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Efficiency of Wheat Futures across APMC Mandis

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Abstract

Commodity futures markets are known for their price discovery and risk management functions. If the futures market is reliable, these functions could work as potential solutions to the current perils of Indian agriculture. The paper examines the reliability of the wheat futures market based on results of the Cointegration test, Vector Error Correction Model (VECM) and Information Share (IS) measures. Previous research in this field has been limited to studying one wheat spot market with the futures market. In this study, Agricultural Produce Marketing Committee (APMC) mandis are considered to be the regional spot markets. Price series of seven APMC mandis corresponding to seven different states of India are studied, along with four wheat futures contracts. Cointegration results show that the futures market is efficient except for the case of the Haryana APMC mandi. VECM results show that futures market leads the APMC mandis except for two cases out of 28. According to IS measures, the futures market dominates the spot markets in the price discovery process except for the Haryana APMC mandi. Overall, the results imply that the futures market is reliable, and government must not hurt it with frequent bans.

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Data Availability

The data on Spot market (APMC mandi) prices is publicly available at the Government's official website (https://agmarknet.gov.in/). The data on Futures market (NCDEX) prices is publicly available at the official website of the derivative exchange (https://www.ncdex.com/markets/futureprices).

Data and codes to replicate the results of this paper are available at the author’s github repository (https://github.com/one1rahul/Efficiency_Futures_APMC).

Notes

  1. e-NWRs are receipts which are issued by the warehouse to the storer of the commodity.

  2. e-NAM is powered by and electronic trading platform on which 1000 Agricultural Produce Marketing Committees (APMC) have been onboarded till now.

  3. Permanent Account Number allotted under the Income-tax Act, 1961.

  4. Bengal becomes sixth state to pass resolution against new farm laws, Business Standard, 28 Jan 2021.

  5. https://agmarknet.gov.in/.

  6. State wise Wheat production (Percentage) out of all India Wheat Production for year 2019-20 are UP (30.29%), MP (18.22%), Punjab (16.33%), Haryana (10.15%), Rajasthan (10.15%), Bihar (5.48%), Gujarat (2.99%), Maharashtra (1.93%), Uttarakhand (0.85%) and WB (0.54%). The statistics are from Agriculture Statistics at a Glance 2020.

  7. In 2011, Malda district in West Bengal had recorded the highest production of 5,232 kg per hectare in the country. Hindustan Times, Jan 23, 2013.

  8. Punjab, Sangrur district, has achieved the distinction of topping the nation in yield of wheat. Times of India, January 23, 2013.

  9. Central Sector Scheme “Formation and Promotion of 10,000 new Farmer Producer Organizations (FPOs)” of Rs. 6865 crores. Press Information Bureau, February, 09, 2021.

  10. Plan for utilization of regulatory fees foregone by SEBI – FY 2021-22 for FPOs. Exchange Circular No. NCDEX/BUSINESS- 001/2019 dated March 27, 2019.

  11. Govt Bans Wheat, Rice Futures. The Economic Times, February 28, 2007.

  12. SEBI Issues Directions to Stock Exchanges in Commodity Derivatives Segment. SEBI, December 20, 2021.

  13. NSEL scam: Supreme Court upholds assets attachment. Times of India, April 23, 2022.

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  1. Department of Humanities and Social Sciences, Indian Institute of Technology, Guwahati, Assam, India

    Rahul Kumar Singh

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Singh, R.K. Efficiency of Wheat Futures across APMC Mandis. J. Quant. Econ. 21, 681–701 (2023). https://doi.org/10.1007/s40953-023-00348-9

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