Chandubhai Virani, MD Balaji Wafers on (potato) futures

Will the futures trading force several food processing industries in India to close shop? That is one concern many food-based industries are facing in India due to the soaring prices of agriculture commodities. Many industrialists in India believe that the main reason for the unprecedented rise in food items is due to futures trading. 

And the spurt in commodity prices is hurting not only the common man but also the industrial consumers like us. We, as a wafer making firm, our daily consumption of potato and gram dal is badly hit by the volatile speculative pricing of the commodities on commexes. 

We are a food processing company, making a range of food products under the brand name of Balaji Wafers. We started our business about 35 years ago in 1974. Since then, we have continued our growth and today we have become one of the leading potato wafer brands in India. 

There have been some foreign competitors, but we proved ourselves with our quality products and price competitiveness. However, in today’s scenario price competitiveness is putting pressure on the profit margins, thereby making it tough to sustain in the price rise situation. On the one hand there is a steep rise in the raw material prices and on the other we need to remain under the price limitations so as to stay in the market. 

Recently, we have observed that potato prices have gone up almost three times from its year-ago levels. Potato prices have touched Rs 25 per kg in recent months, which was about Rs 8 to Rs10 per kg a year back. Similarly, gram dal prices too have seen almost a 100% rise over past one year, from Rs 45 per kg to Rs 90 per kg in recent days. 

Now, the concern is not only restricted to dal and potato, even the spices have seen a steep rise in the recent past. For example, turmeric prices have more than doubled in past few months. This and many other spices, which are being traded on the commodities futures markets have been badly hit due to speculative prices. The overall price rise hurts the cost structure of the products we make and prompt us to reduce either the consumption or increase the price of our products. 

Our daily procurement of potato has been about 100 to 150 tonnes, while gram dal procurement has been around 10 tonnes per day. But the uncertainty of prices has caused a reduction in our daily intake to the tune of 25-30%. There are instances when we fail to procure the required quantity even by paying higher prices, because farmers have a tendency to hoard their produce to derive higher gains especially when the prices are rising. This impacts our daily procurement raising serious concerns about continuing our daily processing operations. 
 

I believe that the government’s policies for commodities trading, which is ought to serve the purpose of hedging for the large consumers has somewhat proved detrimental for the industry in the form of increased input cost and uncertainty of the required lot of raw materials at determined prices.