Bangladeshi, UAE firms plan to float commodity exchange in Bangladesh

Dhaka: The UAE-based Pride Group has joined hands with Bangladeshi Deshbandhu Group to float Bangladesh’s first ever formal commodity exchange trading facility expecting to increase market efficiency and transparency in market chains, reports said here on Monday.

The Financial Express newspaper today said the two enterprises joined hands to launch the Bangla Mercantile Commodity Exchange or BMEx with the Dubai-based Pride having adequate state-of-the-art technology to run the facilities around the globe.

“Although this is completely private investment, our aim is to increase market efficiency and liquidity as well as improve transparency in agricultural marketing that remains uncontrolled for long,” the report quoted Deshbandhu’s chief investment officer Rahman Habib as saying.

The report said both the groups expected to avail shortly the government licence to launch operations of the company with initial focus on trading in agricultural produces like jute, wheat, potato, corn and soybean in the agricultural sector and gold and silver in the precious metal sector.

The trading mechanism protects particularly the farmer from price drops and the buyer from price rises.

Under the mechanism a farmer can sell a future contract on his corn, which will be harvested at a later period on guarantee that the price he will be paid when he delivers while a breakfast cereal producer buys the contract now and guarantees the price will not go up when it is delivered.

The Deshbandhu officials said the country’s first commodity exchange was intended mainly to increase transparency in the country’s commodity chains saying they would try to control commodity market by ensuring that marginal farmers got the right price for their produces.

They said the BMEx would initially focus on establishing spot trading for agricultural commodities while an auction facility would be introduced soon. In futures contracts, farmers will be allowed to enter a contract with buyers, in which they will undertake to sell their produces at a given future date price and thus they can mitigate the associated risks. Moreover, they said the farmers would be able to store their produces at the nearby exchange-designated warehouses against a receipt called “Warehouse Receipt” with a selling lead under farmers’ buy-back option.

The receipt is a negotiable instrument and farmers could encash it at any nearby bank branch and thus it will ensure the fastest and easiest access to fund for their consumption and preparation for next cultivation session.

“We firmly believe that it will help stabilise the market and reduce exploitation,” Habib said.

Bangladesh’s economy now stands at around $120 billion and has been growing at 6.0 plus per cent since 2005 with agriculture still remaining as one of the key contributors to growth. But analysts said the farmers got the minimum dividend because of the middlemen and lack of infrastructure to preserve their produces while they are exposed to huge loss getting less than their production cost.

Earlier reports suggested in December last year, the major Aman rice fetched prices below the cost of production with wholesalers at places offered between 500 and 600 taka for every 40 kilogramme of un-husked rice which was 100 or 150 taka less than the production cost, varying between 800 and 850 taka.

In February 2011 in the northern zone of Bangladesh, farmers were offered 3 to 4 taka for each kg of potato while the production cost was within the range of 5 to 6 taka.

Commodity exchanges have generally been credited with improving the net income of farmers through encouraging transparency in pricing and reducing exploitation by middle men.

The BMEx is being floated a year after Bangladesh’s parliament amended the Securities and Exchange Commission Act allowing establishment of ‘Commodity/Derivative Exchange’ in Bangladesh.

The government earlier promised to help set up a commodity exchange market to develop the country’s agriculture marketing system and to stabilise the prices of essentials.

The alliance of Deshbandhu Group and Pride Group of Dubai, already installed an exchange trading facility in Dhaka which is fully prepared to go for a pilot run.

“We’ve also started planning on nation-wide Integrated Warehouse Management and Logistic System to facilitate agricultural commodity trading under the exchange,” Deshbandhu chairman Golam Mostafa told the Express.

He added: “This would be one of the largest infrastructure facilities in the country’s history and we want government and donor agencies to extend their assistance to it . . . This type of infrastructure is undoubtedly important for our country.”