By Preeti Vasudevan
Traditionally, agricultural commodities’ markets have always illustrated high historical volatilities, and this affects the products we buy every day. From weather-related supply issues to changing farming patterns, there are several factors that can affect the price of commodities and how they are retailed. However, the introduction of technology-driven agricultural platforms, from exchanges to aggregators, have helped create more homogeneous markets that have had a strong direct or indirect effect on how these commodities are retailed.
Consider the speculation in MCX (Multi Commodity Exchange, India’s largest commodity derivatives exchange). It directly impacts local mandis and their auctions, with such strong fluctuations that the government often sets a price ceiling in local markets and even delists certain commodities on the exchange to avoid volatility in what it considers ‘essential commodities’.
On the other hand, aggregators like eNAM (electronic National Agriculture Market, bringing together farmers and large buyers, including manufacturers, millers, and big-box retailers) and e-Choupal (ITC’s initiative to link directly with rural farmers for the procurement of raw material) are helping not just farmers get better prices but also helping buyers drive down costs for raw materials, directly affecting the prices of their FMCG goods at retail.
No matter the type of platform, its impact on retail and local markets, including the goods they sell, has been very profound.
Removes information asymmetry between buyers and sellers
With thousands of buyers and sellers across the country, these markets often lack transparency due to poor access to information. These platforms provide easy access to information, thus equalizing the information asymmetry in the market.
Access to national markets and uniform pricing
Localized markets can face a lot of volatility due to area-specific issues in demand and supply. A single unified market drives down these fluctuations by creating access to new and unaffected markets, consequently bringing more stability and uniform pricing. Additionally, aggregators are able to provide access to unique commodities otherwise unavailable in local markets.
Creates real-time price discovery
Commodities markets are extremely volatile, with prices fluctuating on an ongoing basis. Technology allows these platforms to provide real-time pricing information depending on market demand and supply.
Promotes quality benchmarks
Geographical limitations previously made it viable for quality assessment to be based on physical inspection. However, the advent of these platforms has created access to remote, but now connected, markets, requiring quality standardization and gradation of commodities to ensure comparability of goods, allowing for fair trade.
Supply chain optimization
With fragmented markets and multiple intermediaries, markets face several supply chain inefficiencies. Aggregation of buyers and sellers leads to the reduction of go-betweens, hence creating more efficiency in the process.
Better demand and supply predictability
Several factors affect demand and supply of agricultural commodities, making them extremely unpredictable. Historical data can help provide some foresight to both buyers and sellers.
Gain greater control over price
The volatility of commodities prices allows participants of the market very little control over prices. Exchanges such as the MCX can allow these players to hedge against the uncertainty of the markets.
As more platforms enter this space, this will help bring more uniformity into the agricultural commodities’ retail markets and help provide easier access across the value chain.
Preeti Vasudevan is the Founder of StoreKey, an agricultural commodities marketplace.
(Disclaimer: The views and opinions expressed in this article are those of the author’s own)