Study Potato Men Tha

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
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
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
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.

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.
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 &

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
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

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.
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
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.
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
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
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.
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
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

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
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
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
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
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

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.

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
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
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
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.
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
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
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
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
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
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

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
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

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
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

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
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

Source: Sample Survey conducted at Sambhal in Moradabad district on 12 October, 2006.
48
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
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
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
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
(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
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
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.
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
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
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
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.
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
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
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
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.
64
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
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
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
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.
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
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
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
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
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
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
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
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
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
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
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

Sheetal Exports
Old Central Bank, Building Gopi Chowk Badaun,

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
12
Exotic India
13
Sheetal Exports
Delhi Road, Opp. Rahi Hotel, Moradabad, Uttar

Old Central Bank, Building Gopi Chowk Badaun,
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.
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

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

32
Swati Menthol And Allied Chemicals Opp. Akashwani, PO. Modipur, Bareilly Road ,
Limited
80
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,

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
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
NOTES
NOTES
84

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ADVANTAGES OF

COMMODITY FUTURES TRADING THROUGH

A Study of Potato and Mentha

MULTI COMMODITY EXCHANGE OF INDIA LIMITED,

Chapter 1 Introduction and Objectives

1.2. Objectives of the Study

1.3. Scope of the Study

1.4.1. Primary Data

1.4.2. Selection of Area

1.4.3. Selection of Sample

1.4.4. Secondary Data

1.5. Organization of the Report

Chapter 2 The Market Profile of Mentha and Potato

2.2. The Profile of Potato Market

2.2.1. World Production of Potato

2.2.2. Significance of Potato in the Indian Economy

2.2.3. Significance of Potato in the UP Economy

2.2.4. Production Forecasts

2.2.5. Demand for Potato

2.3. The Profile of Mentha Oil Market

Chapter 3 The Supply Chain and Market Structure

3.2. Potato Marketing Practices

3.2.1. The Risk-return Profile

3.2.2. The Supply Chain

3.2.3. Cold Storages

3.2.4. Potato Futures Markets

3.3. Mentha Oil Marketing Practices

3.3.1 The Risk-return Profile

3.3.2. The Supply Chain

3.3.3. Mentha Oil Futures

3.4. Constraints on Growth of Potato and Menth Oil Futures

3.5. Subjective Influences on Decision to Trade

Supply Chain and Futures Trading A study of Potato and Mentha

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

4.2. On-line Trading and its Advantages

4.3.1. Price Instability

4.3.2. The Problem of Storage

4.3.3. Benefits of Potato and Mentha oil Futures to Farmers

4.4. Necessary Environment for Sound use of Futures

4.4.1. How to Involve Farmers in Futures Markets?

4.4.2. How to Ensure Credit to Farmers Through Warehouse Receipt

4.4.3. Enhancing Market Access through Exchange Traded Warehouse

Chapter 5 Conclusions and Policy Implications

5.1. Potentials of Mentha oil and Potato for Futures Trading

5.2. How Futures Benefit Farmers and Markets?

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

5.4. Implications for Institutional Capacity Building

Supply Chain and Futures Trading A study of Potato and Mentha

Supply Chain and Futures Trading A study of Potato and Mentha

Supply Chain and Futures Trading A study of Potato and Mentha

INTRODUCTION AND OBJECTIVES

Supply Chain and Futures Trading A study of Potato and Mentha

Supply Chain and Futures Trading A study of Potato and Mentha

1.2. Objectives of the Study

supply chain and of improving the price realization of the farmers

substantiate the rationale for futures in these commodities

discovery and price dissemination.

1.3. Scope of the Study

Supply Chain and Futures Trading A study of Potato and Mentha

1.4.1. Primary Data

1.4.2. Selection of area

1.4.3. Selection of Sample

Supply Chain and Futures Trading A study of Potato and Mentha

1.4.4. Secondary Data