At a meeting with representatives of the Bombay Oilseeds & Oils Exchange (BOOE) last week, N Mookerjee, secretary, ministry of civil supplies, consumer affairs and public distribution, is understood to have agreed "in principle" to allow futures trading in palmolein. An additional centre for turmeric futures will also be allowed at BOOE.

Currently, turmeric futures are traded only at the the Spices & Oilseeds Exchange Ltd in Sangli (Maharashtra) through hedge, transferable and non-transferable specific delivery contracts.

Palmolein is not under the restricted list of the Forward Markets Commission (FMC) which monitors all futures trading in commodities. Neither has it been recommended by the Kabra committee which had suggested futures trading in some 17 commodities.

However, thegovernment is likely to take an independent decision in granting permission for futures trading in palmolein, especially considering its annual consumption of around 10-12 lakh tonnes. There's no domestic production of palmolein and the oil has to be imported from Indonesia, Malaysia and, to a certain extent, from Nigeria, leaving the trading community here open to many related risks. Hence the need for futures trading.

"The ministry is keen to see our exchange kick off the much-awaited international futures trading in castor oil before granting formal clearance for turmeric and palmolein on our exchange," says Navinchandra Shah, president, BOOE. He adds that international futures trading in castor oil, permitted last October, is likely to begin by May 1998.

The FMC has, as per the recommendations of the Kabra committee, cleared five commodities for futures trading. These are: pepper, coffee, jute sacking, cotton and castor oil. With palmolein soon to be added to this list the total number of commoditiesin which futures trading is permitted would go up to seven.

The Kabra committee, in its 1994 report, had recommended allowing futures trading in as many as 17 commodities including kapas, raw jute and jute goods, groundnut, its oil and cake, rapeseed/mustardseed, its oil and cake, cottonseed, its oil and cake, sesameseed, its oil and cake, sunflower, its oil and cake, copra, coconut oil and its cake, soyabean, its oil and cake, rice bran oil, linseed, silver and onions.

"We have requested the government to allow us to trade more than one commodity for futures trading," said Shah. "With more products to trade, like in the stock exchanges, it could generate trading interest from a cross-section of traders, speculators and even investors. This in turn will make futures trading more meaningful and faster on BOOE."

However, the government is said to be willing to give permission for futures trading in more commodities only "in a phased manner," Shah said.

Palmolein, one of the main secondary edible oils inthe country, is neither produced in the country nor traded on any of the 25 commodity exchanges in the country. But traders engaged in imports of palmolein do need a hedging mechanism.

Said Shah: "Because palmolein is imported, traders here are exposed to varied risks, including product availability risk, the risk of fluctuating prices, and above all the risk of foreign exchange rates. With the recent wide fluctuations in palmolein prices following the continued export ban by Indonesia, a number of traders have lost money. If futures are permitted, there are more chances of hedging one's position and safeguarding against uncontrollable risks."

Meanwhile, futures trading in coffee is expected to begin by next month. Futures trading in pepper and jute sacking is already in place at Kochi's International Pepper and Spices Trade Association (IPSTA), and The East India Jute & Hessian Exchange, Calcutta, respectively.

As regards futures trading in cotton, executives of the East India Cotton Association aregiving final touches to their trading bylaws for submission to the FMC later this month for clearance.