SAFAL NATIONAL EXCHANGE OF INDIA LIMITED Safal Market, Whitefield, Bangalore 560067 An Electronic Spot Exchange for Fruits & Vegetables.

SAFAL NATIONAL EXCHANGE OF INDIA LIMITED

Safal Market, Whitefield, Bangalore 560067

www.snxindia.com

An Electronic Spot Exchange for Fruits & Vegetables

Present Status of Horticulture in India

F & V in India• World’s second largest producer of fruits and vegetables• Produces about 140 million tons, one fourth of global output.• Share of Global Production

– 41% in Mangoes– 36% in Green peas– 30% in Cauliflower– 23% in Banana– 10% in Onion

• Grown on 7-8% of gross cropped area contributes over 18% of the gross value of agricultural output

• One half of export earnings of total agricultural produce exported.• Value of significant F & V items at production location estimated at

over Rs.60,000 crores (USD 13 Bn.)• Presently, all agricultural produce marketing is under the government

administered APMC markets

APMC laws provided a framework for functioning of markets for agricultural produce and the physical infrastructure for farmers & traders to transact, which also stipulates that

Only APMC’s can create markets for Horticulture produce , private Markets not allowed

Only APMC license-holders can buy from farmers/growers , end user/consumer can buy from the farmers directly.

Under the present APMC systems, markets are regionalized and fragmented limiting price discovery as a localized activity.

Existing market system evolved over the decades under the APMC Act has been meeting the basic needs.

APMC markets – in F & V

Trade Links : F & V

FARMER

LINKS OPERATING ON % COMMISSIONS ONLY

LINKS TAKING OWNERSHIP OF GOODS AND RISKS OF TRADE

COMMISSION AGENTRemote Location

LOCAL BROKER

COMMISSION AGENT FORWARDER

CONSUMER

WHOLE SALER

RETAILOR

The Promotors

NDDB pursuing a vision for horticulture produce as in Milk Integrating Small Milk Producers to meet the quality milk supply needs at

affordable prices to the consumer & the farmer getting a fair share of the money spent by the consumer

Initiatives in this direction include the following Fruit & Vegetable Unit – Delhi – 1988

Maiden & the only effort until recently by the organised sector in India Improving professionalism and transparency in trade and quality Direct Participation in the market

SAFAL Auction Market – Bangalore 2000 Maiden & the only market in India outside the APMC Auction platform modelled on the flower auction market in Amsterdam Incorporating cold stores, scientific ripening chambers, ambient storage,

etc Fruit Processing Unit – Mumbai 1998 Bangalore 2003

State of the art processing units, multi-item capability, which also supports price stabilisation purchases of items in glut

Has several international buyers on its client list Governments support to NDDB exempt from APMC in Kar/AP/Mah

NDDB: In F & V

By 2003, India saw the emergence of futures commodity exchanges and in no time have come to stay for good, MCX posting impressive YoY growth.

Same time, Telecommunication and Internet reach in rural India at one of the best comparable to any other developed country.

Success of Exchange technology was proof of concept in being able to connect huge number of market players effectively spread across e-enabled remote rural India

In this, MCX saw an opportunity in establishing spot exchanges in agricultural commodities, keen on partnering with organisations with domain expertise.

MCX: In Spot

A JOINT INITIATIVE: SNX

JV agreement signed in June 2006 between NDDB and MCX along with FTIL to promote a spot exchange for perishables.

In September 2006, Safal National Exchange of India Limited registered in Bangalore.

SNX Existing Market

Number of buyers and sellers

From every nook & corner of all producing centres in the country simultaneously present

Limited to local participants

Bargaining Power

Faceless bid, price offer by seller based only on grade with no other inputs such as profile of seller, body language, etc

Small lots by small farmers would invariably be at a discount

Right to Reject offered Price

Absolute right to define price expectation and also modify based on the farmer's judgement/need

Virtually not an option to reject as the produce is out in the market, besides pressures of having to return to the same trader next day

Market Characteristics: SNX & Present

SNX Existing Market

Dependence on Local Traders

Minimised as there are options of selling on the exchange through Farmer Association

Pepetual dependence on local traders

Trade systemHas the option to first conclude on the price and later delivers produce at delivery center

Produce to be physically brought to the market for finding out price

Grades Standardization

Standardization with dispute redressal system

Informal standardization without an effective grievance redressal system for the farmer

Market Characteristics: SNX & Present

SNX Existing MarketPrice quotation

Both buyers and seller can quote their price

Seller is always the price taker

Effect of Supply-Demand Balance

Based on demand and supply at national level

Limited to local balance, impact of distant market situations levereaged by middlemen

Price dissemination

Multiple Channel- electronic-instantaneous-all key centres- Benefit even those not on SNX

Limited sources after a lag of a day often, more as data than as a decision tool for the farmer

Payment Immediately after the sale Varies from 1 week to 1 month

Market Characteristics: SNX & Present

SNX intervention with grower associations on post harvest practices, Packaging etc

Increase in productivity Quality- Price EquationReduction in post harvest losses Access to extension servicesSNX – A reference price even for those not connected

Indirect Benefits of SNX to Growers….

Better price realization for farmers

Catalyse industrial activity- Processing and Export due to assurance of uninterrupted supply of raw materials through SNX.

