Price stability is likely to elude coconut oil in the coming days if the trends in the last two years are any indication. The extreme example came last year, with coconut oil prices experiencing wide swings. A record of sorts was created for maximum price volatility in the Kochi market between January 4 and 13, 1997. The price on January 4 touched Rs 6,825 per quintal and crashed to Rs 5,225 on January 13.According to the Cochin Oil Merchants Association (COMA), "never in the history of coconut oil did the price go down so steeply in such a short time". The market saw maximum fluctuation during the period of January-May in the same year.
The wild swings in prices have again opened the debate on the need for futures trading in coconut oil. According COMA secretary N Ananthan, "What happened in the oil market during the last two years should be an eye -opener to the government."
According to Ananthan, the whole industry is facing problems in the absence of a "risk management tool to help it guard againstprice fluctuations". The ability to offer stable prices over a long period of time was one of the essential requirements for sustaining the health of the industry, he said. "This is possible only if the millers and traders have the opportunity to have a hedge mechanism. Hedges are designed to put manufacturers, consumers, traders, producers and intermediaries in a state where they do not have to worry about future price movements", he pointed out.
According to Ananthan, coconut growers and traders in the state have been facing problems ever since futures trading in coconut oil was banned in 1971. He said an analysis of price trends in the last few years would clearly reveal the nature of the problem. COMA has had over 35 years' experience in handling futures trade in coconut oil.
Ananthan pointed out that prices, which touched Rs 2,995 in June 1995, went up to Rs 4,400 in September 1995 and were ruling above Rs 4,000 till the second week of March 1996.
The price then declined to Rs 3,600 by the thirdweek of March and remained steady between Rs 3,600 and Rs 4,200 till the first week of September. Then the price started rising and touched Rs 6,500 by December 1996 and reached the all-time high of Rs 6,825 on January 4, 1997.
Prices crashed to Rs 5,225 on January 13 but again reached a high of Rs 6,700 by February 18. But by March end they came down to Rs 4,450. April saw prices rising to Rs 5,450 before coming down to Rs 4,450 by May.Though COMA is putting pressure on the government to introduce futures trading in coconut oil, others in the industry are not so convinced by the argument.
According to Aravindakshan, former chairman of the Coconut Development Board, there is no meaning in introducing futures trade in coconut oil.
"The price of coconut is not determined by the (demand for) oil alone now. In the case of coconut now there is widespread product diversification and coconut oil is only one of the products in determining the price of coconuts," he says. So there is no meaning in introducingfutures trade in the name of providing a stable price for coconut oil, he adds.
Futures trading should be in coconut not on coconut oil, he said jokingly.
"But everybody knows that this will not be practical as there is no market mechanism where coconut as such can be traded as a commodity."
The critics of futures trading point out that of the 4.5 lakh tonnes of copra produced in the State, 40 per cent was going out as copra itself. They said only 60 per cent was coming to the market as oil. The main consumers of the oil are soap manufacturers. The state produces nearly 1.6 lakh tonnes of coconut oil and of this nearly 20 per cent is consumed in the State.
TO Paul, executive director, Kerala Solvents Ltd, and one of major millers in the state, feels that the old system of futures trade will not be a solution to the crisis faced by the sector. "The old system meant a contract for delivery of goods and not a contract for ready delivery." Instead, it should be a system of ready delivery. While thedebates continue, the price of coconut continues to be erratic and farmers in Kerala are not getting their due. Unlike rubber or other plantation crops, there is no lobby of coconut farmers.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
