Commodity exchanges drive development

Commodity exchanges drive development
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First Published: Fri, Sep 07 2007. 12 18 AM IST
Updated: Fri, Sep 07 2007. 12 18 AM IST
Kochi: Commodity exchanges have, to a great extent, helped stimulate trade in developing countries and that is reflected in the rapid growth of such exchanges, according to a recent study conducted by the United Nations Conference on Trade and Development (UNCTAD).
The study report will be discussed at the Trade and Development Board meeting on financial services and commodity exchanges on 21-22 September in Geneva.
UNCTAD says developing countries now account for nine of the world’s 22 leading commodity exchanges, based on contract volumes. India’s National Commodities and Derivatives Exchange (NCDEX) holds the eighth position, Multi Commodity Exchange (MCX) 10th, and National Multi-Commodity Exchange (NMCE) 14th in the pecking order.
Commodity exchanges, located in developing countries, are becoming not only an increasingly important instrument for development within the national context but, given their increasing global prominence, a key driver for development of international trade links, including regional integration, the report says.
The utility of a commodity exchange lies in its institutional capacity to remove or reduce the high transaction costs faced by entities along the commodity supply chain, which includes producers, processors, traders, manufacturers, wholesalers, retailers and end-users.
By offering services at lower costs, a commodity exchange can stimulate trade.
In developing and transitional economies, there have been major structural reforms over the last few decades. Liberalization has led to withdrawal of government support for the commodity sector.
Several supply chains such as government procurement and minimum support price, which the participants were accustomed to, have ceased to exist in many cases. It is here that the commodity exchanges have stepped in to provide services on a financially sustainable basis.
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First Published: Fri, Sep 07 2007. 12 18 AM IST