More decentralised centers will emerge as important trading hubs, which generates lot of direct and indirect employment.

In states where there is a cess, SNX would have 100% compliance, as all deliveries are recorded electronically.

All these objectives achieved with minimal support from the state government in the form of amendment to their APMC Act.

Advantages to State Government

Advantages to Traders Every Trader would have access to a bigger market, an opportunity to enhance their turnover

In physical market, they always face the risk of counter party defaults, which will be totally guaranteed on SNX platform. A settlement guarantee fund would be maintained for this purpose.

Since large number of traders from all across the country would be available at SNX platform, they can realize better price for their product, particularly the small/medium ones.

They can expand their activities to multiple commodities, because of operational ease, availability of finance and absence of counter party risk under SNX system.

This group may require some extra effort in appreciating the potential of the concept, as most other businesses have been impacted by technology

Advantages to Processors/Exporters

They can buy certified quality material through a secure platform, free from hassles relating to procurement of material in physical market.

Lower brokerage or commission payable to procurement agents.

Customised Contracts can be designed in the case of large volumes of a specific quality

Looking at the price available at SNX, they can make export commitment and cover themselves immediately by buying at SNX

Customized logistics services can be organised.

KYC registration with unique ID in rural lending could be the equivalent of PAN in financial securities market – Medium Term Potential

Crop loans linked to recovery can be structured through SNX members-

Trade working capital credit cards of shorter settlement cycles can be explored to bring the transactions in banking system

Promote membership amongst Agri-professionals who could be offered a financial package and training, which would develop a new breed of traders

Opportunities In Rural Finance

Functioning of SNX

Who can be a member On seller front

Coop societies Farmers association Self Help Groups Traders/Commission agents Big Retail Chains Entrepreneurs

On buyer front Individual Farmer/ self help groups Traders/commission agents Processing industries Exporters Big Retail Chains Entrepreneurs

Any member can act both as seller and buyer Exposure in F & V considered an essential pre-requisite

Member Location and Requirements

Where will be the members located? District Headquarters Taluka Head quarters Village Level provided the availability of infrastructure

Requirements for setting up of member location Power source Phone connection or VSAT connection

Working Model of SNX from Member to Exchange Level

Contracts shall be for T + 1 initially

Any client/member from any part of the nation can enter sell quote and/or buy quote.

The trade happens whenever there is match between buy and sell quote.

As the trade is complete initial margin specified is deducted from both the account

After the trade, the seller member brings the produce to specified delivery center before specified period while buyer member should maintain sufficient amount in his account to clear his dues same day.

SNX shall check quality confirming to contract spec. and permits handing over of delivery.

Delivery is all ex-production centres

Model ContractSymbol MTotapuriKR

Description Daily Mango Totapuri processing quality Krishangiri

Trading related

Trading Period Daily, May 15 2007 to Jul 31 2007

Trade Timings Monday to Sunday, 10:00 A..M. to 1 P.M.

Trading Unit 1 MT

Quotation / Base value Rs. Per Kg. Ex- Krishnagiri excluding Mandi tax, Cess and other levies

Basis Variety Totapuri

Tick Size (min. price movement)

5 paisa

Price Quote Ex-Krishangiri (exclusive of taxes levies & other charges)

Daily Price Limits (price band)

5%

Initial margin 15 %

Special margin In case of additional volatility a special margin of such percentage as deemed fit will be imposed immediately on both buy and sell side in respect of all outstanding positions

Model Contract

Delivery and Settlement Procedure

Delivery Logic Compulsory Delivery

Mode Of Communication Fax

Delivery Pay In Next Working day (E+1) 8 A..M. to 4:00 P.M.

Delivery Pay-Out Next working day (E+1 ) 8:00 A.M. to 6 P.M.

Pay In Of Funds Not later than 12 noon of next working day (E+1)

Pay Out Of Funds Next working day (E+1) 1:00 p.m. to 5.00 P.M.

Delivery Details SNX would intimate every buyer and seller of the quantity delivery location wise as per allocation made by the exchange,

Delivery Obligation (Tolerance Limit)

Delivery obligation by a seller member shall be deemed as met if the quantity delivered is 95% of the traded volume at MQ grade at the locations and within the time as stated in the delivery instructions of the exchange.

Quality Certification

• SNX will establish a Quality Assurance Protocol

• Quality Certification at Delivery Centers, initially in-house

• Contract Quality Specifications closest to the produce being traded in traditional markets in phase –I

• Quality improvement through out the chain in phase-II

• Minimize Quality related disputes, Play role in dispute resolution at Delivery Centers

• Continuous training to all stakeholders on post harvest handling management

Initial List of F & V Items to be Traded on SNX

Banana- Robusta Supplies from Theni, Bangalore, Jalgaon, Cudapah

  Delivery Ex Theni, Bangalore, Chennai, Cudapah

Banana-D Cavend Supplies from Jalgaon

  Delivery Ex Jalgaon, Mumbai

Onion-Nashi Red Supplies from Nashik Region

  Delivery Ex Nashik, Ahmednagar

Tomato-Hybrids Supplies from Sangamneer, Kolar, Hosur Regions

  Delivery Ex Nashik, A’nagar, Hosur, Kolar, Bangalore

[email protected]

Thank You