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help to create a very liquid and market depend on to buy or sell commodities at a specified price, institution can be restricted in unfair practices.
agro securities. quantity, quality, and delivery date. This definition Although, there is a provision of insurance in the
This creation of securities is very similar to itself address each and every aspect of Nepal’s commodity act which is not properly defined but
script traded in stock exchange where company agriculture sector. Here contract is defined as an its inclusion in upcoming rules would ensure the
ownership is held by various participants in the agreement with minimum 30 day time period safety and security of produced in the warehouse.
market and same way agriculture produce in which means futures production and consumption Likewise, the provision of online transition which
various village and district can also be traded in can be managed by entering into the derivative is already in practiced and inclusion of banking
commodity exchange where producer can easily contract and along with a specified delivery date. sector, this would ensure the smoothness in the
exchange their produced in a national market Definition of contracts as per the bill also includes transaction and would surely help to lead Nepal’s
where they can benefit from appropriate price in a specified price associated with the transaction agriculture sector to next level.
the exchange. which means the price risk for producer and Overall, this will help overcome all the issues
However, there are also challenges in the creation consumer is already hedged. The buyer or seller faced by the agro sector but its only in a paper for
of such market. Although Nepal’s agriculture of contract does not have to worry about the now and in order to bring this to real investment
sector is not comparable to the global size we fluctuation of price in-between the contract period in warehouse and grading agency and customized
still hold potential in many agriculture products as they have already locked in price. Moreover, financing and insurance schemes for produced
and considering we depend upon the sector there is also the provision of clearing and goods is required. Therefore, current challenges
we need to come up with more innovative and settlement entity in the commodity market bill lie in the physical infrastructure particularly
easy tools to make the sector more efficient. which will ensure the financial performance of investment in warehouse and grading agency
First of all, challenges hold in standardizing of any contract traded in an exchange. which is a prerequisite for the development of
agriculture produced in order to create national On the other hand, the inclusion of transaction limit agriculture sector and subsequent capitalization
benchmark contracts. The recent introduction for an individual trader and circular trading would of agro produced would help a farmer to access
of commodity market bill defines commodity also more or less help to maintain the artificial capital and banking channel more efficiently
contract (derivative) as an agreement between price volatility in the domestic agro market where and also helping them manage the price risk of
buyer and seller for a minimum period of 30 days single large trader/institution or group of trader/ produced goods.

Amit Pyakurel
(The author is associated in the capacity of Senior
Manager in the Research & Development Department of
Mercantile Exchange Nepal Limited. He is also a part
of the Editorial Team of the MEX Year Book. He can be
contacted at r&d@mexnepal.com)

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