. Potato Marketing Practices


In UP, potato is a rabi crop which is planted during October-November and harvested during
January-February. Fresh potato arrival to markets starts from end-February. It is a seasonal market
with wild fluctuations in prices. By mid-January 2006, prices plummeted to as low as Rs. 280
per quintal and increased to Rs. 375 by end-March and to Rs. 675 as at end-September 2006.
There is no government intervention in potato markets. Marketing of potato is essentially a private
activity in almost all states with the exception that cold storage rates for the season are fixed by
the government. Large number of APMC markets however are set up in UP to promote organized
marketing.

3.2.1. The Risk-Return Profile


Potato farming is a profitable activity to farmers. However, majority of farmers are not able to realize
benefits that the market offers due to lack of properly organized marketing activities. The cost
estimates collected from a progressive large scale potato farmer are provided in table 3.1. The
estimates indicate that the storage has ensured a phenomenal margin of more than 100 per cent
during 2006. The profit margin is still higher for those who have own land, seed and other requisite
infrastructure including own funds.
Table 3.1: Estimated Average Expenses Per Acre Potato
Particulars

Expenses (Rs.)

Seed (bought from market)

12,000.00

Fertilizers

4,000.00

Irrigation (6 times @ Rs. 1500/- for each)

9,000.00

Insecticides and pesticides

1,800.00

Labour, tilling and digging charges

3,000.00

Lease charges (@1500/bigah; 1 acre=6.4 bigah)

9,600.00

Other incidental expenses (approximate)

7,000.00

Total
Production (tonne)

46,400.00
1.50

Storage cost (@90/- per quintal)

13,500.00

Value (at the best price @ 650/-per quintal

97,500.00

during October 2006)


Source: Field visits

However, this shows only the brighter side of the picture. In reality, the marginal, small and medium
scale farmers who constitute the majority do not have the wherewithal to wait for good prices. They
often resort to distress sale immediately after the harvest. Some of them store part of their produce
in cold storages and sell the remaining at a rather low price to meet their immediate financial
commitments. The only way to protect them from price disadvantage is to ensure them access to
warehouses and collateral credit from formal sources. Commodity futures have an active role in
promoting warehouse receipt financing system. This issue is discussed in chapter4.
30

Supply Chain and Futures Trading A study of Potato and Mentha

3.2.2. The Supply Chain


There are many critical issues with regard to supply and demand for potato and mentha in UP. On
the supply side, fragmentation of land and the resulting diseconomies are nevertheless a general
issue in Indian agriculture. Indian agriculture sector is predominantly occupied by marginal (less
than 1 hectare), small (1 to 2 hectare) and medium (2 to 10 hectare) farmers. Lack of sufficient
institutional credit flow into farm sector has been a major threat to its growth. The Rural Financial
Access Survey (2003) conducted jointly by World Bank and National Council for Applied Economic
Research in Andhra Pradesh and UP revealed that 44 per cent rural households had informal
borrowing at interest rates as high as 48 per cent per annum. Only 21 per cent of rural households
have access to formal credit. The most critical issue is the price distortions due to long supply chain
in agricultural markets. The intermediaries operating in the supply chain extract the price benefits
which otherwise would have made farming profitable to farmers.
Due to lack of an integrated and regulated system for marketing agricultural produce, farmers are
disadvantaged by very poor price realization. The existing marketing channel is not perfect enough
to take care of smooth and economical transfer of potato to the final consumer throughout the year.
Micro level studies indicate that small farmers contribute about 54 per cent of marketable surplus
and distress sale by these farmers account for about 50 per cent of the marketable surplus. They
often sell their produce to square off debts soon after harvesting. Large price spreads and low
price realization due to imperfection and weak linkages in supply chain have disadvantaged small
farmers (Report of the Working Group on Warehouse Receipts and Commodity Futures, Reserve
Bank of India, 2005). These imperfections are clearly visible in potato markets in UP.
The supply chain consists of farmers, storage houses, whole-sale dealers/exporters and processors.
The cold storages form vital link in the supply chain by not only offering storage services but also
facilitating sale of potatoes.

FARMERS

COLD
STORAGES

DEALERS/
EXPORTERS

PROCESSORS/
CONSUMERS

Figure 3.1: The Potato Supply Chain

3.2.3. Cold Storages


Among the intermediaries linking the farmer to the consumer, cold storages are crucial to farmers in
the supply chain of potato. They ensure continuous supply of potato during the entire year staring
from April to October-November. At the end of crop season in March storages complete their
procurement for the off-season i.e., April-November. However, the storage capacity is not enough
to absorb the entire production in UP. As per the official estimates provided in table 3.2, 45 to 60 per
Supply Chain and Futures Trading A study of Potato and Mentha 31

cent of production goes to storages while they have the capacity to store around 84 per cent of total
potato production in UP by 2005-06 (Directorate of Horticulture, Govt. of UP, Lucknow). Therefore,
40 to 55 per cent of the production arrives at the spot markets just after the harvest during FebruaryMarch. This creates a major price crash in the market.
The Storage Season for Potato in UP
Jan
Main
Harvest

Feb

Mar
Rabi

Apr

May

Jun

Jul
Storage

Aug

Sep

Oct
Early
Harvest

Nov

Dec
Rabi

The price risk from storage is high which serves as a disincentive for private sector to invest in
storages. Futures contracts in potato through its efficient risk transfer can be a potential avenue
to the storage houses for mitigating the market risk. The absence of sufficient inter-year storage
facilities makes the prices highly volatile between the seasons. Since accurate forecast of future
prices are not available there is always storage premium or discount. The rise in market price
between seasons i.e., the storage price margin, is the gross benefit earned by farmers on each unit
of potato stored. In order for storage to be profitable, the storage price margin must be sufficiently
high to compensate farmers for all of the costs incurred for storage, including labour and materials,
interest on foregone income from delaying the sale immediately after the harvest and the storage
losses. If the storage margin is lower than the cost of storage, then farmers suffer a net loss and
have little incentive to store. If the storage margin is above the cost of storage then net benefits
from storage are positive.
The sample survey reveals that majority of big farmers (holding more than 10 hectare) resort to
storage houses. The summary results are presented in table 3.8 through 3.10. The sample survey
of storage houses in three districts reveals that none of them operates in full capacity. There are two
main reasons for the distress and immediate post-harvest sale by small and medium farmers. First,
due to their urgency to get money to pay back debt they are compelled to sell without waiting for
better price later and secondly and more importantly, storage houses compete for bringing medium
and big farmers to their fold to fill their storage capacity.
Services of storages houses are not standardized in all respects. Although storage charges are
governed by the rules of state government, small and medium farmers are often discriminated
in many other counts. Storage services are tailor made services depending on the personal
relationship between the owner and the client. The most preferred client as explained earlier is
large farmers. They are offered pre-harvest and post-harvest infrastructure and financial support
services. These include finance which covers major portion of the market value of stored potato at
lower interest rate, free transport service to pick up potato from the field, bags for storing potatoes
in storage, etc. It is revealed from discussions with officials/owners of storage houses that smaller
farmer clients are offered loans equivalent to certain portion of the market value of stored potato at
a relatively higher rates. As warehouse receipt system is not developed small farmers do not find
32

Supply Chain and Futures Trading A study of Potato and Mentha

significant advantage in going for storage. It seems that their benefits from higher price realization
with considerable time lag even out the interest and storage costs.
Storage houses are practically the organized whole-sale markets for potato. They provide endto-end marketing services to farmers. They attract dealers who stuck deals in the presence of
farmers, release potato and receive payments from dealers. After deducting all pending dues
including storage charges, interest and principal and loading/unloading expenses the rest is paid
to farmer. However, there is price risk in storage when the storage margin (discussed in chapter 4)
is negative which has made many farmers not turning up for claiming the crop stored. This in turn
poses serious risks to storage owner as well and the solvency of storage houses.
Table 3.2: The Profile of Cold Storages in UP
Year

No. of Cold
Storages

Storage Capacity
(in Lakh tonne)

Potato Production
(in lakh tonne)

Total Storage
(in lakh tonne)

1999-2000

948

59.73

101.09

50.34

2000 - 01

1005

60.31

83.98

36.9

2001 - 02

1011

61.66

95.7

45.22

2002 - 03

1040

65.5

102.21

62.48

2003 - 04

1085

72.73

88.25

50.69

2004 - 05

1155

78.89

98.21

58.43

2005 - 06

1205

83.65

100.86

60.65

Source: Directorate of Horticulture, Govt. of UP, Lucknow

Table 3.3: District-wise Cold Storage Capacity


District
Sl. No.
1

Saharanpur

UP TO Dec. 2005

District

Number

Capacity
(tonne)

18468

36

Sl. No.

UP TO Dec. 2005
Number

Capacity (tonne)

Banda

Muzaffarnagar

30

148203

37

Chitrakoot

Meerut

44

184214

38

Hamirpur

Bagpat

16089

39

Mahoba

Bulandsahar

39

137565

40

Varanasi

13

52768

23

147679

41

Chandauli

1124

4501

42

Jaunpur

21

101237

Ghaziabad

Gautambuddhnagar

Aligarh

26

284425

43

Ghazipur

23

128510

Hathras

41

347813

44

Mirzapur

18899

10

Mathura

27

182794

45

Sonebhadra

11

Agra

12

Firozabad

63

637825

13

Mainpuri

26

180945

14

Ettah

22

146932

143

1391711 46

10386

Balia

14

77850

48

Azamgarh

10

22954

49

Mau

12578

47

SantRavidas Nagar

15

Bareilly

17

94800

50

Gorakhpur

36110

16

Badayun

67

287042

51

Maharajganj

16241

17

Shahjahanpur

20

92484

52

Deoria

2311

18

Pilibhit

2990

53

Kushinagar

5602

19

Bijnore

10

33238

54

Basti

12848

Supply Chain and Futures Trading A study of Potato and Mentha 33

20

Moradabad

36

255069

55

Sant Kabir Nagar

12978

21

Jyotibafulenagar

22

107399

56

Siddharth Nagar

22

Rampur

22859

57

Gonda

20532

23

Farrukhabad

60

526005

58

Balrampur

3872

24

Kannauj

73

732683

59

Behraich

40187

25

Etawah

28

283580

60

Shrawasti

26

Auraiya

23125

61

Lucknow

20

117288

27

Kanpurnagar

41

350779

62

Unnao

11

82779

28

Kanpurdehat

17100

63

Raibereli

21

142208

29

Fathepur

62355

64

Sitapur

34275

18

80506

8598

30

Allahabad

39

258411

65

Hardoi

31

Kaushambi

7591

66

Lakhimpurkhiri

32

Pratapgarh

36447

67

Faizabad

13

59683

33

Jhansi

4000

68

Ambedkarnagar

13

48334

34

Lalitpur

69

Sultanpur

8416

35

Jalaun

810

70

Barabanki

19

178685

TOTAL

1205

8365690

Source: Directorate of Horticulture, Govt. of UP, Lucknow.

3.2.4. Potato Futures Markets


Potato hedge contracts were earlier traded in two regional exchanges viz., Chamber of Commerce,
Hapur and Bhatinda Om and Oil Exchange Ltd., Bhatinda. They initiated trading in an open-outcry
system with little success. The available statistics indicate that even Hapur exchange which has
the advantage of being located in a leading pototo producing belt in UP has failed to attract enough
trading interest. The turnover during 2000-01 was as low as Rs. 13.56 crore with volume of less than
one lakh tones. The relevant data are provided in table 3.4. While Bhatinda exchange remained as
non-starter in potato contracts Hapur exchanges reportedly terminated the contracts in 2002 due to
lack of enough trading interests in it.
Table 3.4: Potato Futures Trade in Chamber of Commerce, Hapur
(Volume in Lakh tonne, value in Rs. crore)
July Contract

Oct. Contract

March. Contract

Total

Volume

Value

Volume

Value

Volume

Value

Volume

1996-97

0.37

14.40

0.18

7.33

0.22

6.64

0.77

1997-98

1.06

28.63

0.23

5.73

0.90

35.75

2.19

1998-99

0.09

5.95

0.00

0.18

0.00

0.00

0.09

1999-2K

0.11

3.03

0.03

0.68

0.12

2.62

0.26

2000-01

0.35

8.07

0.11

2.35

0.11

3.14

0.57

Source: The Chamber of Commerce, Hapur, UP.


Trading in potato futures started in on-line platform of two national-level multi commodity exchanges
viz., Multi Commodity Exchange of India (MCX) Ltd., and National Commodity and Derivatives
Exchange (NCDEX) in 2006. The market has witnessed a major recovery with the introduction
of online trading. As per the data made available by MCX it has generated volume to the tune of
34

Supply Chain and Futures Trading A study of Potato and Mentha

11.98 million tones (MnT) (including both sides of the contract) with an equivalent value of Rs.
7314.34 crore during March-October, 2006. The total potato production however is to the tune of
29.19 million tones during 2004-05 and has crossed 30 MnT during 2005-06. Internationally, futures
markets generates turnover 2 -3 times the size of the underlying physical market. This shows that
potato futures markets in India are still to go a long way. It has however the potential to take care of
hedging requirements. The volume generated within a few months of the launch of futures trading
is an indication of its significance.

3.3. Mentha Oil Marketing Practices


The consumption pattern of mentha in India has made it an important crop. Mentha in India has
reached out to all most all the households and has made a major impact because of the qualities
present in it. In fact, India is the leading consumer of mentha and mentha oil. Sauces are made from
mentha leaves. Increasing rate of production of mentha oil has made India the largest producer
and exporter in the world. The major trading centers in India are located in UP which are Sambhal,
Barabanki, Rampur, Chandausi, Bareilly and Badaun.
Marketing of mentha oil is a private activity. Most of the mentha farmers have their own distillation
facilities installed in their field. Oil extraction takes place during May-June. The market is
characterized by wild fluctuations in prices due to strong seasonal nature of its demand. Its demand
in pharma sector goes up at the beginning of winter season in view of high demand for cough syrup,
allergy and cold related medicinal preparations which contain menthol. Its ready market price varied
from Rs. 350 during June-July to almost Rs. 650 per kilogram during October 2006.
There is no government intervention in mentha oil market. There is demand from various quarters
for introducing minimum support price (MSP) for mentha oil. It is learnt that farmers organizations
like Bharatiya Kisan Union under Mahendra Singh Tikayat has been organizing farmers in Fatehpur,
Ramnagar, Massauli areas in Barabanki district for pressurizing government for MSP.

