FCI Bets On Commexes For Efficient Distribution Of Wheat In Open Market (11-Mar-2010)
Amid increasing food prices, Food Corporation of India Ltd. (FCI) is using the commodity spot exchanges for the efficient distribution of wheat in the open market.
An officials from the bourses said FCI had reached an agreement with spot exchanges promoted by Financial Technologies and NCDEX to sell wheat by using their electronic platforms on a pilot basis.
The use of electronic platforms would tend to quicker distribution and timely payment.
National Spot Exchange (NSEL) will accordingly be responsible for selling FCI wheat stocks in Delhi while NCDEX Spot Exchange (NSPOT) expects to conduct sales in Andhra Pradesh.
Wheat sales under the Open Market Sale Scheme (OMSS) will be conducted on the electronic spot platforms as a one-time scheme till the end of month.
The officials from NSPOT, launched by NCDEX, and FT's NSEL believe that this will lead to better and more efficient distribution of Wheat.
Whenever the government wants to bring down the prices of commodities, it uses OMSS as a market intervention mechanism. Generally, through a tender process, FCI carries out auctions of a minimum 100 tonnes and a maximum of 1,000 tonnes in wheat, which could take 15 days to a month for stocks to pass on in the open market.
Selling through the electronic spot exchanges will bring about the government's attempts to put a cover on price in a timely manner without its having to worry about stocks being lifted from warehouses and collecting payments for their stocks, which will be taken care of by the exchanges.
Mr. Anjani Sinha, MD & CEO of NSEL said FCI uses the tender system, wherein interested traders have to bid by issuing a demand draft towards earnest money requirement with FCI. In case their bid is not accepted the refund is usually delayed.
He said now the whole process of OMSS will be automated and in case the sale does not undergo on the next day itself, then the margin money put up by a buyer will be credited into his account. On the other hand, if the transaction takes place, the money will be collected on the day after the transaction and transfered to FCI.
Mr. Sinha said, earlier the exchanges had proposed to sale of wheat using their platforms. However, FCI has finally agreed to sell through spot platforms only now.
Mr. Rajesh Sinha, Head of NSPOT said though the move was delayed, was welcome as it enabled the exchanges to get a 'foot in the door' and prove that distribution and supply could be conducted efficiently whenever the government decided on overriding in the market to bring down the prices.
Mr. Sinha said that it sincerely hopes that the government extends OMSS for coarse grains such as millet and maize through the spot market and that other PSUs such as - Nafed and STCs will use the electronic spot market for selling produce.
Like any other auction market, Electronic auction on spot bourses takes place with the exception that the exchanges bear the risk of counterparty default and ensure timely payment to the seller and timely delivery to the buyer.
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