Edible Oil Industry Urges Return of Futures Trading in Crucial Commodities

The Solvent Extractors' Association of India has implored the government to reinstate futures trading in crude palm and soybean oils, crucial for price risk management. They argue current restrictions weaken risk mitigation and expose businesses to volatility, urging SEBI to reassess its ongoing ban on agricultural derivatives trading.

The Solvent Extractors' Association of India has petitioned the government to reconsider its decision to halt futures trading in crucial commodities like crude palm oil and crude soybean oil. The suspension, enforced by the Securities and Exchange Board of India (SEBI) in December 2021, included these two internationally traded commodities among seven agricultural derivatives.

As a major consumer and the leading importer of vegetable oil, India relies heavily on imports to satisfy approximately 55-60% of its demand. The ongoing trading restrictions have, according to the industry body, led to significant financial losses and operational challenges, as companies are deprived of a vital risk management tool.

Highlighting the importance of a robust futures market for effective price risk management, the industry body stressed that futures trading should resume to facilitate orderly market development and accurate price signaling. The suspension, initially set in 2021, is slated to last until December 2024, barring any policy shifts.

Studies, as cited by the group, suggest that futures trading does not necessarily drive inflation. However, in its absence, industries lack essential hedging mechanisms, leading to increased price volatility and operational disruptions. The continuation of these restrictions also deprives the government of crucial price signals, potentially leaving critical information gaps in market assessments.

(With inputs from agencies.)