3.3.1. The Risk-Return Profile


Production of mentha oil is a high value adding activity for mentha farmers. They are able to realize
a fairly high margin for the oil. However, majority of farmers are not able to realize benefits the
market offers due to lack of properly organized marketing activities. The cost estimates for mentha
cultivation collected from some of the progressive farmers and the prevailing ready market price
mentha oil are provided in table 3.5. The estimates indicate that a productive farmer with value
addition is able to realize a fairly high margin during 2006.

Table 3.5: Estimated Average Expenses Per Acre Mentha


Supply Chain and Futures Trading A study of Potato and Mentha 35

Particulars
Seed (bought from market)
Fertilizers
Irrigation (14 times @ Rs. 480/- for each)
Insecticides and pesticides
Cost of Labour, tilling and sowing
Particulars

Expenses (Rs.)
1,000.00
700.00
6720.00
500.00
3,000.00
Expenses

Labour for weeding

1500.00

Distillation (@ Rs. 35/- per kg oil

1575.00

(assuming recovery of 45 kg oil per acre)


Miscellaneous expenses
Total
Production of mentha oil (kg)
Storage cost
Value (at the best price @ 675/-per kg during

1000.00
15,995.00
45
0.00
30,375.00

end-October 2006)
Source: Field Visits

However, there are many bottlenecks which prevent the farmers from realizing the margin that
the market offers. First, as against the organized sale of potatoes under cold storages, mentha oil
market is devoid of any organized markets. It is primarily a local middlemens market. Large number
of local dealers and commission agents operates in markets like Sambhal, Rampur, Barabanki,
Massauli and Ramnagar areas who interface between farmers and commercial distilleries/exporters.
Secondly, farmers tend to sell mentha oil immediately after cropping and distillation when the market
rate is low. This is due to lack of formal credit flow in the form of collateral financing available to
farmers. Finally, the market is dominated by big players where as small farmers are disadvantaged
by their insignificant small size. These small farmers sell their output to local dealers who in turn
deal with large scale distilleries and exporters.

3.3.2. The Supply Chain


Mentha oil market in UP is a highly exploitative market for lack of a formally organized marketing
channel. Due to lack of an integrated and regulated system for marketing farmers are disadvantaged
by very poor price realization. The existing marketing channel is not perfect enough to ensure fair
price to farmers. Farmers often resorts to distress sale of oil to local dealers due to compulsions
to square off debts soon after oil is extracted. Large price spreads and low price realization due
to imperfection and weak linkages in supply chain have disadvantaged small farmers in general
(Report of the Working Group on Warehouse Receipts and Commodity Futures, Reserve Bank of
India, 2005).
The supply chain consists of farmers, local dealers, big commercial oil distilleries and exporters.

36

Supply Chain and Futures Trading A study of Potato and Mentha

LOCAL
DEALERS

FARMERS

OIL DISTILLERIES
EXPORTERS

PHARMA,COSMETICS,
CONFECTIONERY PRODUCERS

Figure 3.2: The Mentha Oil Supply Chain

Distilleries are the vital link between the farmers and the end user of mentha oil and its derivatives.
These distilleries are not only meeting the domestic industry requirements but also cater to the
growing export markets in various parts of the world (a list of leading mentha oil/menthol distilleries/
exporters is given in Appendix-4). As they deal in bulk (normally their minimum deal size is one
tonne) farmers do not have direct access to them. This gives an opportunity to local market dealers
to interface between the distilleries and farmers.
The local dealers make large pool of oil purchase from farmers and sell it to distilleries. Some of
them, over a period of time, have become leading exporters in some pockets and many of them
established linkages with pharma, cosmetics and confectionary companies located in different parts
of the country. They are able to realize huge profit margin. Efforts were made during the survey to
locate some of them especially in Rampur, Sambhal, Ramnagar and Massauli areas. Many of them
are disguised traders who do not want to be identified as mentha oil dealers or they are reluctant to
divulge any information about the transactions they carry out. Some of them even disappeared from
their shops as soon as the research team arrived. It is learnt that they didnt want to be trapped
by sales tax authorities.
Some of the farmers shared the view that they are not able to realize the prevailing higher market
price due to unethical practices resorted to by the local dealers. The dealers buy oil from farmers
at huge discount to the prevailing market price. As there is no standardized quality check farmers
are often misguided by dealers and forced to sell at a huge discount. During the current season the
market has been riding very high with a record price of mentha oil hovering around Rs. 675 per kg
in October 2006 as against Rs. 350-400 prevailed during May-June 2006. Similarly, the average
export price of mentha oil has gone up from Rs. 382 in 2003-04 to Rs. 418 in 2004-05 and touched
as high a price as Rs. 532 in 2005-06 (DGCIS, Ministry of Commerce, GoI). Though the dealers
are not passing the full benefit of higher prices to farmers, indications are that farmers were able to
get better prices during the last two seasons. A substantial increase in area under cultivation and
production during 2005-06 as seen in table 2.12 and 2.13 in chapter 2 is an indication of increases
prices of mentha oil.

3.3.3. Mentha Oil Futures


Currently, three national multi commodity exchanges offer futures in mentha oil. While MCX and
NCDEX offer futures in mentha oil, National Multi Commodity Exchange of India Ltd (NMCEIL)
trades in menthol futures. The MCX trading platform has recorded huge volume in mentha oil
Supply Chain and Futures Trading A study of Potato and Mentha 37

during the last two seasons. The total volume of trade registered during April 2005-Apirl 2006
period is to the tune of 6.57 lakh tones worth Rs. 40.6 thousand crore. Similar trend is seen in
the current season as well. The volume during May-October 2006 has touched 3.67 lakh tonnes
worth Rs. 22.6 thousand crore with an average price of Rs. 615.83 per kg. The December 06
contract opened on 28 September 06 has registered a volume of 14,762 tonnes which is close to
the total production in the country during the current season. As of 22 December 06, for all contracts
matured in May 2006 (opened on 10 January 2006) to the one maturing in January 2007, NCDEX
has registered the volume of trade to the tune of 89075.24 tonnes amounting to Rs. 5675.44 crore.
The combined volume of MCX and NCDEX in mentha oil during the current season has crossed
4.26 lakh tonnes which constitute more than 20 times the physical market which is undoubtedly
an indication of acceptability of the market. The comparative figures of total volume and value of
contracts traded on MCX and NCDEX platforms are provided in table 3.6. The data indicate that
MCX has generated much larger volume as compared to NCDEX during the current season which
started from May 2006. While the aggregate volume at MCX for all the contracts maturing from May
2006 to December 2006 is to the tune of 3.91 lakh tonnes, the corresponding volume at NCDEX
stands at 0.74 lakh tonnes only.
Table 3.6: Mentha Oil Futures Trade on MCX and NCDEX
(volume in MT & value in Rs. crore)
Contract

MCX

NCDEX

Total

Volume

Value

633363.48

39833.34

May 06

30480.48

1373.92

1336.32

60.22

31816.80

1434.14

Jun. 06

28808.28

1356.80

2179.08

101.40

30987.36

1458.20

Jul. 06

53437.32

2784.42

5369.40

268.37

58806.72

3052.79

Aug. 06

51017.76

2827.25

6691.00

368.39

57708.76

3195.64

Sep. 06

45222.84

2740.66

4565.16

265.38

49788.00

3006.04

Oct. 06

94516.56

6461.53

17154.72

1172.50

111671.28

7634.03

Nov. 06 *

72690.84

5069.88

20350.08

1410.74

93040.92

6480.62

Dec. 06 *

14762.16

1037.10

16549.20

1092.83

31311.36

2129.93

390936.24

23651.56

74194.96

4739.83

465131.20

28391.39

Jun. 05 Apr. 06

Total

Volume

Value

Volume

Value

Data not available

* The MCX contracts for Nov. and Dec. 06 cover data only up to 31 Oct. 2006 while NCDEX contracts have the data for the
entire period up to 20 Dec. 2006.

3.4. Constraints on Growth of Potato and Mentha Oil Futures


Although futures are known for its economic benefits to various stake holders in ready market, the
survey results indicate that it has not yet penetrated enough to attract genuine hedging interests. It
is often argued that the market is dominated by speculative interests driving the prices away from
the underlying fundamentals in the ready market. The deviation of futures prices from the ready
market prices poses threat to integration of two markets. The lack of integration between the two
closely interdependent markets often fails to generate confidence among the genuine hedgers.

38

Supply Chain and Futures Trading A study of Potato and Mentha

This is an objective factor which reflects on the performance of futures contracts. The efficiency of
the market lies in price discovery with minimum error. There are many prerequisites for achieving
market efficiency. Some of them are examined in the light of evidence obtained from the survey.
The district-wise sample survey results are provided in tables 3.8 to 3.14
First, the trading volume in potato futures market is not enough to ensure optimal price discovery.
The size of futures market in potato is smaller than its underlying physical market. While arrival in
physical market during 2006-07 is more than 30 MnT the volume in futures markets is just about
12 MnT. On the other hand, mentha oil futures market witnessed hectic activity during 2005 and
2006. The total transaction volume on MCX platform has crossed 6.57 lakh tonnes during May 2005
to April 2006 while the estimated total production was to the tune of around 15,000 tonnes. The
market has shown similar trends this year as well. During May-Octber 2006 MCX has registered
the turnover of 3.67 lack tonnes while is production during the season is estimated to be around
20000 tonnes.
The study of sample mentha farmers and informal discussions with many others who are active
players in physical market revealed that they not many of them have initiated positions in futures
market and hence not directly benefited from futures trade. On the other hand, it is reported by the
exchange officials that mentha oil distilleries and exporters have been participating in futures trade.
The official data disclosed by the exchange show that the MCX trade platform for mentha oil has
received wider participation from large number of cities in UP. The number of cities in UP which
have been covered by mentha oil futures trading has gone up from 23 as at the end of December
2005 to 28 by the end of February 2006. This is an indication of the wider reach of and participation
in the market. More data on state-wise spread of MCX terminals dealing in mentha oil are provided
in chapter 4.
Secondly, the potato futures launched in March 2006 has not become a buoyant segment yet.
While arrival in physical market during 2006-07 is more than 30 MnT the corresponding volume
in futures markets is just about 12 MnT. Moreover, the relevant data sourced from the exchange
show that the state-wide coverage of the market has rather declined. As against 19 cities in UP
which have recorded trading in March 2006 there were only 9 cities recorded any deals in potato
futures as on 31 October 2006. More importantly, it is evident from the samples collected that none
of the farmers found to have taken positions in futures markets. The reason for not using futures,
their willingness to initiate positions and their perception about futures are examined in section
3.5. It is also interesting to note that majority of big farmers do not resort of distress sale during the
crop season. They instead prefer to hold stock in cold storages for sale during off season when
prices recover substantially. As the sample survey result indicate they sell only a portion ranging
between 10 to 25 per cent of the produce immediately after harvest to meet their pressing financial
obligations. The rest of the produce is stored for future sale depending on the price trends. This is
an indication of uniform price discovery through futures trading platform across the year.
Supply Chain and Futures Trading A study of Potato and Mentha 39

Mentha oil futures has become a very vibrant segment within two years of its launch. The benefits of
futures are already visible in the market. First, spot market prices of mentha oil have strengthened
after the launch of futures. The peak season (December February) average price has increased
to Rs. 664 per kg in 2005. The corresponding figures prior to launch of futures were Rs. 379 and
Rs. 304 respectively for 2004 and 2003 (see table 4.4 in chapter 4). It is logical to expect that
farmers are therefore indirectly benefited to certain extent from the increased spot prices even if
local dealers do not pass the entire price benefits to them. The significant price difference between
the ready and futures markets prevailed during the last two seasons has further strengthened
the findings. While average ready market price during the last season was Rs. 495 per kg the
corresponding futures market price was Rs. 618 per kg. The prices have shown significantly different
trend during the current season. As against Rs. 616 prevailed in futures market during May-October
2006 the average ready market price in Sambhal registered an average of Rs. 562. Secondly, the
average export price of mentha oil has shown substantial recovery after the introduction of futures.
It has gone up to Rs. 548 per kg in 2006 from as low as Rs. 382 in 2003 and Rs. 418 in 2004.
The increased international market value help farmers get better price while adding more foreign
exchange to the country. Finlly, the data released by the Directorate of Horticulture reveal that the
area under mentha cultivation and its production have been increasing over the years. As shown in
table 2.13 in chapter 2 (also see appendix 2) there was a massive increase in area under cultivation
in Barabanki from 31,000 hectare to 40,236 hectare during the last one year. The similar trend is
visible at all India level data as well. This could be a stronger evidence of better price realization of
farmers especially after the launch of futures trading.
The sample study and the information gathered informally from various other players reveal that
farmers participation is rather relatively low due to lack of awareness and wrong perception
about these markets. What therefore is important to the market is to make farmers participate
while ensuring speculators are not driven away. There are three important reasons for their lower
participation in mentha oil futures market. (a) Though they are exposed to market risk the storability
of the product saves them from selling when the price is the lowest during May-July season.
Moreover, not only that the farmers have the advantage of limited seasonal supply, its demand
too is significantly seasonal. This assures them fairly predictable higher price during NovemberFebruary when the demand is high. The oil being a low volume commodity farmers find it easier
to store without significant cost, (b) it is observed that farmers awareness about futures market in
general and in mentha oil in particular is poor. Out of 30 samples examined only 7 are aware of the
market. And those who are aware have never taken positions and only two of them shown interest
in initiating position in futures market for mentha oil, and (c) apart from lack of awareness, lack of an
intermediary who can operate as a pool operator in futures market make the market not accessible
to them. The market lot is also prohibitive to farmers.
Thirdly, as explained before, storage houses are potential players in potato futures market. They
40

Supply Chain and Futures Trading A study of Potato and Mentha

can act as commodity pooled investor (CPI) on behalf of farmers who are their storage clients.
However, the sample survey conducted on cold storages in these three places viz., Sambhal
(Moradabad), Fatehgarh (Farrukhabad) and Bakshi-ka-Talab/Kursi Road (Lucknow) has provided
some important evidence. The results are provided in table 3.11. Only two of the ten samples
are existing players in futures market. Others have never initiated a position though all but three
are aware of potato futures markets. The reason for not using futures, their willingness to initiate
positions and their perception about futures are examined in section 3.5. The physical market for
mentha oil is also highly unorganized. The local dealers and distilleries were not accessible to
evaluate the penetration of futures markets.
Fourthly, it is observed that the two key prospective target groups, viz., farmers and storage houses
have little awareness about futures and its benefits. Only five respondents among farmers are
aware of futures markets. It was rather shocking to know that a respondent who retired from civil
service currently running a fairly large potato farm and a cold storage has shown his ignorance
about potato futures. However, most of the storage owners are found to have awareness though
not yet initiated positions in the market. This evidence strengthens the argument that concerted
efforts to promote the concept among these key prospective players are essential while retaining
the speculative interests in the market. One without the other can never sustain the market for long
time.

