Electronic Agricultural Spot Markets

Electronic spot markets are said to play an important role in agricultural market development. It can be argued that it helps derive a theoretical price for the futures/options contract, especially in the exchange-traded derivatives market (O’Hara 1995). In other words, if price discovery is found to be opaque or insufficiently transparent in the spot market, the pricing of derivative contracts may be affected, which can be detrimental to agricultural market transparency and development. In India, the organised futures market was introduced in 2002–03, whereas the national-level private spot exchanges were set up in 2007–08. Post 2011–12, information and communication techno­logy (ICT)-enabled large-scale electronic screen-based agricultural spot trading was initiated, following the introduction of the Karnataka model and electronic National Agriculture Market (eNAM). This development is attributed to digitalisation, technological innovations, the orchestrated roles of market institutions, and development policies (Chand 2016; Dey 2016; ­Aggarwal et al 2017; Reddy 2018). In the agricultural commodities market landscape, the enactment of the Model Agriculture Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017 paved the way for electronic (secondary) spot market development to integrate local mandis (large markets) or agricultural produce marketing committees (APMCs) to improve price-setting and remove intra-state trade barriers. However, the lack of a competitive environment and adequate support infrastructure has arrested the growth of the electronic spot market and hindered its potentially instrumental role in price discovery and market development (Department of Economic Affairs 2018).

Our paper contributes to discussions on the status and ­design issues of the electronic spot in the agriculture market setting and its role in price discovery and market integration. It has gained ground against the backdrop of the union finance mini­ster’s deliberations on the adoption of an eNAM (integrated 1,000 APMCs in 18 states and three union territories) over archaic APMCs, where collusive trade practices are prevalent and beleaguered marketing systems often force smallholders to restrain from voluntary exchange. While reviewing the literature on the impact of the electronic spot market on price-setting and market arrival, Aggarwal et al (2017) and Reddy (2018) must be acknow­ledged; their work explored the impact of electronic spot auctions on price realisation and stakeholders’ participation concerning the Karnataka model named Rashtriya e-Market ­Services (ReMS). Nevertheless, their analyses fall short in terms of inve­sti­gating how the electronic spot market can be a potential avenue to alleviate distress sales and farm poverty. Does it score higher than the futures market in price discovery or has it registered a low entry barrier to participation?