Abstract
The commodity derivative market in India has gained an important place in the last few decades. However, the entry of ‘tea futures’ in the derivative market is yet to come. Tea is a substitute for coffee and has a good market worldwide. India’s contribution to world production of tea is significant, but the presence of tea futures in Indian derivative market is yet to be seen whereas coffee, being a similar commodity, has a good place in the derivatives market. This study makes an attempt to examine the feasibility of tea futures in India by studying two leading conditions for tea in comparison with coffee. The study examines the market conditions by studying the export potentiality that signifies the demand and supply; and price volatility of tea price. The observations and analysis find favourable grounds for the introduction of tea futures in the commodity derivative market to extend the benefits to various groups like tea growers and manufacturers.
Highlights
Commodity markets in India have a considerable potential since Indian economy is conventionally an agriculture-based economy and agriculture contributes for about 16 per cent to the Gross Value Added of the Indian economy with the employment of 54.6 per cent of the total workforce in the year 2018-19.1The producers of commodities are subject to the risk of low output and poor quality of products owing to factors related to weather, harvest, storage and price fluctuations for the produces
Over the time period of 2007-2017, it is noticed that the Compound Annual Growth Rate (CAGR) of tea has grown to 10.67 per cent while that of coffee has risen to 12.3 per cent
The present study examines the possibility of tea futures vis-à-vis coffee
Summary
The producers of commodities are subject to the risk of low output and poor quality of products owing to factors related to weather, harvest, storage and price fluctuations for the produces. The market prices are influenced by the changes in demand and supply, which leads to the sharp volatility in the price of the commodities. Changes in price bring about market adjustments and uncertainties regarding the revenue for the produce. The imminent risks resulting from such price changes need to be well protected for a stable economy. The process of containing such price volatility by establishing equilibrium between the present and future price of the commodities is known as price discovery. The price discovery mechanism is essential for building an efficient financial system, reflecting the relative costs of production and consumption utilities. Commodity derivatives are useful tools in the discovery of price
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