3.5. Subjective Influences on Decisions to Trade


As discussed above the potato futures markets in spite of its potential benefits have been less
successful in India. The open outcry trading in potato futures introduced by the Hapur exchange did
not last long as it failed to generate enough trading volume.
Similarly, the online trading system introduced by MCX as well as NCDEX also has not attracted
enough interests in their potato segment. Similarly, the mentha oil futures market which has been
witnessing huge volumes in recent times has not attracted anticipated participation from mentha
farmers. It appears from the survey results that farmers and other intermediaries operating in potato
and mentha oil ready market are not fully aware of the benefits of futures trading.
There are two important factors that determine the level of participation in the market. They are
(a) hedging performance of the futures contracts and (b) the markets perception about the futures
trading. The hedging performance is measured by the convergence of the opening price of futures
with the spot price on the day of maturity of the contract. The convergence between futures
and spot prices shows that futures market is efficient with respect to price discovery and hedge
against the spot price variability. However, the historical performance of mentha oil contracts has
not consistently supported this condition. The opening and closing prices of 12 contracts matured
during the calendar year 2006 along with spot prices on the expiry date of the contracts are reported
Supply Chain and Futures Trading A study of Potato and Mentha 41

in table
3.7. As potato futures market started only in March 2006 it is immature to evaluate its hedging
performance. An objective evaluation of the performance of any markets requires fairly long period
price data.
Table 3.7: Spot and Futures Prices of Mentha Oil
(Prices in Rs./Kg)
Contract

Opening Price

Spot Price Expiry on

Closing Price Expiry


on

31 January 2006

458.90

646.0

638.0

28 February 2006

591.4

486.3

485.4

31 March 2006

945.2

452.8

451.3

30 April 2006

784.9

483.1

483.8

31 May 2006

446.5

466.2

471.6

30 June 2006

432.0

505.1

498.4

31 July 2006

434.7

537.2

540.9

31 August 2006

438.9

554.7

556.9

30 September 2006

466.2

701.8

693.7

31 October 2006

535.2

656.7

659.3

30 November 2006

593.3

656.3

664.3

31 December 2006

744.5

642.9

605.3

Source: MCX Ltd., Mumbai.

The decision to hedge in the market is also influenced by certain subjective factors including
attitudes and perceptions. As pointed out by Ennew et al (1992) futures as a service offered by
exchanges have a number of characteristics which affect the way in which they are perceived
and the ways in which they should be marketed to potential users. As services are intangible,
futures lack physical form and consequently evaluation prior to purchase is difficult. Moreover,
futures are mentally intangible too. This is because of the poor educational background especially
of rural farmers. They find it difficult to understand the modern risk management concepts and the
operational aspects of the futures markets. Therefore, the decision to trade in futures will typically
require that the user has better knowledge of functioning of the markets. Furthermore, because a
user cannot personally evaluate the market prior to purchase there is likely to be a high degree of
reliance on subjective impressions based either on the users own perceptions or on the experience
of other users. The survey results reveal that potential players in the market carry negative attitudes
and wrong perceptions about futures.
It is evident from the survey that in spite of awareness and user status almost all respondents
possess negative perception about futures. Those who do not have sufficient information about the
operational details about the market have developed negative perceptions. In order to understand
the reason for farmers not using futures many alternative options were provided to record their

42

Supply Chain and Futures Trading A study of Potato and Mentha

response. They include, no sufficient information; not sure about benefits; no easy access to market
terminals; not for small players; do not meet our requirement; no confidence in the market; lost
confidence in the market; taking positions is too expensive; it is too complicated and it is only
for speculators. Most of them responded that they did not have sufficient information about the
functioning of the market.
The sample survey responses presented in tables 3.8 through 3.14 have recorded the awareness
about futures, user status, the reason for not using futures and perception about futures. It is found
that the awareness about futures markets in general is not sufficient enough to attract them to the
market. The following are the summary of findings of the survey.
a. Of a total of 70 samples of potato and mentha farmers and potato storage operators, only

19 of them reported to have awareness about futures markets. This is an important area which

requires immediate attention of regulators and market operators. It calls for a massive publicity

and promotional programmes aiming at educating farmers about the economic benefits of

futures.

b. It is also noticed that while 70 per cent of potato storage operators are aware of the existence

of futures markets only around 30 per cent of them only are participating in the futures market.

They need to have necessary knowledge about the functional aspects of futures markets for

their participation.

c. In terms of awareness no significant difference is noticed between potato and mentha


farmers.

d. It is observed that no significant relationship between the level of educational qualifications


of respondents and their awareness. Graduates and post-graduates have reported to have no

knowledge about the existence of futures markets in their product segment.

e. The area under cultivation and annual production are no indications of awareness. It is observed

that farmers holding more than 50 acres of land under cultivation and having annual production

more than 750 metric tonnes are not aware of futures markets. Same is the case with mentha

farmers. Large farmers with annual production of more than 1 tonne of mentha oil are reported

to have no knowledge about the existence of futures in mentha oil. Only two of the five such

large farmers in the sample are found to have knowledge about mentha oil futures.

f. It is found that none of the 12 farmers in the sample set who have awareness about futures has

ever participated in futures markets. However, it is found that their selling activities are influenced

by the price information disseminated by commodity exchanges.

g. Those who are aware have not participated in the market for lack of their knowledge about the

operational details about exchanges and the modalities of initiating positions.

It is not the lack of awareness that tends to keep them away from market. The word of mouth
communication from those who know little about the benefits of futures is potentially blocking
farmers and intermediaries. In the case of both potato and mentha oil futures markets it is found that
Supply Chain and Futures Trading A study of Potato and Mentha 43

the pitfalls of the futures markets have received much greater publicity than their benefits primarily
because of the negative perception prevailing among some of them and the perception created by
the media and to a certain extent the recent demand to close down futures markets by leaders of
many political parties. The farmers and other potential players will not be fully able to evaluate the
usefulness of the market until they have experienced it.

3.6. Conclusion
In addition to making farmers, storage houses, dealers, exporters and processors aware of the utility
and operational aspects of futures markets certain specific and focused action is required in order to
develop vibrant markets in potato and mentha oil futures. The exchange should adopt a marketing
approach which not only generates more volume and liquidity but also improves penetration of
the markets by bringing all ready market players to its fold. This requires a pro-active approach in
alleviating all misconceptions and improving attitudes of the existing and potential customers. The
prevailing market environment poses serious threat to the services offered by the exchange while
opportunities are abound due to enormous size of the market that remain unexplored.
Table 3.8: Profile of Potato Farmers Farrukhabad District
R1

R2

R3

R4

R5

R6

R7

R8

R9

R 10

Age
(years)

50

48

55

31

35

35

38

45

40

35

Education

Graduate

Inter Mediate

High
School

Post
Graduate

High
School

Post
Graduate

High School

Intermediate

Graduate

High School

Area
under
potato
cultivation

50 Acres

36 Acres

20 Acres

10 Acres

16 Acres

20 Acres

14 Acrees

20 Acres

23 Acres

13 Acres

Variety

Kufari
Bahar,
Chipsona-1

Kufari Bahar,
Chipsona-1

Kufari
Badsah,
Kufari
Anand,
Chipsona-1

Kufari
Bahar,
Chipsona-1

Kufari
Bahar,
Pukharaj

Kufari Bahar
(3797)

Kufari
Bahar,
Chipsona-1

Kufari Bahar,
Chipsona-1

Kufari
Bahar,
Chipsona-1

Kufari Bahar,
Chipsona-1

Ownership
of land

Own

Own+Leased

Own

Own

Own

Own+Leased

Own

own

Own+leased

Own

Production
(in tonne)

750

500

300

125

175

250

200

300

310

200

Source of
finance

Formal;
Banks

Formal;
Banks

Bank, cold
storage

Bank, cold
storage

Cold
storage

Bank, Coop
cold storage

Bank, cold
storage

Bank, cold
storage

Bank, cold
storage

Bank, cold
storage

Harvest
time

End-Feb

March

March

End-Feb

Feb.

End-Feb.

End-Feb.

March

End-Feb.

End-Feb.

Particulars

R1

R2

R3

R4

R5

R6

R7

R8

R9

R 10

Timing of
sale

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Immediate
sale

10-15%

10-15%

20-25%

20-25%

20-25%

20-25%

10-15%

10-15%

10-15%

10-15%

Storage

85-90%

85-90%

75-80%

75-80%

75-80%

75-80%

85-90%

85-90%

85-90%

85-90%

Awareness
about
futures

Aware

Not Aware

Not Aware

Not Aware

Not Aware

Not Aware

Not Aware

Not Aware

Aware

Not Aware

User status

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Why not
used

Operational
details not
known

No sufficient
information

No
sufficient
information

No sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No sufficient
information

44

Supply Chain and Futures Trading A study of Potato and Mentha

Initiate
position?

Yes

Do not
know

Do not
know

Yes

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not know

Perception

positive

negative

negative

negative

negative

negative

negative

negative

negative

negative

R stands for respondent.


Source: Sample Survey conducted at Fatehgarh in Farrukhabad on 5 October, 2006.

Table 3.9: Profile of Potato Farmers Moradabad District


Particulars

R1

R2

R3

R4

R5

R6

R7

R8

R9

R 10

Age (years)

50

55

50

35

40

48

33

38

45

52

Education

Illiterate

Inter
Mediate

Illiterate

Middle

Inter

Middle

B. Tech.

High
School

Middle

illiterate

Area under
potato
cultivation

10 Acres

40 Acres

65 Acres

35 Acres

12 Acres

15 Acres

51Acres

20 Acres

18 Acres

12 Acres

Variety

Kufari
Bahar

Kufari
Bahar,
Chipsona

Kufari
Bahar,
Chipsona

Kufari
Bahar

Kufari
Bahar,
Anand

Kufari Bahar

Lady Rosetta,
Chipsona-1

Kufari
Bahar,
Anand

Kufari
Bahar,
Chipsona

Kufari Bahar,
Chipsona

Ownership of
land

Own+
Leased

Own

Own

Own

Own

Own+Leased

Own+Leased

Own

Own

Own

Production (in
tonne)

127

680

965

476

153

178.5

637.5

290

260

180

Source of
finance

Bank, cold
storage

Formal,
Bank

Formal,
Bank

Own funds

Bank, cold
storage

Bank, cold
storage

Own funds

Bank, cold
storage

Bank, cold
storage

Bank, cold
storage

Harvest time

End-Feb

End-Feb.

End-Feb

End-Feb

End-Feb

End-Feb

End-Feb

End-Feb

End-Feb

End-Feb

Timing of sale

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Export/ direct
to processors

Price
dependent

Price
dependent

Price
dependent

Particulars

R1

R2

R3

R4

R5

R6

R7

R8

R9

R 10

Immediate
sale

10-15%

10-15%

10-15%

10-20%

10-15%

10-15%

100%

10-15%

10-15%

10-15%

Storage

85-90%

85-90%

85-90%

80-90%

85-90%

85-90%

0%

85-90%

85-90%

85-90%

Awareness
about futures

Not Aware

Not Aware

Not Aware

Not Aware

Aware

Aware

Aware

Not Aware

Not Aware

Not Aware

User status

Never used

Never used

Never used

Never used

Never used

Never used

Never
used

Never
used

Never
used

Never used

Why not used

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No sufficient
information

No
Physical
Movement

No
sufficient
information

No
sufficient
information

No sufficient
information

Initiate
position?

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Yes

Do not
know

Do not
know

Do not know

Perception

Negative

Negative

Negative

Negative

Negative

Negative

Negative

Negative

Negative

Negative

R stands for respondent.


Source: Sample Survey conducted at Sambhal in Moradabad district on 12 October, 2006.

Table 3.10: Profile of Potato Farmers Lucknow District


Particulars

R1

R2

R3

R4

R5

R6

R7

R8

R9

R 10

Age (years)

81

55

60

45

40

58

55

35

65

35

Education

Graduate,
IAS

High
School

Middle

High
School

Inter
Mediate

Graduate

Middle

Inter

B. Com.

High School

Area under potato


cultivation

15 Acre

10 Acres

60 Acres

20 Acres

17 Acres

13 Acres

6 Acres

10 Acres

5 Acres

5 Acres

Variety

Kufari
bahar,
Rajendra
1&2,
Chipsona

Kufari
bahar,
Rajendra
1&2,

Kufari bahar,
Rajendra
1&2,
Chipsona

Kufari
bahar,
Rajendra
1&2,

Rajendra
1&2,
Chipsona

Kufari
bahar,
Rajendra
1&2,

Rajendra
1&2,
Chipsona

Rajendra
1&2,
Chipsona

Chipsona
Rajendra
1&2

Chipsona,
Rajendra-1

Ownership of land

Own

Own

Own+leased

Own

Own

Own

Own

Own

Own

Own

Supply Chain and Futures Trading A study of Potato and Mentha 45

Production (in tonne)

189

127.5

840

272

250

127.5

85

135

75

75

Source of finance

Formal,
Bank

Co-op.
society,
cold
storage

Co-op.
society, cold
storage

Formal,
Bank

Formal,
Bank

Own funds

Co-op.
Society

Co-op.
Society

Co-op.
Society

Co-op.
Society,
Bank

Harvest time

Feb.March

End-Feb.

End-Feb.

End-Feb.

End-Feb.

End-Feb.

End-Feb.

End-Feb.

End-Feb.

End-Feb.

Timing of sale

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Particulars

R1

R2

R3

R4

R5

R6

R7

R8

R9

R 10

Immediate
sale

0%

15-20%

15-20%

15-20%

15-20%

15-20%

15-20%

15-20%

15-20%

15-20%

Storage

100%

80-85%

80-85%

80-85%

80-85%

80-85%

80-85%

80-85%

80-85%

80-85%

Awareness
about futures

Not aware

Not aware

Not aware

Not aware

Not aware

Not aware

Not aware

Not aware

Not Aware

Not Aware

User status

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Why not
used

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

Initiate
position?

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Perception

Positive

Negative

Negative

Negative

Negative

Positive

Negative

Negative

Negative

Negative

R stands for respondent.


Source: Sample Survey conducted at Bakshi-ta-Talab in Lucknow district on 23 September and 27 October, 2006.

