Pros and cons when tapioca
is traded through the system
Pros of the futures market
1.It reduces the risk of price fluctuation.
Every party, including farmers, processors and exporters,
will be able to agree upon the price of the product before
the date of purchase. Therefore, buyers and sellers will
not have to worry about price fluctuation because the
futures market will guarantee that buyers get the agreed
quantity and quality of products, while sellers will get
the agreed price for their products.
2.Parties know the future price. The price in the futures
market is the one that is agreed by both buyers and sellers
for future purchases, which reflects the future demand
and supply in the market. This makes all parties more
confident about the market.
3.It serves as a source of information. The futures market
will be a distribution center for information regarding
production, market and price of tapioca both locally and
from overseas, so traders can use it to plan production
and sales.
4.It increases efficiency in the market. A large number
of buyers and sellers come together in the futures market.
This, in turn, will lead to reduced costs for sellers
to find buyers, and vice versa. The price will more truly
reflect the real demand and supply in the market. Moreover,
illegal practices will be less likely, as the market can
be closely monitored under specific rules and regulations.
5.It will reduce government intervention. Currently, the
government spends a large part of its budget intervening
in the tapioca market each year. With the future market
established, farmers will be able to get the price that
is truly a result of the market mechanism, so the government
can save its budget.
6.It will increase production efficiency and product quality.
As the quality and standards of the product will be specified
in the contract, farmers will be obligated to develop
good quality products, which will benefit the country’s
exports as a whole. |
Cons of the futures market
Cassava is an agricultural product. Factors affecting productivity
include climate, agricultural techniques and plant genetics,
and the government should have a center to analyze and predict
these factors. This would prevent rumors, which causes speculation
on prices in the futures market. For example, in the Chicago
Board of Trade (CBOT) soybean futures market, all players wait
for USDA reports on soybean data in the US, the biggest soybean
supplier in the world. It analyzes supply and demand, planted
area, yield per harvest acre, beginning stock, end stock and
projected data. The report also includes data on other soybean
suppliers such as Brazil and Argentina, demand from major buyers
and any movements in the soybean industry.
Another thing to consider is how the quality of Thai tapioca
compares with the world standard. At present, most Thai farmers
use low technology in their fields and have a lack of knowledge,
government support and understanding of the futures market.
Some people find that the futures market seems not to involve
farmers, a main target of assistance, as much as traders or
speculators. Farmers have long been struggling with marketing
problems such as price slumps and price depression by traders,
so any farm support project should focus on helping farmers.
On the contrary, the upcoming futures market seems to involve
traders or speculators rather than farmers. Benefits are more
likely to flow to speculators than to farmers in general, who
are expected to join the market to a limited extent. As a result,
the futures market may become a speculation hub instead.
Take for example Malaysia, which earlier launched such a market
and ended up with its closure because of ineffectiveness of
the market. When its operation tightly clung onto trading rules,
transaction activity was dull. On the other hand, if the rules
are loosely observed, speculation will dominate the market and
cause considerable losses to farmers. Then, if Thailand carries
on with the futures market, Malaysia’s history may be repeated
here.
The Thai Prime Minister himself has kept a reserved stance toward
the establishment of this market, while suggesting that it runs
first in small-scale operation with a humble budget in order
to see if it works. If successful, full-scale operation will
materialize later. The latest budget granted by the Farmers’
Assistance Committee totaled only 300 million baht, which is
very little when compared with other countries spending billions
of baht on such markets. The granted budget has to cover all
start-from-zero costs including technological installation and
staff recruitment.
|
