Chennai, Jan 28: After cotton, castor futures and jute, coffee will soon be traded through futures by early March this year.The Forward Market Commission (FMC) is all set to clear the decks for coffee futures on the proposed Coffee Futures Exchange India (COFEI) Ltd. Last month, the FMC gave its nod for futures trading in castor oil, cotton and jute.
In December last, to usher the coffee trade in a new era, Coffee Board the nodal agency for coffee, released its decades' old grip on the mandatory coffee auctions. It will now function as facilitator of the COFEI to be set up primarily by the traders and exporters from the private sector, and thereby extend its support and enliven the COFEI with blessings fom the central government.
``We are reviewing the bye-laws and draft memorandum and articles of association received from COFEI,'' said VK Aggarwal, FMC chairman. ``This will be cleared soon,''he added. After its clearance, the FMC will seek approval of the Ministry of Food and ConsumersAffairs.
COFIE proposes to become operational through an initial equity capital of Rs 2 crore, to be contributed by its members (both institutional and ordinary).
The strength of the proposed board will be 12 members, three each from coffee board, trading and the exporting community. The balance will be the representatives from The Indian Institute of Plantation Marketing and the FMC, who will act as the representative of the Food and Consumers affairs and also that of the government.
Ashwin J Shah, chairman of the proposed COFEI board, last week submitted a draft set of bye laws and memorandum and article of association to the FMC.COFEI proposes to offer its trading members two main futures contracts in plantation A and Robusta Cherry AB quality of coffee, both of which comprise of around 65 per cent of the 2,30,000 tonnes of India's coffee crop.
These contracts, in turn, can be traded through a combination of nine different contracts available for alternate months. ``Coffee prices are highlyfluctuating because of its availability only in the first three months of each year, but its requirement for local consumption and exports throughout the year,'' said Shah, who is also a director of Jayanti Group, one of the leading exporters of coffee, tea and spices. Coffee futures are thus, aimed to provide the much-required hedging mechanism and help regulate the widely fluctuating coffee prices in the balance nine months, more so towards the end of the year.
COFEI Ltd however, will not have a separate clearing corporation as is normally required for guaranteeing the trades done on the futures exchange. Instead, COFEI proposeds to conduct within its fold the functions of clearing corporation and thereby save on initial cost of setting up the exchange. The FMC is thus, verifying the veracity of these and other related issues before giving his final nod to COFEI.
Initially, COFEI plans to operate out of the premises of the Coffee Board near Vidhan Saudha, in Bangalore. Once it gets settled, it may shiftout of to new premises of its own.
COFEI plans to have some 250 members, a large section of which will be of ordinary members (fee Rs 10,000 each) while institutional and clearing member will pay a fee Rs 40 lakh. The equity contribution will however, be linked to the members' risk-bearing capacity, a rather novel concept in the India's financial community.
According to Shah, for various reasons, the domestic consumption of coffee has been declining since the past couple of years. This has resulted in increased quantity of coffee available for exports, which currently is placed at around 70 per cent of the domestic coffee crop.
This forces the coffee growers and exporters to closely monitor the fluctuating coffee prices, and stay competitive in the international market against global coffee majors including Brazil and Mexico among others. COFEI is expected to help the exporters in this regard.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