Table 3.11: Profile of Cold Storages


Particulars

Lucknow

Moradabad

Farrukhabad

R1

R2

R3

R4

R1

R2

R3

R1*

R2

R3

Ownership

Proprieter

Proprieter

Proprieter

Proprieter

Proprieter

Proprieter

Proprieter

Proprieter

Proprieter

Proprieter

Education

Graduation,
IAS

Graduation

Inter

High School

High School

Inter

Graduation

B.Com

Inter

Graduation

Total
Capacity (In
Qtl)

80,000

1,30,000

90,000

1,55,000

80,000

85,000

80,000

2,25,000

1,43,000

1,50,000

Capacity
Utilized (In
Qtl)

80,000

1,00000

82,000

1,00000

70,000

50,000

30,000

1,80,000

1,20,000

1,25000

Source of
finance

Own + NHB

Own +
Bank + Coop. society

Own +
Bank

Own +
Bank

Own +
Bank

Own +
Bank

Own +
Bank

Own +
Bank

Own +
Bank

Own +
Bank

Awareness
about futures

Not Aware

Aware

Aware

Not Aware

Aware

Aware

Not Aware

Aware

Aware

Aware

User status

Never user

Never used

Never used

Never used

Never used

Never used

Never used

Current
user (MCX)

Never used

Current
user (MCX)

Why not
used

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

Only for
speculation

No
sufficient
information

NA

No
sufficient
information

NA

Initiate
position?

Yes

Yes

Yes

Yes

Yes

Not clear

Do not
know

Yes

Yes

Yes

Perception

positive

Positive

Positive

Do not
know

Positive

negative

Positive

positive

Positive

Positive

R stands for respondent; NHB: National Horticulture Board * Owns two cold storages each having 1 and 1.25 lakh quintal
capacity Source: Sample Survey conducted at Fatehgarh in Farrukhabad on 5 October, 2006.

46

Supply Chain and Futures Trading A study of Potato and Mentha

Table 3.12: Profile of Mentha Farmers Barabanki District


Particulars

R1

R2

R3

R4

R5

R6

R7

R8

R9

R 10

Age (years)

40

55

54

40

50

35

38

43

52

60

Education

High School

High
School

B. Sc.(Ag)

High School

High School

High
School

High
School

Intermediate

Graduation

High School

Area under
Mentha
cultivation

5 Acres

3 Acres

2 Acres

5 Acres

3 Acres

3 Acres

5 Acres

8 Acres

10 Acres

6 Acres

Ownership of
land

Own

Own

Own

Own

Own

Own

Own

Own

Own

Own

Production
(in kg.)

250

160

120

250

150

180

225

375

450

300

Source of
finance

Own + Bank

Own +
Bank

Own +
Coop.
society

Bank &
Coop.
society

Bank &
Coop.
society

Own +
Bank

Bank &
Coop.
society

Bank &
Coop.
society

Own +
Bank

Bank &
Coop.
society

Harvest time

June

June

June

June

June

June

June

June

June

June

Timing of sale

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Particulars

R1

R2

R3

R4

R5

R6

R7

R8

R9

R 10

Immediate
sale

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

Storage

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

Awareness
about futures

Not Aware

Not Aware

Not Aware

Not Aware

Not Aware

Not Aware

Not Aware

Not Aware

Not Aware

Not Aware

User status

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Why not used

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

Initiate
position?

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Perception

positive

positive

positive

positive

positive

positive

positive

positive

positive

positive

R stands for respondent.


Source: Sample Survey conducted at Fatehpur in Barabanki district on 29 September, 2006.

Table 3.13: Profile of Mentha Farmers Rampur District


Particulars

R1

R2

R3

R4

R5

R6

R7

R8

R9

R 10

Age (years)

45

40

40

35

50

40

45

45

38

35

Education

Graduation

Illiterate

Post
Graduate

High
School

Illiterate

High
School

Graduation

B. Com.

Illiterate

High School

Area under Mentha


cultivation

10 Acre

10 Acre

50 Acre

12 Acre

10 Acre

12 Acre

12 Acre

30 Acre

25 Acre

40 Acre

Ownership of land

Own

Own+lease

Own

Own+lease

Leased

Own

Own

Own

Own

Own

Production (in kg.)

450

420

2250

240@

220@

240@

300@

1200

1125

1800

Source of finance

Co-op
Society

Co-op
Society

Own funds

Co-op
Society

Money
Lender

Co-op
Society

Co-op
Society

Own funds

Co-op
Society

Co-op
Society

Harvest time

May-June

May-June

May-June

May-June

May-June

May-June

May-June

May-June

May-June

May-June

Timing of sale

Price
dependent

Price
dependent

Contract
Farming

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Particulars

R1

R2

R3

R4

R5

R6

R7

R8

R9

R 10

Immediate
sale

0%

0%

100%

0%

0%

0%

0%

0%

0%

0%

Storage

100%

100%

0%

100%

100%

100%

100%

100%

100%

100%

Awareness
about futures

Aware

Not Aware

Aware

Aware

Not Aware

Not Aware

Not Aware

Not Aware

Not Aware

Not Aware

User status

Never used

Never used

Never
used

Never used

Never used

Never used

Never
used

Never used

Never used

Never used

Supply Chain and Futures Trading A study of Potato and Mentha 47

Why not used

No
sufficient
information

No
sufficient
information

No
Physical
movement

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No sufficient
information

No sufficient
information

Initiate
position?

Do not
know

Do not
know

Yes

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not know

Perception

positive

positive

positive

positive

positive

positive

positive

positive

positive

positive

R stands for respondent. @ inter-croping.


Source: Sample Survey conducted at Sadar Tehsil in Rampur district on 13 October, 2006.

Table 3.14: Profile of Mentha Farmers Moradabad District


Particulars

R1

R2

R3

R4

R5

R6

R7

R8

R9

R 10

Age (years)

50

55

50

35

40

48

35

48

52

50

Education

Illiterate

Inter

Illiterate

Middle

Inter

Middle

B. Tech.

Inter

Middle

Illiterate

Area under Mentha


cultivation

10 Acres

20 Acres

10 Acres

15 Acres

10 Acres

15 Acres

50 Acres

20 Acres

15 Acres

10 Acres

Ownership of land

Own

Own

Own

Own

Own

Own

Own

Own

Own

Own

Production (in kg.)

450

900

450

675

450

675

2250

900

675

450

Source of finance

Own +
Bank

Own +
Bank

Own +
Bank

Own +
Bank

Own

Own

Own

Own funds

Co-op
Society

Co-op
Society

Harvest time

June

June

June

June

June

June

June

June

June

June

Timing of sale

Price
dependent

Price
dependent

Contract
Farming

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Price
dependent

Particulars

R1

R2

R3

R4

R5

R6

R7

R8

R9

R 10

Immediate
sale

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

Storage

100%

100%

0%

100%

100%

100%

100%

100%

100%

100%

Awareness
about futures

Not Aware

Aware

Not Aware

Not Aware

Not Aware

Aware

Aware

Not Aware

Aware

Not Aware

User status

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Never used

Why not used

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

No
sufficient
information

Initiate
position?

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Do not
know

Yes

Do not
know

Do not
know

Do not
know

Perception

positive

positive

positive

positive

positive

positive

positive

positive

positive

positive

R stands for respondent.


Source: Sample Survey conducted at Sambhal in Moradabad district on 12 October, 2006.

48

Supply Chain and Futures Trading A study of Potato and Mentha

CHAPTER 4

ON-LINE TRADING IN MENTHA OIL AND POTATO


ADVANTAGES TO FARMERS

4.1. Introduction
The physical market conditions and the long supply chain in potato and mentha oil are posing
serious threat to the price realization of farmers. The highly unorganized physical markets in potato
and lack of sufficient storage capacity threaten the survival of small farmers while imperfections in
supply chain of mentha oil causes massive price loss to mentha farmers. The lack of knowledge
about market prices and absence of organized selling create disadvantage of farmers in the
supply chain. The present chapter examines the potentials of potato and mentha as candidates
for introducing futures and the advantages of on-line trading in them to farmers of Uttar Pradesh
(UP).

4.2. On-line Trading and its Advantages


During the past decade there has been a dramatic increase in the number of futures exchanges
employing electronic screen trading systems. Recent examples include the transfer from floor to
electronic trading on the London International Financial Futures and Options Exchange (LIFFE) in
1999, Sydney Futures Exchange (SFE) in 1999 and the Hong Kong Futures Exchange (HKFE) in
2000 (Sunil Kumar, 2005). However, open outcry is still used by key markets such as the Chicago
Board of Trade (CBOT) and Chicago Mercantile Exchange (CME). This diversity in practice leads to
fundamental questions about the comparative market quality of floor traded and electronic screen
traded futures markets and is of particular importance to regulators, exchange policy makers and
systems builders. The major differences between these two trading systems are summarized in
Supply Chain and Futures Trading A study of Potato and Mentha 49

Table 4.1: Open Outcry Vs On-line Trading


Open Outcry trading

On-line trading

Main suppliers of liquidity

Locals

Large institutions; marketmaking firms

Primary costs

Upkeep and staffing of trading


floor; back-office tasks

Upgrading of software and


hardware; telecommunication
costs

Information sources

Traders observations of
market activity

Order book; outside news


sources

Operating efficiency

Large time and labour


Speed, accuracy and
investment; potential for errors transparency

Possible sources of trading


abuse

Lack of precise trade records;


lack of anonymity in trading

Manipulation of orders before


entry

Source: Federal Reserve Bank of New York.

On-line trading in futures derivatives benefits the markets in several ways. First, it facilitates larger
geographical dispersion of trade and widens the market access which promotes better price discovery
with lower price volatility. Secondly, it ensures market efficiency by incorporating all information into
the price determination process quickly and effectively in a manner that is clear to all participants.
Thirdly, it minimizes trading costs through wider spreads, lower fees, lower brokerages, and lower
commissions. Fourthly, it increases volume of trade in the market by regularly attracting investors
from different parts of the country through widely distributed terminals. Fifthly, it increases trading
efficiency through greater speed of execution. It helps participants to quickly take into account
a spree of buy/sell as well as cancel orders without delayed response. Finally, on-line trading
promotes transparency and minimizes market abuses as it offers improved methods of surveillance
and more accurate audit trail.
There is voluminous literature on empirical examination of benefits of on-line trading. The major
parameters examined in these studies are liquidity, transparency, efficiency, volatility, quoted
spread, daily spread and price discovery. A summary of findings of these studies are presented in
table 4.2.
Table 4.2: Studies on Advantages of On-line Trading A Summary
Author(s)

Period

Markets

Dependent variable(s)

Impact of Online trading

Franke and Hess (1995)

1991-92

LIFFE/DTB

Trade volume

Higher

Shyy and Lee (1995)

1993

LIFFE/DTB

Quoted spread

Wider

Pirrong (1996)

1992-93

LIFFE/DTB

Realized spread

Equal/narrower

Sandmann and Vila (1995)

1993

SIMEX

Realized spread

Wider

Vila and Bacha (1996)

1986-91

SIMEX

Trade volume

Higher

Kofman and Moser (1997)

1992

LIFFE/DTB

Bid-ask spread

Narrower

Frino et al (1998)

1997

LIFFE/DTB

Quoted spread

Narrower

Martens (1998)

1995

LIFFE/DTB

Price discovery

Faster with reduced volatility

Naidu and Rozeff (1994)

1988-89

SSE, Singapore

Daily spreads
Volatility

Wider
Higher

50

Supply Chain and Futures Trading A study of Potato and Mentha

Shah and Thomas (1996)

1994-95

BSE, Mumbai

Daily Volume
Volatility
Market efficiency

Higher
Higher
Improves

Ferris et al. (1997)

1986-91

VSE, Vancouver

Daily volatility

Lower

Freund et al (1997)

1976-81

TSE, Toronto

Daily market efficiency

Similar

Blennerhassett and
Bowman (1998)

1991

New Zealand
Stock Exchange

Daily spread

Narrower

Source: Sunil Kumar (2005)

To summarize, there is empirical evidence to suggest that on-line trading has improved operating
efficiency of markets as reflected in increased volume, efficiency, spread and volatility.

4.3. Benefits of and the Need for Potato and Mentha Oil Futures
4.3.1. Price Instability
It is generally accepted that futures do help ensure stability of income to farmers. The volatility of
prices introduces an important element of uncertainty in the commodity trade and, thus, represents
a risk for producers, traders, processors and other consumers. The inter-year and intra-year price
volatility which pose serious problems to farmers make their income highly unpredictable and
investment unprofitable. Moreover, government is also exposed to commodity price risk because
its revenues depend largely on taxes on commodity exports and imports and commodity related
income. In view of these benefits especially to farmers and other players in the market UNCTAD
emphasized the role of the government, in partnership with the private sector including commodity
exchanges and associations to undertake the task of educating and sensitizing operators, policy
makers and relevant public servants on the need for and functional details of futures trading. The
required investment in information dissemination, training, and capacity building for risk management
can only be undertaken with the full support of the government. The farmers and other players in
the market need to be informed of the benefits and costs of different risk management tools and
strategies as well as of the potential dangers which arise in the absence of adequate mechanisms
for controlling their use. Moreover, it is the governments responsibility to create the appropriate
legal, regulatory and policy conditions for the use of risk management tools and for improved
access to finance to become practicable. This is not an easy and costless task, but it is one which
can no longer be postponed, given the high vulnerability of farmers to price volatility (UNCTAD,
ITCD/COM/7, 1997)
The potato farmers in the UP are exposed to large seasonal price risk. They face different
magnitudes of price variability during the crop season and storage season. For example, during
the last crop season i.e., December 2005 March 2006 prices varied from Rs. 275 to Rs. 480
per quintal in Farrukhabad market while during the storage season between April-September 2006
the prices varied between Rs. 300 and Rs. 700 per quintal. There are many possible reasons for
the aggressive seasonal price variations. First, no estimates of potato crops are available with the
Horticulture Department or with State Agricultural Produce Marketing Board (Mandi Parishad). The
Supply Chain and Futures Trading A study of Potato and Mentha 51

Mandi Parishad provides only the data on arrival of potato in main APMC mandis. Secondly, stock
position of potato is essential for price formation during the off season. However, stocks maintained
in cold storages are not known though they are under the regulatory domain of the Department of
Horticulture. Thirdly, potato processing industry is not large enough to offer opportunities for forward
contracts to farmers. The contract farming, though not commonly resorted to by processing industry
for procurement has neutralized the supply response. Finally, no concerted effort is made yet to
explore the export potentials of potato. Exports are primarily individual initiatives and no advance
estimates are available for future exports to various countries.
It may be observed from the statistics given in table 4.3 and 4.4 that seasonal price variations are
sharp which cause massive income losses to potato and mentha farmers. Potato markets face very
sharp upward price movements during October-November when storages have already exhausted
the stocks of previous crop and the next rabi crop is due in January-February. The averages of
the minimum and maximum prices during this period are respectively Rs. 438 and Rs. 529 with
an average variability (which is coefficient of variation or standard deviation) close to Rs. 100 per
quintal in Farrukhabad. As against this, the respective averages during crop season between
December and March are Rs. 338 and Rs. 396 with an average variability of Rs. 67 per quintal. The
price risk as measured by standard deviation is far higher during the off season than that during the
crop season. This indicates that farmers are exposed to larger price risk towards the end of storage
season. The figures 4.1 through 4.3 track the price trend in Farrukhabad potato market.
Similar price trends are noticeable in mentha oil market. The prices quoted in Sambhal ready market
are graphed in figure 4.4 through 4.7. As discussed earlier, mentha oil market is highly unorganized
and dominated by large number of small players. The market is characterized by price seasonality
and price instability. They are attributed to the highly unorganized nature of the market. On the
supply side, the market has no information about the total expected supply during the season as
also about the stock position. Similarly, no forecasts are available with respect to demand. As a
result, prices are subject to speculation.
(Rs. per quintal)
Table 4.3: Spot Market (Farrukhabad) Price of Potato
Season

Average Minimum Price


(Standard deviation)

Average Maximum Price


(Standard deviation)

437.55 (98.93)

529.02 (96.04)

6 Dec. 2005 31 Mar 2006

337.73 (67.11)

396.20 (73.09)

3 Apr 2006 29 Sep 2006

436.20 (56.33)

537.96 (63.07)

Oct. 2005 Sep. 2006

404.14 (83.74)

489.69 (98.46)

1 Oct. 2005 5 Dec. 2005

Source: Own estimates based on daily data from UP State Agricultural Produce Marketing Board, Lucknow.

