Types of Perishable Commodity ,Classification Detail , Commodity Exchange

1. Presentation on
“To Detail Study on Perishable
Commodity Trading In India”
Presented to: Presented By:
Prof. Mittal Dattani Sachin Patel
MBA Agri Business

2. Introduction of Commodity
• Commodity is a consumer good various commodities are used in our daily
life. Like wheat issued for our breakfast bread, cotton is for fabrication, gold
is used for jewellery by humans, petroleum products are used for different
purposes.
• A commodity is any physical substance, such as food, grains, and metals,
which is interchangeable with another product of the same type, and which
investors buy or sell, usually through futures contracts.
• The futures contract, as we know it today, evolved as farmers (sellers) and
dealers (buyers) began to commit to future exchanges of grain for cash.
• India, a commodity based economy where two-third of the one billion
population depends on agricultural commodities, surprisingly has an under
developed commodity market.

3. History of Commodity Market
• The first future market appeared in 1875.
• Trading in commodities futures has a long history. Although the first recorded
instance of futures trading occurred with rice in 17th Century Japan, there is some
evidence that there may also have been rice futures traded in China as long as 6,000
years ago.
• Organized trading on an exchange started in 1848 with the establishment of the
Chicago Board of Trade (CBOT).
• The Chicago Board of Trade was established in 1848. In the 1870s and 1880s the
New York Coffee, Cotton and Produce Exchanges were born. Today there are ten
commodity exchanges in the United States. The largest are the Chicago Board of
Trade, The Chicago Mercantile Exchange, the New York Mercantile Exchange, the
New York Commodity Exchange and the New York Coffee, Sugar and Cocoa
Exchange.
• The history of organized commodity derivatives in India goes back to the
nineteenth century when Cotton Trade Association started futures trading in 1875,
about a decade after they started in Chicago.

4. History of Commodity Market in
India
• During the pre-Independence era, India also had a thriving futures market for
commodities such as gold, silver, cotton, edible oils, etc.
• In mid-1960s, due to wars, natural calamities and the consequent shortages, futures’
trading in most commodities was banned. Currently, the futures markets that exist in
India are localized for specific commodities.
– For example, Kerala has an exchange for pepper; Ahmadabad for castor seeds
• These exchanges, however, have only a regional presence and are dominated by people
who are involved with the physical trade of that commodity.
• A commodity market is a market that trades in primary rather than manufactured
products. Soft commodities are agricultural products such as wheat, coffee, cocoa and
sugar. Hard commodities are mined, such as gold and oil.

5. Classifying commodities
Most commodities can be classified into one of
three categories, making it easy to sort them ready
for proper storage. The three categories are:
• Perishable
• Non-Perishable
• Semi-Perishable

6. Perishable commodity
• “Any commodity which might get spoiled after a week of proper handling and
shipping conditions”
• Perishable commodities are those commodities which deteriorate quickly when not
stored properly. Perishable commodities usually require some sort of refrigerated
storage.

7. • Perishable commodities include:
Dairy products and eggs
 Dairy products are those commodities, which are derived from or based upon
milk, and include creams, yoghurts, butter, cheese and ice cream. Milk needs to
be stored in the refrigerator at a temperature between 3 to 4°C. If stored this
way fresh milk will last about 10 days.
 Cream, yoghurts, butter, cheese and eggs should also be stored at between 3 to
4°C.
Meat and poultry
 Meat and poultry should be stored between 1 and 3°C. Meat can be stored
in the cool room for 4-6 days, or if vacuum-sealed up to 12 weeks. Poultry
can be kept for 3-4 days
Seafood
 Live seafood such as crabs and yabbies’ should be kept at temperatures between
1 to 3°C in sealed containers. Frozen seafood can be kept in the freezer for up to
3 months.

8. Cooked foods and leftovers
 These are also considered perishable and should be stored in the cool room
at between 3 to 4°C. Cooked foods should be covered before storage and
need to be stored separate from raw foods and never on the same tray.
Fruit and vegetables
 Fruit and vegetables vary in their storage requirements, but as a general
rule most fruit and vegetables should be stored between 5 and 9°C.
 There are a couple of exceptions such as broccoli, which usually arrives
packed on ice, and should be stored at 1°C, and tropical fruits such as
bananas and pineapples which should be stored at around 18°C. Because
fruit and vegetables require a higher temperature storage (between 7 and
10°C) they are best kept in a separate cool room.

