Commodity exchange - an efficient system for controlling volatility in the prices of agricultural commodities and perishables in Pakistan

Abstract

The agriculture and its allied sectors have significant contribution towards GDP in Pakistan. This sector is plagued with issues like use of primitive technology, speculative activities, hoarding, lack of interest of commercial institutions in agricultural lending, absence of agro-insurance, last but not least absence of legitimate and regulated commodity exchange to trade agricultural commodities, grains, and perishables at ‘spot’ as well as in ‘future’. This has left agriculture sector in shambles. The agriculture reforms are being discussed in nooks and corners, but lack of political will makes the situation more gruesome. The measures like land reforms, green revolution, etc, taken by successive governments have not been able remove the element of risk and uncertainty from this sector, and the agriculture in Pakistan still looms in the hands of speculators and unseen cartels. Measures taken by the state are often viewed with suspicion and lack of cooperation from growers and high default rate in agriculture loans has been witnessed in the past. This needs to find out a solution where state and other stakeholders are viewed as partners in success rather than competitors, those few who want to have share from the same small pie. Formation of commodity exchange, where future trading of agricultural produce (including perishables) may take place, is proposed, to address the issue of volatile prices for grains and perishable goods in agriculture sector of Pakistan. This exchange where enabling ‘core producers’ and ‘end consumers’ to discover the un-speculated price would also trigger the creation of enormous commercial opportunities in agro-insurance, agro-finance, agro-warehousing, and agro-logistics, along with helping the