Table 4.4: Spot Market (Sambhal) Price of Mentha Oil


52

Supply Chain and Futures Trading A study of Potato and Mentha

(Rs. per kg)


Season

2006

2005

2004

2003

474.85
(27.68)

392.57
(14.32)

304.65
(4.97)

NA

May -- November

561.51 *
(92.45)

442.83
(44.79)

365.61
(74.80)

279.30 **
(2.84)

December -- Mid
February

NA

663.77
(76.88)

378.83
(21.20)

303.60
(14.35)

May -- April

561.51
(92.45)

496.15
(101.61)

373.42
(59.82)

296.16
(14.66)

Average Export Price ***

548.00

532.00

418.00

382.00

Mid February -- April

Figures in parenthesis indicate average price variation (standard deviation)


* The period covered only up to October 2006.
** The period starting from 16 October 2003
*** Financial year data. For 2006, the value shows the average price during April-June
only.
Source: Estimates based on spot price data obtained from MCX Ltd., Mumbai.
DGCI&S, Ministry of Commerce, Government of India.
Farmers often wait for and able to realize the best price during the peak season of industrial
consumption of mentha oil during the period between December and mid-February. However,
prior to launch of futures trading, price variation across seasons was not of any significant scale
resulting in low price realization. As table 4.4 shows the average price during the peak arrival
season between May and November in 2004 was Rs. 365.61 while during its peak demand season
between December and mid-February yielded an average price of Rs. 378.83 only. However, the
corresponding prices during 2005 have been Rs. 442.83 and 663.77 respectively which indicate
a substantial jump in the prices due to better price formation in the futures markets. Moreover,
the overall average price for May April cycle also strengthened from Rs. 373.42 in 2004 to Rs.
496.15 in 2005 and further to Rs. 561.51 in 2006. This is an an indication of the fact that the price
discovery in futures has helped strengthening of prices in spot market.

4.3.2. The Problem of Storage


The impact of price instability on farmers income depends on the size of their land holdings. Small
farmers (land holding less than 4 hectares) are often compelled to resort to distress sale as soon
as possible after the harvest to meet their pressing financial requirements. They are left with no
other option not only because of family obligations but also to meet more expensive repayment
obligations to informal sources of credit they often resort to. Even if they prefer to store for better
price realization the gain in terms of the storage margin will be eaten away by the local money
lenders. Sound price risk management is quite difficult when they face continuous financial pressure.
Therefore, they need storage facility along with reliable avenue for collateral credit.
The medium (4 to 10 hectare land holding) and large (10 hectares and above) farmers on the other
Supply Chain and Futures Trading A study of Potato and Mentha 53

hand are faced with different set of problems. First, as the survey result indicated they also resort to
distress sale of 15 25 per cent of the output immediately after the harvest to meet the immediate
financial requirements. Secondly, they are more affected by the shortage in storage capacity. As the
storage capacity available (see table 4.5) can meet only around 60 per cent of the total production
the attractive storage margin is not fully realizable. Finally, there is a fear of the future. As there
is no accurate forecast of prices available the storage margin becomes speculation. They would
rather prefer tangible and concrete things over mere possibilities. The futures markets therefore
have a potential role to play in terms of providing advance price information through price discovery.
Futures allow farmers to get a much better idea of the prices they will obtain in the future, and thus,
to plan their investments.
Table 4.5: Cold Storage Capacity in UP
Year

No. of Cold
Storages

Storage
Capacity (in
Lakh tonne)

Potato
Production (in
lakh tonne)

Total Storage
(in lakh tonne)

1999-2000

948

59.73

101.09

50.34

2000 - 01

1005

60.31

83.98

36.9

2001 - 02

1011

61.66

95.7

45.22

2002 - 03

1040

65.5

102.21

62.48

2003 - 04

1085

72.73

88.25

50.69

2004 - 05

1155

78.89

98.21

58.43

2005 - 06

1205

83.65

100.86

60.65

Source: Directorate of Horticulture, Govt. of UP, Lucknow


Credit is a major bottleneck in the improvement of seasonal price instability. As discussed above,
due to informal high cost credit market the seasonal price difference and storage margin hardly
makes any positive gain to farmers. However, if the stored goods can be transformed to a vehicle
for obtaining credit from formal low cost sources, farmers will gain.
A comparison between seasonal price movements and storage costs is presented in table
4.6. The rise in market price between seasons i.e., the storage price margin, is the gross benefit
earned by farmers on each unit of potato stored. In order for storage to be profitable, the storage
price margin must be sufficiently high to compensate farmers for all of the costs incurred for storage,
including storage charges (UP Government has fixed Rs. 90 per quintal as the rental charge for the
season during April-October), interest on foregone income from delaying the sale immediately after
the harvest and the storage losses. If the storage margin is lower than the cost of storage, then
farmers suffer a net loss and have little incentive to store. If the storage margin is above the cost of
storage then net benefits from storage are positive.

Table 4.6: Storage Price Margin


54

Supply Chain and Futures Trading A study of Potato and Mentha

Rs. per Quintal

% of Ph

Price at harvest (Ph)1

338.00

100.0

Price at end of storage period


(Ps)2

675.00

200.0

Storage price margin (Ps-Ph)3

337.00

99.7

Storage Cost

166.00

49.1

Storage rent @ 90/quintal

90.00

Interest cost 4

16.00

Storage loss @ 3%

20.00

Storage bag 5

30.00

Transportation, Loading &


unloading

10.00

Risk premium

171.00

50.6

1. The average price per quintal during December 2005-March 2006


2. The price prevailed per quintal at the end of September 2006.
3. Storage period is April-October
4. Assumes annual interest rate of 8%
5. Storage houses charge Rs. 24 per 85 kg capacity bag
The calculations show that the realizable risk premium is 51 per cent provided that the storage is
not supported by borrowings from informal sources. However, in reality, substantial portion of this
premium is eaten away by money lenders or not fully realizable due to many imperfections in the
supply chain.

4.3.3. Benefits of Potato and Mentha Oil Futures to Farmers


Given the socio-economic profile of farmers in these crops, the rural farming community is more
likely to have indirect benefits such as improved prices, market transparency than the direct benefit
of participation. Even in the US, where futures in agricultural commodities are more than a century
old, only a small percentage of farmers use them directly. In the majority of cases they access
the market through farmers associations/co-operatives, processors and traders. On the contrary,
commodity futures markets in India are in a nascent stage not only in terms of direct participation
of farmers and/or by any pool operators on their behalf but also in terms of awareness about its
utility.
The indicators of the markets however show that the introduction of futures has made certain
beneficial impacts especially in mentha oil market. First, the information flow from futures markets to
ready (spot) market has strengthened price realization in the market channel. While the post-harvest
price moved up from Rs. 289.70 in 2004 to Rs. 369.3 and 448.20 in 2005 and 2006 respectively, the
pre-harvest price which rose to Rs. 662.45 in 2006 from Rs. 352.5 in 2005 showed a major boost
after the launch of futures in April 2005.

Supply Chain and Futures Trading A study of Potato and Mentha 55

The data given in table 4.4 indicate that the spot market has shown substantial improvement in
terms of increased price realization during the period especially after the introduction of futures.
The average daily price has gone up from Rs. 443 per kg during May-Nov. 2005 to Rs. 562 during
the corresponding period in 2006. The trend indicates that there is an all round improvement in spot
prices across seasons during 2005 and 2006. The peak season (December February) average
price has increased to Rs. 664 per kg in 2005. The corresponding figures prior to launch of futures
were Rs. 379 and Rs. 304 respectively for 2004 and 2003. It is logical to expect that farmers are
therefore indirectly benefited to certain extent from the increased spot prices even if local dealers
do not pass the entire price benefits to them. The significant price difference between the ready
and futures markets prevailed during the last two seasons has further strengthened the findings.
While average ready market price during the last season was Rs. 495 per kg the corresponding
futures market price was Rs. 618 per kg. The prices have shown significantly different trend during
the current season. As against Rs. 616 prevailed in futures market during May-October 2006 the
average ready market price in Sambhal registered an average of Rs. 562. This is an an indication
of the fact that the price discovery in futures has helped strengthening of prices in spot market.
Secondly, it has played a key role in collective and broad based price formation in the spot market.
As indicated earlier, the official data disclosed by the exchange show that the MCX trade platform
for mentha oil has received wider participation from large number of cities in UP. As shown in table
4.7 the number of cities in UP which has been covered by mentha oil futures trading has gone up
from 23 as at the end of December 2005 to 28 by the end of February 2006. This is an indication of
the wider reach of and participation in the market.
Table 4.7: State-wise Reach of Futures Trade
States

Mentha Oil

Potato

Number of cities MCX terminals recorded trade


30 Dec. 2005

22 Feb. 2006

30 Dec. 2005

22 Feb. 2006

22

26

14

Bihar

Chattisgarh

Gujarat

16

17

12

Haryana

Jammu & Kashmir

Jharkhand

Karnataka

Kerala

10

Madhya Pradesh

11

20

24

20

10

New Delhi

Orissa

Andhra Pradesh

Maharashtra

Pondicherry

Punjab

11

20

19

16

Rajasthan
56

Supply Chain and Futures Trading A study of Potato and Mentha

Tamil Nadu

Uttar Pradesh

23

28

19

Uttaranchal

West Bengal

Grand Total

154

183

128

52

Source: MCX Ltd., Mumbai.


Thirdly, the average export price of mentha oil has shown substantial recovery after the introduction
of futures. The average export price has increased from Rs. 382 per kg in 2003-04 to Rs. 532 in
2005-06 and further to Rs. 548 during the first quarter of 2006-07. The increased international market
value help farmers get better price while adding more foreign exchange to the country. However,
due to asymmetry in information flow the mentha farmers have not fully benefited from a higher
market value for mentha oil. It is observed that dealers do not pass on price benefits to farmers.
Under such market conditions futures can ensure effective price discovery to be disseminated to
the producers and consumers and offer better price forecasts to all players in the markets.
Finally, the data released by the Directorate of Horticulture reveal that the area under mentha
cultivation and its production have been increasing over the years. As shown in table 2.13 in chapter
2 (also see appendix 2) there was a massive increase in area under cultivation in Barabanki from
31,000 hectare to 40,236 hectare during the last one year. The similar trend is visible at all India
level data as well. This could be a stronger evidence of better price realization of farmers especially
after the launch of futures trading.

4.4. Necessary Environment for Sound Use of Futures


In a democratic socialist system internal trade reform process becomes rather slow. This is
primarily because of the thrust the government places on equity in distribution and on achieving
welfare through controls. However, in the new market driven system where government is trying to
minimize its intervention to control supply and distribution futures have a special relevance here.
Futures markets assume special significance in an agriculture dominated country like India. As
a matter of fact futures have played a vital role in the development of agricultural sector in many
developing and developed countries in the world. They have successfully utilized futures markets
for reducing direct government subsidy to farmers. The World Bank and UNCTAD have been taking
initiatives for building capacities in many countries to develop market driven price support and risk
management system through futures.
Internal trade in commodities has witnessed a sea change during the last one decade in India.
Government has initiated the process of deregulation of domestic trade in commodities in 1997
by lifting prohibition of futures trade in a large number of commodities and facilitating setting up
of national online multi-commodity exchanges. Subsequently, the government has abolished
prohibition of forward trading on all the remaining banned commodities in April 2003. These two

Supply Chain and Futures Trading A study of Potato and Mentha 57

initiatives have triggered massive growth of futures markets in India. By the end of 2003, three
on-line corporatised multi-commodity futures exchanges became operational. Currently there are
24 exchanges in India with derivative contracts on more than 120 commodities available for trade.
The aggregate turnover of all the exchanges has shot up from Rs. 28419 crore in 1998-99 to Rs.
129364 crore in 2003-04 and further to Rs. 571760 crore in 2004-05 (Forward Markets Commission,
2005). The total value of trade during 2005-06 has crossed Rs. 10 lakh crore. Simultaneously, both
market participation and trading practices underwent revolutionary changes. The new generation
exchanges brought in technology and worlds best trading systems and practices. However, the
other side of the market is the relatively underdeveloped institutional infrastructure which prevents
farmers and other potential players to benefit from futures. Time is ripe now to create necessary
infrastructure and institutional support system through suitable government initiative for deeper
growth of the market which ensures the benefits trickle down to all farmers and other players in
rural India.
The present situation calls for immediate steps in two important areas. They are (1) direct or indirect
participation of farmers in futures markets and (2) warehouse receipt finance system for better
credit flow to farmers.

