Most agricultural commodity markets are characterized by a high degree of volatility. There are major market fundamentals explain why that is the case. First, agricultural output varies from period to period because of natural shocks such as weather and pests. Second, demand elasticities are relatively small with respect to price and supply elasticities are also low, at least in the short run and also agricultural output greatly depends on fertilizer input..
Consequences of price volatility---
1. Food price inflation can also be a serious issue in middle income countries, where many consumers expend as much as half of their budget on basic foods.
2. Both the welfare of the family and the viability of the farm may be threatened by excessive volatility.
3. Volatile feed prices are also problematical for livestock producers.
How Future trading is helpful for reducing volatility ---
1. . Price discovery is the continuous process by which futures prices are reassessed by buyers and sellers as new information
becomes available.
2. Commercial participants utilize futures contracts to “hedge”, or insure their crops or inventories against the risk of fluctuating prices.
3. Futures markets perform several functions: they provide the instruments to transfer price risk, they facilitate price discovery and arguably, increasingly in recent years they are offering commodities as an asset class for financial investor.
Why should we focus on cold storage---
1. Warehouse reciept can be used as collateral in Banks.
2. Help to protect your products from extreme temperature and weather changes that will happen outside of the unit.
3. India is among the world leaders in horticulture. Even though production of fruits, vegetables, milk, poultry, fish and meat is on the rise, prices have always been ruling high, inadequate logistic ,supply chain management,cold chain in particular a great concern for India.
Requirement of National market --
1. Protection of local farmer from cartel.
2. Farmers are allowed to sell their produce directly to the consumers.
3. To stop challenges from crisis like NSEL crisis.
CONCLUSION:Government policy should focus on reducing price volatility along with better infrastructure facility to flourish India's agricultural sector.