4.4.1. How to involve farmers in futures markets?


A large majority of potato and mentha farmers are not able to access futures markets directly
because they lack the critical minimum size in terms of quantity of production to meet the contract
requirement. As far as potato is concerned, the quality and variety are equally prohibitive to small
farmers. As they intend to cater to the local market at rather lower prices, they are not as concerned
as others who deal with large dealers. Big farmers are primarily restricted by lack of awareness
about the operational details about the market and to a certain extent by their attitudes towards
futures. Their attitudes in the decision to use futures markets are influenced by the wrong perception
about derivatives trading. The informal discussions with many of them during the survey revealed
that the subjective influences on the decision to initiate position in futures are strongly rooted in
wrong perception. The misconception lead them to believe that futures are speculation and only
for wealthy players who are capable of investing huge amounts to make large profits. There is a
political economy angle to the subjective influences as well. The long supply chain and exploitative
markets in mentha oil and potato survive on this wrong perception. It is always for the benefits
of middlemen in the supply chain to create this misconception. Any opportunity for better price
realization to farmers is considered to be a threat to the middle men who always tend to misguide
farmers about the benefits of futures. Small farmers are more prone to the influences of these
unscrupulous middlemen. This veil of wrong perception is prohibiting the market from an inclusive
growth and restricts it to a few powerful players in the market.
An aggregator (commodity pooled investor, CPI) can play a significant role in improving the supply
chain in potato and mentha oil. It can facilitate farmers and other intermediaries in the supply chain to
58

Supply Chain and Futures Trading A study of Potato and Mentha

participate in and benefit from futures. As discussed in chapter 3, farmers associations and storage
houses can play the role of aggregator. It is noticed that already farmers have taken initiatives to
form their clubs in some parts of the state in order to initiate positions in futures. However, much
more concerted efforts are required in this direction to make any qualitative improvement in the
highly exploitative supply chain.
The government along with the regulator and with active participation of exchanges will be able
to do in this direction which will make the future market more participative and broad based. This
requires, as discussed in Combe (UNCTAD, 1997), initiatives in three important directions. First,
there are certain legal preconditions. If farmers associations should complete a role of intermediary
in marketing chain, they should have the same possibilities as a trader. In terms of legal rights,
they would have access to physical and futures markets without restrictions and have access to
formal credit sector as an enforceable counterpart. They should be able to trade, act in over-thecounter market towards farmers but especially towards traders or even exporters. The government
could also initiate co-operative societies and state level marketing agencies to operate on behalf
of farmers.
Secondly, access to market information is crucial not only for changing the attitudes of farmers
towards futures and building their confidence in the market but also for improving transparency,
efficiency and reliability. This could be taken care of by establishing formal channels to disseminate
market information uniformly across various players in the market. Government must take initiative
in this direction to create infrastructure for sustainable and market driven growth of agriculture.
This will be a step towards creating productive and sustainable market driven support system for
agriculture than providing direct subsidy which creates fiscal stress on government. The public
service for collection and dissemination of information such as prices, crop forecast, quantity traded,
stock positions, quality premiums and discounts, government storage policy and so on could create
a more level playing field.
Finally, regular awareness-raising, orientation and training programmes are essential in the light
of the prevailing wide-spread negative propaganda carried out to a certain extent by media and
largely by word-of-mouth communication. This is a difficult task when the market is in an evolving
stage. The subjective factors like attitudes and word of mouth advice will influence the decision
to hedge more than that of the objective factors. This is because the objective analysis of the
markets hedging performance is constrained by relatively weaker characteristics of the market
including volume, volatility and depth during its evolutionary phase. Nevertheless, farmers and
more importantly, the leaders of farmers associations have to become aware of the existence of
these markets, and pass through a process reflecting on how they can be useful for farmers day-today operations. Once these potential players are educated about the potentials of futures, training
them on operational aspects of markets should follow.

Supply Chain and Futures Trading A study of Potato and Mentha 59

4.4.2. How to ensure credit to farmers through warehouse receipt system?


The Indian agriculture, particularly the smallholder farming segment, has always been crippled by
insufficient credit availability. The traditional methods of financing like subsidized credit, commercial
credit and other credit guarantee schemes have proved to be insufficient and unsustainable. Among
a new range of non-traditional techniques for lending to the agricultural sector the warehouse receipt
financing has received increasing attention world-over in recent years. Under this system, farmers
use warehouse receipts issued by a warehouse operator as collateral for a loan. The warehouse
receipt offers an avenue for secured lending as the lending bank has the right to confiscate and sell
the underlying commodity if the borrower fails to pay back. This financing method was instrumental
in the growth of the United States agricultural sector during the first part of the last century, and can
play this role again in many developing countries. Financing of coffee in Kenya and Uganda, pepper
in Malaysia, sugar in Argentina, rice and sugar in Philippines and many product segments in Zambia,
Poland, Hungary, Romania have shown the success of warehouse receipt financing. Although the
warehouse receipt system is not altogether new to India, the necessary institutional, legal and
procedural set up has not been developed for utilizing this avenue for better and sustainable credit
markets for Indian agriculture (Sahadevan, 2004).
The negotiable warehouse receipts in commodities can promote futures markets. The exchanges
which combine warehouse receipts with futures will be able to create secondary markets in such
receipts. These exchange tradable receipts are treated as secured collateral by farm financing
agencies and exchanges as well. The warehouse receipt collateral financing system is not new
to India. It is being utilized by potato farmers in some parts of the state through warehouses. The
warehouse receipts issued by many non-accredited potato storage houses are taken as collateral
by local co-operative and nationalized banks. For example, Barabanki Grameen Bank and Bank
of India in Barabanki and Fatehpur areas provide loan to farmers up to 75 per cent of the value of
potatoes against the storage receipt issued by cold storages. A specimen sample of the receipt is
copied below.

60

Supply Chain and Futures Trading A study of Potato and Mentha

4.4.3. Enhancing market access through exchange traded warehouse


receipts
Commodity exchanges can play an active role in developing warehouse receipt (WR) financing
system. The exchange traded negotiable WRs offer lending banks the mechanism for hedging
price risk and for transferring credit risk from the borrower to commodity. However, the market for
WRs requires (a) reliable and reputable warehouse operators backed by government regulation,
(b) appropriate warehousing and commercial legislation by which WRs should be legally treated as
documents of titles and not just as evidence of possession in which case the operator has obligation
to the depositor, (c) WRs are to be negotiable (endorsable) and (d) a central registry for tracking
the WR to identify the party who has legal title to the underlying commodity. This helps farmers
indirectly benefiting from futures markets in addition to saving them from distress sales during
the crop season. This helps improve efficiency of agricultural marketing system and helps reduce
seasonal price variations. Moreover, exchanges will be able to generate large volumes in those
commodities in which WR system is introduced.
The potato markets in UP have the potential that exchanges, banks and storages houses together
could be utilized for developing a liquid warehouse receipt system. First, potato fulfills the conditions
for establishing verifiable standards and grades. The co-mingling and fungibility risk therefore is
non-existent. Secondly, marketing potato is essentially a private initiative without any government
intervention either for procurement or for fixing prices. Thirdly, spot market in potato is active and
prices are highly volatile causing risk to all players in the market. Fourthly, there is a network of
warehouses operating in all major production centres in the state. As they are not accredited by any
Supply Chain and Futures Trading A study of Potato and Mentha 61

agency and not regulated (other than fixing the rental charges) by government most of them do not
enjoy credibility and market confidence especially among the financing institutions. Finally, as cited
above, in spite of all systemic inadequacies the receipts issued by them are still accepted by local
co-operative banks and even nationalized commercial banks as collateral for lending to farmers.
Development of commodity exchanges as the place for trading WRs with an objective to extend the
benefits of futures directly to farmers and other intermediaries in the potato markets calls for major
initiatives from the part of government as well as other intermediaries in the entire services chain. The
key enablers of an efficient WRs system includes (a) setting up of a government body for regulation
and laying down the criteria for accreditation of warehouses, (b) strengthening the capacity for
collateral management services which include grading, quality, quantity and weight controls of the
underlying physical commodity, process controls at the warehouse, insurance, legal and financial
structures and protection of the marketable value of the collateral, (c) developing secure electronic
WR system which takes care of risk of physical tampering and secured commodity information
with depository organization, (d) customer education and (e) developing guidelines for scientific
storage condition to be modified. Banks also need to follow it up with announcing transparent
policies regarding their commodities financing norms. The grading certificates and WRs issued by
the warehouses or third party collateral manager can be treated as liquid asset collateral backed by
physical potato stored in any accredited potato warehouse.

4.5. Conclusion
The analysis of production trends, supply chain and marketing practices in mentha oil and potato
suggests that market potential for futures trade in these commodities is increasing. The farmers are
exposed to many uncertainties as regards to their production, marketability and price realization.
While their production is highly sensitive to weather conditions and other extraneous factors, the
price realization greatly depends on the farmers financial position to store them for meeting the off
season demand which optimizes prices in their markets. However, the major stumbling block is their
small size which inhibits them benefiting from futures markets. Therefore, the important question to
be addressed is how to make farmers participate in futures markets.
Growing potato and mentha is essentially a profitable economic activity. However, farmers often fail
to realize profitable price primarily due to inadequate formal marketing facilities and lack of collateral
credit availabilities from formal sources. The long supply chain which accommodates large number
of middlemen in both the markets is prohibiting farmers from otherwise profitable prices. These
markets are highly unorganized and dominated by large number of small players. Moreover, the
markets are characterized by price seasonality and price instability. This is an outcome of the
unorganized nature of these markets. On the supply side, both potato and mentha oil markets have
no information about the total expected supply during the season as also about the stock position.
Similarly, no forecasts are available with respect to demand. As a result, prices are subject to
62

Supply Chain and Futures Trading A study of Potato and Mentha

speculation. The spot markets in potato as well as mentha oil showed substantial improvements
in terms of increased price realization during the period especially after the introduction of futures.
Farmers are therefore indirectly benefited from the futures markets.
There are ways to improve the supply chain and price realization of farmers. Farmers organizations
in addition to improving the supply chain can also ensure indirect participation of small farmers in
futures markets. More importantly, development of a formal financing system in agriculture through
crop collateral will go a long way in ensuring a fair deal to small farmers in the market. This calls for
building necessary institutional capacity for warehouses, credible collateral management system
and institutional credit flow in agriculture. Commodity exchanges have a crucial role to play in
developing a sound warehousing and collateral financing system.

Supply Chain and Futures Trading A study of Potato and Mentha 63

64

Supply Chain and Futures Trading A study of Potato and Mentha

Supply Chain and Futures Trading A study of Potato and Mentha 65

CHAPTER 5

CONCLUSIONS AND POLICY IMPLICATIONS

5.1. Potentials of Mentha oil and Potato for Futures Trading


Potato and mentha play a very significant role in the agricultural economy of Uttar Pradesh. They
are economically significant not only for their contribution to the livelihood of thousands of farmers
and for their dominance in the agricultural consumption basket of households but also for their
growing linkages to fast growing potato processing industry and highly diversified industrial use of
mentha oil for confectionary, cosmetics and pharma sectors. These characteristics make them very
high potential candidates for futures trading.
Moreover, they fulfill the following conditions which make them suitable for introducing futures
trade.

The supply and demand for these commodities are large enough to attract many potential

futures markets players.

As India is a leading producer of both the commodities they have the potential to attract

international trading interests in the futures markets.

These commodities are well standardized and storable. While mentha oil is high value and low

volume commodity which is storable without any special and expensive infrastructure

requirements, a large chain of cold storages network in UP is taking care of the storage of

potatoes.

Private and free markets forces operate in both commodities without monopolistic or government

control.

The most important among other conditions is their seasonal supply and large price variation

66

Supply Chain and Futures Trading A study of Potato and Mentha

between crop season and off season creating large price risks to producers and consumers

alike.

5.2. How Futures Benefit Farmers and Markets?


The analysis of production trends, supply chain and marketing practices in mentha oil and potato
reveals that, farmers in general and small farmers in particular are unable to realize fair price
for their output. The potato and mentha farmers are exposed to many uncertainties as regards
to their production, marketability and price realization. While their production is highly sensitive
to weather conditions and other extraneous factors, the price realization greatly depends on the
farmers financial position to store them for meeting the off-supply season demand which optimizes
prices in their markets. Growing potato and mentha is essentially a profitable economic activity.
However, farmers often fail to realize profitable price primarily due to inadequate formal marketing
facilities and lack of collateral credit availabilities from formal sources. The long supply chain which
accommodates large number of middlemen in both the markets is prohibiting farmers from realizing
fair return on their investments.
It is observed that the prevailing imperfections in the supply chain of potato and mentha oil and
consequent price disadvantage to the respective farming community make futures markets more
relevant and beneficial to them. Futures markets benefit them in two ways; directly and indirectly.
Farmers benefit from direct participation in the market by initiating positions while they benefit
indirectly by making use of the price information that futures markets transmit to spot markets on a
regular basis. The continuous price discovery in futures markets help farmers predicts their future
cash flows and evens out supply and demand imbalances through out the year. The analysis of the
spot market price trends of potato and mentha oil after MCX launched futures in them shows that
there was substantial improvement in these prices which has undoubtedly helped farmers realize
relatively higher price. This advantage is very clearly visible in mentha oil market. First, the spot
market prices of mentha oil have strengthened after the launch of futures. Secondly, the area under
mentha cultivation and its production have shown substantial increase after the launch of futures
and finally, the official trade data show that the average export price of mentha oil has recorded
substantial increase after the introduction of futures.
Yet another issue examined in the present study is the potato and mentha farmers access to futures
markets. The major highlight of the survey result is that farm size prohibits majority of them from
participating directly in futures markets. Therefore, the important question to be addressed is how
to make farmers participate in futures markets. The present study has emphasized on the role of
commodity pool investors (aggregators) as a feasible remedy. Experiences of many countries show
that farmers associations, marketing agencies and co-operatives could be potential aggregators in
farm sector. This however requires initiative of the government, regulator and exchanges towards
establishing pool operators in commodity futures markets. Though there are no agencies formally
Supply Chain and Futures Trading A study of Potato and Mentha 67

operates as pool investors on behalf of farmers, it is reported that farmers clubs are being formed
in some parts of UP which have started operating on MCX platform.
The study has thrown some lights on the potential role that cold storages in potato markets, and
dealers and commercial distilleries in mentha oil markets can play in this regard.

5.3. How to Strengthen Futures in Mentha oil and Potato?


The decision to hedge in futures markets is largely influenced by the subjective as well as the
objective considerations. The objective considerations are based on historical hedging performance
of the contracts. The poor hedging performance of futures can discourage participants from taking
positions. As potato and mentha oil futures have started only in the recent past it is immature to
evaluate their historical hedging performance. An objective evaluation of the performance of any
markets requires fairly long period price data. The survey results reveal that farmers and other
intermediaries operating in potato and mentha oil ready markets were not fully aware of the benefits
of futures trading. The lack of awareness about the benefits of futures may be attributed to the
lackluster response especially to potato futures markets. The farmers responses indicate that
certain subjective factors have deeply influenced their decisions to use futures. These subjective
factors including attitudes and perceptions are important especially in the formative periods of a
market. The formation of negative attitudes among them and the inadequate initiatives of the market
authorities and regulators to change many of the unhealthy prejudices and negative perceptions
about futures trading have prevented the penetration of the markets.
Moreover, the survey results revealed that the awareness about futures and its potential benefits has
not been sufficient enough to neutralize all subjective influences. The prevailing market environment
therefore poses serious threat to the services offered by the exchange while opportunities are
abound due to enormous size of the market that remain unexplored. In addition to making farmers,
storage houses, dealers, exporters and processors aware of the utility and operational aspects of
futures markets certain specific and focused action is required in order to develop vibrant markets
in potato and mentha oil futures. The exchange should adopt a marketing approach which not only
generates more volume and liquidity but also improves penetration of the markets by bringing all
ready market players to its fold. This requires a pro-active approach in alleviating all misconceptions
and improving attitudes of the existing and potential customers.

5.4. Implications for Institutional Capacity Building


Growing potato and mentha is essentially a profitable economic activity. However, farmers often fail
to realize profitable price primarily due to inadequate institutional capacities for storage, credit and
organized selling. The long supply chain which accommodates large number of middlemen in both
these markets is prohibiting farmers benefiting from otherwise profitable prices. These markets are
68

Supply Chain and Futures Trading A study of Potato and Mentha

highly unorganized and dominated by large number of small players. Moreover, the markets are
characterized by seasonality and price instability. This is an outcome of the unorganized nature of
these markets. On the supply side, both potato and mentha oil markets have no information about
the total expected supply during the season as also about the stock position. Similarly, no forecasts
are available with respect to demand. As a result, prices are subject to speculation. The spot
markets in potato as well as mentha oil showed substantial improvements in terms of increased
price realization during the period after the introduction of futures. Farmers are therefore indirectly
benefited from the futures markets.
The government, the regulator and exchanges have a role in transforming futures market to more
participative and broad based. The most important step in this direction would be the establishment
of aggregators who can operate as pool operators in futures markets. Farmers associations, cooperatives and national and state level marketing federations can assume the role of aggregators.
Moreover, in view of the prevailing misconceptions and lack of awareness about futures markets,
there is need for a comprehensive awareness raising and training programmes.
There are ways to improve the supply chain which in turn help farmers realize better prices. Farmers
organizations in addition to improving the supply chain can also ensure indirect participation of
small farmers in futures markets. More importantly, development of a formal financing system in
agriculture through crop collateral will go a long way in ensuring a fair deal to small farmers in the
market. This calls for building necessary institutional capacity for warehouses, credible collateral
management system and institutional credit flow in agriculture. Commodity exchanges have a
crucial role to play in developing a sound warehousing and collateral financing system.

Supply Chain and Futures Trading A study of Potato and Mentha 69

REFERENCES
Combe, M. Oliver (1997), The role of farmers association in commodity price risk management
and collateralized commodity finance, UNCTAD, Geneva.
Ennew, Christine; Wyn Morgan and Tony Rayner (1992), The role of attitudes in the decision to
use futures markets, Agribusiness, Vol. 8, pp.561-73.
Forward Markets Commission (2005), Safeguarding Futures, Ministry of Consumer Affairs, Food
and Public Distribution, Government of India, Mumbai.
Sahadevan, K G (2002), Sagging agricultural commodity exchanges: growth constraints and
revival policy options, Economic and Political Weekly, Vol XXXVII No. 30, July 27-Aug.02, pp.315360.
Sahadevan (2002), Derivatives and risk management: A study of agricultural commodity futures
in India, Research Project Report, Indian Institute of Management, Lucknow.
Sahadevan, K G (2004), Commodity Derivatives and Futures Trading: A Study of the Sources of
Market Failure and the Policy Options for its Revival, Forward Markets Commission, Mumbai.
Sunil Kumar (2006), Study of efficiency and microstructure of agricultural commodity futures
markets in India unpublished FPM thesis, Indian Institute of Management Lucknow.
UNCTAD (1997), Government policies affecting the use of commodity price risk management and
access to commodity finance in developing countries UNCTAD/ITCD/COM/7, UNCTAD Secretariat,
Geneva.

70

Supply Chain and Futures Trading A study of Potato and Mentha

APPENDIX 1

DISTRICT-WISE POTATO PRODUCTION IN UP

(Area in Hectare and Production in Metric Tonne)


Districts Name

2000-2001

2001-2002

2002-2003

Area

Prod.

Area

Prod.

Area

Prod.

791

16684

654

16129

691

16031

Muzaffarnagar

2603

54902

2332

57512

2554

59250

Saharanpur Division

3394

71586

2986

73641

3245

75281

Meerut

7353

158950

6769

174857

6477

168434

Bagpat

366

7879

376

10059

371

9426

Bulandshahar

6563

141276

6234

161779

7026

152050

Ghaziabad

4547

97879

4597

134016

4787

143983

336

7233

323

8641

280

7114

Saharanpur

Gauatambudh
Nagar
Meerut Division

19165

413217

18299

489352

18941

481007

Aligarh

5531

145737

6059

158419

8667

212532

Hathras

12544

370688

13241

419660

18080

596025

Mathura

6137

161704

5965

202894

7782

216254

Agra

18662

569023

24047

848426

30767

905596

Firozabad

18508

435012

20434

601005

28906

738664

Mainpuri

10328

236553

8763

205072

11416

285206

7058

130121

8941

201950

8612

205922

Etah
Agra Division

78768

2048838

87450

2637426

114230

3160199

Bareilly

4664

100140

4618

105378

6292

101245

Badaun

16612

304282

17210

412971

22479

464663

5151

110596

4510

76291

5657

96752

581

12475

467

10536

619

11925

27008

527493

26805

605176

35047

674585

Shahjahanpur
Pilibhit
Bareilly Division

Supply Chain and Futures Trading A study of Potato and Mentha 71

Bijnor

958

18924

915

21262

1103

29295

Moradabad

8239

227899

8545

188161

9923

281853

Jyoti-ba-phule
Nagar

4647

91797

3711

71667

3611

69356

Rampur

2182

43103

2381

80199

2017

61926

Moradabad Division

16026

381723

15552

361289

16654

442430

Farrukhabad

29221

766876

29382

818700

31490

915477

Kannauj

32479

807850

33061

886365

36615

807251

Etawah

5967

135008

6610

163921

8973

211198

Auraiya

2857

64642

2738

59475

3650

96751

10327

251617

9865

236671

11081

274487

Kanpur N.
Kanpur D.

1467

33192

1838

48711

2123

53281

82318

2059185

83494

2213843

93932

2358445

Fatehpur

5734

81665

5191

108175

5776

93976

Allahabad

12396

253771

11970

267877

11778

218965

Kaushambi

3570

50844

3396

56102

4558

76429

Kanpur Division

Pratapgarh
Allahabad Division
Jhansi

7200

102544

6738

105362

6397

107406

28900

488824

27295

537516

28509

496776

275

5860

201

4957

346

8027

Lalitpur

330

7033

315

7769

297

6890

Jalaun

179

3815

228

5623

316

7331

Jhansi Division

784

16708

744

18349

959

22248

97

2067

106

2614

147

3410

Chitrakut

267

5690

190

4686

271

6287

Hamirpur

30

640

23

567

53

1229

Mahoba

90

1918

87

2146

124

2877

484

10315

406

10013

595

13803

4163

94330

3272

69239

3508

72472

Banda

Chitrakut Dham
Division
Varanasi
Chandauli
Jaunpur
Gazipur
Varanasi Division
Mirzapur
Sonbhadra

966

21889

1006

20518

987

19792

11685

250421

11716

255655

10246

172020

9857

224523

7601

135761

7604

184024

26671

591163

23595

481173

22345

448308

2160

46971

2139

52752

2208

51223

808

17571

771

19014

868

20137

Ravi Dash Nagar

1448

31488

1136

28016

1238

28720

Mirzapur Division

4416

96030

4046

99782

4314

100080

Ballia

7388

137026

6485

172086

6996

146244

Azamgarh

5707

105849

5382

142817

5352

111878

Mau

1796

33311

1565

41529

1390

29057

Azamgarh Division

14891

276186

13432

356432

13738

287179

Gorakhpur

4362

61713

4038

55381

4547

105486

Mahrajganj

2886

40831

2745

37648

2957

68600

Deoria

2126

30079

2049

28102

2097

48648

Kushi Nagar

1870

26457

1546

21203

1538

35680

11244

159080

10378

142334

11139

258414

Basti

3684

46532

3018

74430

2797

64888

Kabir Nagar

1827

23077

2071

51075

2126

49321

Gorakhpur
Division

72

Supply Chain and Futures Trading A study of Potato and Mentha

Sid.nagar

3076

38853

2567

63307

2359

54726

Basti Division

8587

108462

7656

188812

7282

168935

Gonda

2742

53735

2796

68955

3195

74121

Balram Pur

1904

37313

1733

42739

1734

40227

Bahraich

2077

40703

2132

52579

1698

39392

Shravasti

2000

39194

427

10531

400

9279

Devi Patan
Division

8723

170945

7088

174804

7027

163019

Lucknow

5107

69423

4591

105745

5358

96910

Unnao

5491

74642

5424

95273

6836

130458

Raebareli

5900

80202

5708

99799

5024

75169

Sitapur

3847

52295

3180

49544

3796

73384

Hardoi

11334

155661

9235

157512

10229

166988

Lakhimpur Kheeri

1208

16421

1177

21233

1355

23546

Lucknow Division

32887

448644

29315

529106

32598

566455

Faizabad

4110

66905

5068

85213

5188

74277

Ambedker Nager

4685

76266

4168

72873

4236

69852

Sultanpur

6684

108806

6373

157286

6799

84090

Barabanki

14338

277827

14402

348125

13819

275841

Faizabad Division

29817

529804

30011

663497

30042

504060

394083

8398203

388552

9582545

440597

10221224

Total Up

Districts Name

2003-2004

2004-2005(Est.)

2005-2006(Est.)

Area

Prod.

Area

Prod.

Area

Prod.

728

12707

724

12678

733

16443

Muzaffarnagar

2653

46305

1528

26757

2653

59512

Saharanpur
Division

3381

59012

2252

39435

3386

75955

Meerut

6455

135013

6185

162703

6114

99004

Bagpat

353

6390

279

6570

264

4559

Bulandshahar

7350

127647

7201

139894

7350

125156

Ghaziabad

5092

79394

6572

167783

6309

117524

156

2824

230

5416

267

4610

Saharanpur

Gauatambudh
Nagar
Meerut Division

19406

351268

20467

482366

20304

350853

Aligarh

8583

193332

7248

206706

10291

239163

Hathras

20111

574189

15940

524920

15940

455964

Mathura

8391

204514

10752

314345

8391

244061

Agra

31737

790473

29617

824863

39800

983936

Firozabad

30040

665716

32323

837812

33975

863135

Mainpuri

11760

272303

11760

252969

11760

243996

Etah

10561

230578

10252

202549

10234

202132

Agra Division

121183

2931105

117892

3164164

130391

3232387

Bareilly

6030

102371

5178

100557

6030

117760

Badaun

21706

521031

17455

394989

23119

469662

5302

79557

7961

220368

6423

212171

531

11289

701

16389

638

14335

Shahjahanpur
Pilibhit

Supply Chain and Futures Trading A study of Potato and Mentha 73

Bareilly Division

33569

714248

31295

732303

36210

813928

Bijnor

1073

28528

1130

29394

888

21576

Moradabad

9938

282557

9439

267926

9179

235294

Jyoti-ba-phule
Nagar

3596

77303

3972

80918

4303

92261

Rampur

1722

45784

2768

72004

1722

41840

Moradabad
Division

16329

434172

17309

450242

16092

390971

Farrukhabad

31228

703223

29649

828867

31442

804947

Kannauj

36571

791067

27732

586698

37507

676401

Etawah

9304

236080

9408

235661

10961

230477

Auraiya

3647

78713

5967

131011

3810

91253

Kanpur N.

6867

154659

10706

228477

6280

162853

Kanpur D.

2549

57149

5089

149296

2366

93263

90166

2020891

88551

2160010

92366

2059194

Fatehpur

6009

102243

5587

83113

6145

118807

Allahabad

11968

249676

12583

217585

10554

209064

Kaushambi

3986

51515

5333

58252

4882

91313

Pratapgarh

5791

94833

3942

49322

4620

87360

27754

498267

27445

408272

26201

506544

Kanpur Division

Allahabad Division
Jhansi

388

8115

438

6258

269

6034

Lalitpur

422

8826

221

3158

332

7448

Jalaun

251

5250

348

4972

176

3948

Jhansi Division

1061

22191

1007

14388

777

17430

Banda

164

3430

179

3995

304

6819

Chitrakut

332

6944

390

8705

398

8928

Hamirpur

29

606

57

1272

39

875

Mahoba

129

2698

148

3304

234

5249

Chitrakut Dham
Division

654

13678

774

17276

975

21871

Varanasi

3311

54499

945

16843

3347

72481

Chandauli

961

17927

3011

53664

1141

24709

Jaunpur

10607

176119

11643

191737

8926

170924

Gazipur

7794

174352

7794

133683

4909

128689

22673

422897

23393

395927

18323

396803

2155

45072

1482

24031

322

7223

891

18635

1100

17836

1055

23666

Ravi Dash Nagar

1107

23153

1840

29836

1286

28847

Mirzapur Division

4153

86860

4422

71703

2663

59736

Ballia

7336

163358

5760

96227

7386

222104

Azamgarh

5571

91359

5283

88257

5571

167526

Mau

1530

30197

1736

29002

1501

45137

14437

284914

12779

213486

14458

434767

Gorakhpur

4499

79857

4863

80463

4222

94708

Mahrajganj

3019

42372

1976

30221

1871

41970

Deoria

2200

35767

2210

35766

2043

45829

Varanasi Division
Mirzapur
Sonbhadra

Azamgarh Division

Kushi Nagar
Gorakhpur
Division
Basti
74

1548

25167

1854

30004

1394

31270

11266

183163

10903

176454

9530

213777

2740

32044

3620

80799

703

15770

Supply Chain and Futures Trading A study of Potato and Mentha

Kabir Nagar

2083

24361

2126

47452

3676

Sid.nagar

2043

23893

Basti Division

6866

80298

Gonda

2904

Balram Pur

1477

Bahraich

1905

82460

2359

52653

2359

52917

8105

180904

6738

151147

54848

3340

74549

2942

65995

27896

1089

24307

1545

34658

35980

1823

40689

996

22342

Shravasti

395

7460

516

11517

484

10857

Devi Patan
Division

6681

126184

6768

151062

5967

133852

Lucknow

4895

76783

7533

114923

3515

55312

Unnao

6710

112614

5947

104667

6574

135740

Raebareli

5302

68406

5316

128397

5560

99096

Sitapur

4253

57526

5597

106714

3329

58595

Hardoi

10570

169395

10080

204029

11432

186502

Lakhimpur Kheeri

1297

19829

1335

25453

1589

27969

Lucknow Division

33027

504553

35808

684183

31999

563214

Faizabad

3867

63956

6381

92865

2866

56128

Ambedker Nager

4174

74961

4266

62085

4482

87775

Sultanpur

7069

106975

6989

101713

7458

146058

Barabanki

14080

260466

13226

222871

14011

274391

Faizabad Division

29190

506358

30862

479534

28817

564352

441796

9240059

440032

9821709

445197

9986781

Total Up

Source: Directorate of Horticulture, Government of Uttar Pradesh, Lucknow

Supply Chain and Futures Trading A study of Potato and Mentha 75

APPENDIX 2

DISTRICT-WISE PRODUCTION OF MENTHA OIL IN


UTTAR PRADESH

(area in hectare and production in metric tonne)


Districts

2000-01
Area

2001-2002

Prod.

Area

2002-2003

Prod.

Area

2003-2004

Prod.

Area

2004-2005

2005-06(Est.)
Area

2006-07(Proj.)

Prod.

Area

Prod.

Area

Prod.

Barabanki

18250

1825

27000

2700

29500

2950

29500

2950

29500

2950

29500

2950

29595

2959

Moradabad

16150

1615

17000

1700

19000

1900

19000

1900

19000

1900

19000

1900

19061

1906

Rampur

8250

825

9000

900

12000

1200

12000

1200

12000

1200

12000

1200

12039

1204

Badaun

4632

463

5500

550

6000

600

6000

600

6000

600

6000

600

6019

602

Sitapur

2400

240

2600

260

3000

300

3000

300

3000

300

3000

300

3010

301

Bareilly

1810

181

1900

190

2500

250

2500

250

2500

250

2500

250

2508

251

Faizabad

2210

221

2450

245

3000

300

3000

300

3000

300

3000

300

3010

301

Pilibhit

230

23

350

35

500

50

500

50

500

50

500

50

502

50

Other

508

51

1600

160

1700

170

1700

170

2200

220

2200

220

2206

221

54440

5444

67400

6740

77200

7720

77200

7720

77700

7770

77700

7770

77950

7795

Distts.

Source: Directorate of Horticulture, Government of Uttar Pradesh, Lucknow.

76

Supply Chain and Futures Trading A study of Potato and Mentha

APPENDIX 3

LIST OF POTATO VARIETIES RELEASED BY


CENTRAL POTATO RESEARCH INSTITUTE,
SHIMLA

Year of Release

Variety

Salient features and Adaptability

1958

Kufri Kisan

Late-maturing. North Indian plains

1958

Kufri Kuber

Medium-maturing. Bihar and Maharashtra

1958

Kufri Kumar

Late-maturing and moderately resistant to late blight.


North Indian hills

1958

Kufri Kundan

Medium-maturing, moderately resistant to late blight


and good keeping quality. Himachal Pradesh and hills
of Uttar Pradesh

1958

Kufri Red

Medium-maturing and good keeping quality. Plains of


Bihar and West Bengal

1958

Kufri Safed

Late-maturing and good keeping quality. North Indian


Plains

1963

Kufri Neela

Late-maturing and moderately resistant to late blight.


Nilgiri Hills

1967

Kufri Sindhuri

Late-maturing, essentially short day adapted variety


with red tuber. Heavy yielder even on low inputs.
North Indian plains

1968

Kufri Alankar

Medium-maturing. North Indian plains

1968

Kufri Chamatkar

Late-maturing and resistant to early blight

1968

Kufri Chandramukhi

Early-maturing and good for processing. North Indian


plains and plateau region of peninsular india

1968

Kufri Jeevan

Late-maturing. Himachal Pradesh

1968

Kufri Jyoti

Medium-maturing, good for processing, field resistant to late and early blights and immune to wart, and
tolerant to viruses. Wide adaptablity

1968

Kufri Khasigaro

Late maturing and resistant to both late and early


blight. Hills of Meghalaya

Supply Chain and Futures Trading A study of Potato and Mentha 77

1968

Kufri Naveen

Late maturing and resistant to late blight and immune


to wart. Northern hills of West Bengal and Meghalaya

1968

Kufri Neelamani

Late maturing and resistant to late blight. Nilgiri hills

1968

Kufri Sheetman

Medium to late-maturing and resistant to frost. North


Indian plains and tarai area of Uttar Pradesh

1971

Kufri Muthu

Medium-maturing and resistant to late blight. Nilgiri


hills

1972

Kufri Lauvkar

Early-maturing and rapid bulking under warmer


conditions, suitable for processing. Plateau region of
peninsular India

1973

Kufri Dewa

Medium maturing, good keeping quality and resistant


to frost. Tarai area of western Uttar Pradesh

Source: Central Potato Research Institute, Shimla (http://cpri.ernet.in/varieties.html).

78

Supply Chain and Futures Trading A study of Potato and Mentha

APPENDIX 4

LIST OF MENTHA OIL DISTILLERIES AND


EXPORTERS

Aromatic and Allied Chemicals

Shree Baba Exports

B-8, Industrial Estate, C.B. Ganj , Bareilly, Uttar


Pradesh, India, 243 052
C 21, Industrial Estate, Roshan Bagh, Civil Lines ,
Rampur, Uttar Pradesh, India, 244 901

D. D. Shah Essential Oil Company Camabat Building, 5th Floor, Church Gate,
Mumbai, Maharashtra, India, 400 020

4
5

Swati Menthol And Allied Chemicals Opp. Akashwani, PO. Modipur, Bareilly Road,
Limited

Rampur, Uttar Pradesh, India, 244 901

Sharp Menthol India Limited

Sharp House, Plot No.9 , L. S. C. Gujranwala


Town , New Delhi India, 110 009

Katyani Exports

2218, 1st Floor, Pilli Building, Yamuna Bazar, New


Delhi, Delhi, India, 110 023

7
8

Hindustan Mint and Agro Products Barehseni Street-202 412, Chandausi , Chandausi,
Pvt. Ltd.

Uttar Pradesh, India, 202 412

Neeru Enterprises

6, Saleem Manzil, Civil Lines , Rampur, Uttar


Pradesh, India, 244 901

Sheetal Exports

Old Central Bank, Building Gopi Chowk Badaun,


Uttar Pradesh, India, 243 601

10

Shrish Indomusk

11

Gyan Flavours Export

B-135, Gama-1 , Greater Noida, Uttar Pradesh,


India, 201 306
Hari Chand Mela Ram Complex, Main Wazirabad
Road, Gokulpur (East), New Delhi India, 110 094

Supply Chain and Futures Trading A study of Potato and Mentha 79

12

Exotic India

13

Sheetal Exports

Delhi Road, Opp. Rahi Hotel, Moradabad, Uttar


Pradesh, India, 244 001
Old Central Bank, Building Gopi Chowk Badaun,
Uttar Pradesh, India, 243 601

14

Lala

Jagdish

Prasad

Company

and 7/110, B-Swaroop Nagar , Kanpur, U.P, India, 208


002

15

Hindustan Mint and Agro Products Barehseni Street-202 412, Chandausi , Chandausi,
Pvt. Ltd.

Uttar Pradesh, India, 202 412

16

Viral Engineers

Near Old Bus Stand, Gandhi Murti , Banswara,


Rajasthan, India, 327 001

17

Silverline Chemicals

Shingla Carpets Building, G.T. Road, Near Tehsil,


Panipat, Haryana, India, 132 103

18

Friends Foods

2, China Bazar Road, Hazratganj , Lucknow, Uttar

19

Ratan Sons

Lathi Bazar, Opposite Clock Tower Near Allahabad

Pradesh, India, 208 002


Bank , Chandausi, India, 202 412
20

Ansh Biolife Limited

3/401, Vikas Nagar , Lucknow, Uttar Pradesh,


India, 226 022

21

Virat Exports Private Limited

23/3, East Patel Nagar , New Delhi, Delhi, India,

22

T. R. W. Agro Chemicals

Lane 2, Sharifpura , Amritsar, Punjab, India, 143

110 008
001
23

Medix Care

337 C/28 Batla House, Okhla , New Delhi, Delhi,


India, 110 025

24

CLG Group of Industries

25

Sarman Industries

Br-64A, West Shalimar Bagh , New Delhi, Delhi,


India, 110 088
A-37, Gandhi Nagar , Moradabad, Uttar Pradesh,
India, 244 001

26

Gem Aromatics Private Limited

Plot No. 2, Survey No. 16/4/2, Village Rakholi


Silvassa Khanwel Road , Silvassa, Dadra Nagar
Haveli, India, 396 230

27

Seema International

207, Vardhman Prachi Plaza, Sector-8, Rohini ,


New Delhi, Delhi, India, 110 085

28

Jain Aromatics

A-53, Gandhi Nagar , Moradabad, Uttar Pradesh,


India, 244 001

29

Neeru Enterprises

6, Saleem Manzil, Civil Lines , Rampur, Uttar

30

Mount Fragrances

Mount Fragrances, New Delhi

31

Aromatic and Allied Chemicals

B-8, Industrial Estate, C.B. Ganj , Bareilly, Uttar

Pradesh, India, 244 901

Pradesh, India, 243 052


32

Swati Menthol And Allied Chemicals Opp. Akashwani, PO. Modipur, Bareilly Road ,
Limited

80

Rampur, Uttar Pradesh, India, 244 901

Supply Chain and Futures Trading A study of Potato and Mentha

33

Shree Baba Exports

34

Menthol & Allied Products

C 21, Industrial Estate, Roshan Bagh, Civil Lines


, Rampur, Uttar Pradesh, India, 244 901
F/26/1, B. S. R. Road, Industrial Area, Site 1 ,
Ghaziabad, Uttar Pradesh, India, 201 001

35

Shree Nath Chemicals

101, Civil Lines , Budaun, Uttar Pradesh, India,


243 601

36

Goel Chemicals

H#8, 9, Jawahar Road , Chandausi, Uttar

37

Koolmint Manufacturing Company

1281, Industrial Area , Gauripur, Assam, India,

Pradesh, India, 202 412


783 331
38

Vipin Trade Company

R-8/96, Rajnagar , Ghaziabad, Uttar Pradesh,


India, 201 002

39

Vertex Chemicals

133, Kazi Sayed Street, 204, Gurukrupa Building, Masjid Bunder , Mumbai, Maharashtra, India,
400 003

40

Anuprav International

Suite # 704, 706, 708, Suneja Tower Il, District


Centre, Janak Puri , New Delhi, Delhi, India, 110
058

41

Mentha & Allied Products Limited

309-311, 3rd Floor, Pragati Tower, Rajender


Place , New Delhi, Delhi, India, 110 001

42

Kaizen Organics Private Limited

43

Ruchi Exports

G 6, Amber Tower, S.C. Road , Jaipur, Rajasthan, India, 302001


A/3/2, 3rd floor, Groma House, Sector 19, Vashi ,
Navi Mumbai, Maharashtra, India, 400 705

44

Mentha & Allied Products Limited

Rahe Raza, Civil Lines , Rampur, Uttar Pradesh,


India, 244 901

45

Sharp Menthol India Limited

46

Jaya Enterprises

Sharp House, Plot No.9 , L. S. C. Gujranwala


Town , New Delhi, Delhi, India, 110 009
H.No.110, M.I.G. Housing Board Colony, Osmanpura, , Aurangabad, Maharashtra, India, 431 005

47

Aakash Exports

913, 9th Floor Brigade Towers, Brigade Road


Bangalore, Karnataka, India, 560 025

48
49

Vaishali Aromatics India Private

30, Midc Chikalthana , Aurangabad, Maharash-

Limited

tra, India, 431 001

Bhagat International Private Lim-

Office No. 10, 1st Floor, 164, Harlalka Bhawan,

ited

Sitaram Poddar Marg , Mumbai, Maharashtra,


India, 400 002

50

Flavours International

C/o Sentinel Industries, 407/416, New Sun Mill


Estate, Sunmill Compound, Lower Parel , Mumbai, Maharashtra, India, 400 013

51

Orgomatic Exports

264, Eldico Greens, Gomti Nagar , Lucknow, Uttar Pradesh, India, 226 010

Supply Chain and Futures Trading A study of Potato and Mentha 81

52

Banwari Aromas Private Limited

53

Dynamic Orbits

311, Allied House 2, Old Rohtak Road , New Delhi,


Delhi, India, 110 035
912, Ansal Bhawan, K. G Marg , New Delhi, Delhi,
India, 110 001

54

Ruchi Menthol Private Limited

229, Samuel Street, 1st Floor, Room No. 106


Mumbai, Maharashtra, India, 400 003

55

Khazana Corporation

Plot No. 249, Lane No. 4, Sidco Industrial Complex,


Badi Brahmna , Jammu, Jammu & Kashmir, India,
183 311

56
57

Advance Hightech Agro Products

A-105, Sector 36, , Noida, Uttar Pradesh, India,

Pvt. Limited

201 301

Shivam Industries

Shop No. 11, Arihant Vrindavan Soceity, Kastury


Park, Navghar Road, Bhayander (E) , Mumbai,
Maharashtra, India, 401 105

58

Krysttals Aromatics

Narsey House, 2nd Floor, Room No.4 179, Samuel


Street , Mumbai, Maharashtra, India, 400 009

59

Rajhans Aromatics Limited

201, 2nd Floor, Inderprastha Tower, Commercial


Complex, Wazirpur Industrial Area , New Delhi,
Delhi, India, 110 052

60

India Home Products

5, Shreyas Society, Race Course Circle( West) ,


Baroda Gujarat, India, 390 007

61

82

Elpee Enterprises

Elpee Enterprises, New Delhi

Supply Chain and Futures Trading A study of Potato and Mentha

NOTES

Supply Chain and Futures Trading A study of Potato and Mentha 83

NOTES

84

Supply Chain and Futures Trading A study of Potato and Mentha