9. Semi-perishable commodities
• Semi-perishable commodities are those that do not require refrigeration, but still
have a limited shelf life. They include things like potatoes, onions, pumpkins and
salamis.
• These items are usually kept on shelves in the storeroom complex, where they get
plenty of air circulation around them. Potatoes need to be kept away from light as
they will start sprouting.

10. Non-perishable commodities
Technically speaking there is no such thing as non-perishable commodities, as all goods
deteriorate overtime. But some commodities deteriorate so slowly that they are called non-
perishable. Examples of non-perishable goods are:
• flour
• spices
• canned foods
• jars and bottles
• nuts
• dried packet goods, for example noodles and pasta
These items are usually kept in the dry store where they are kept cool and are protected
from moisture contamination. Dry goods like flour, grains and pasta often come in bags or
sacks, and are not safe from vermin or weevils and should be transferred to clean storage
bins with tightly fitting lids.

11. Literature review
• Definitions
Ye
ar
Author/web sites Definitions Book/link Page
no.
Thelawdictionary.org Any commodity which might get spoiled after a
week of proper handling and shipping
conditions. Invalid source specified.
http://thelawdictionary.org/perishable-
commodity/
Businessdictionary.com Unpreserved, Unprocessed, and untreated
commodity that may spoil after seven days
under normal handling and shipping
conditions.Invalid source specified.
http://www.businessdictionary.com/definita
tion/perishable-commodity.html
TeachMeFinance.com% The term perishable commodities as it applies
to the area of agriculture can be define as farm
goods that prior to processing cannot be
stored for substantial period of time without
excessive loss through deterioration or
spoilage.Invalid source specified.
http://www.teachmefinance.com/scientific_
terms/perishable20commodities%20.html
Businessdictonary.com Farm goods that prior to processing cannot be
stored for a substantial period of time without
excessive loss through deterioration or
spoilage. Invalid source specified.
http://www.gotrady.com/dictionary/2071/p
erishable_commodites

12. Research paper/articles/journals titles
Sr.
No
.
Year Author Research
paper/articles/journa
ls titles
Research paper/articles/journals
summary
Research
methodolo
gy
Area
1. 2007 Xian-hao Xu,
Bai-yun Yuan
Analysis of Innovative
Perishable Goods
Supply Chain Under
Information Asymmetry
The term perishable goods is related to
obvious features involving long
production lead time, short sales
Cycle, low final salvage value,
uncertain demand, etc., and these
features are caused by characteristics
of the product itself or preferences of
target consumer group. Along with the
development of technology and
increased market competition, more
and more electronics and information
products possess the Characteristics of
perishable goods. According to
different ways out of the market,
perishable goods can Be classified as
traditional perishable goods and
innovative perishable goods.
Secondary
data
Changsha,
China
2. 2007 Xian-hao Xu,
Bai-yun Yuan
Analysis of Innovative
Perishable Goods
Supply Chain Under
Information Asymmetry
Most types of innovative perishable
goods are transformed by the
innovative products.
Secondary
data
Changsha,
China

13. Sr.
No
.
Year Author Research
paper/articles/journa
ls titles
Research paper/articles/journals
summary
Research
methodolo
gy
Area
3. 1999 Shrivastva Commercial Activities
and Development in the
Ganga Basin.
The vegetables, being the most
perishable commodities, require
immediate transaction after harvesting
the crops. Delay in marketing process
will reduce the producer's benefit per
unit weight of their surplus. Periodic
markets are serving as very important
exchange centers for assembling or
vegetables for transaction to urban as
well as to national and international
markets and also for the transaction for
local consumers who are participating
in these centers.
Primary data New delhi
4. An analysis of pricing
and marketing of
consumer perishable
goods.
Perishability of any product works in
two Ways together negative & positive.
In case of Fruits and Vegetables the
sensitivity of pricing & marketing
become more complex because of the
factors involved in this matter, such as
perishable nature of produces,
transportation problem, limited
availability, demand, government
policies, seasonal factors various
diseases, high cost of production and
marketing charges etc.
Secondary
data

14. Research Methodology
Objectives
The Objectives of the study are:
 To study the types of perishable commodities traded in Indian market
 To study the future of perishable commodity market
Methodology
The data has been collected from secondary sources:
The main sources of secondary data collection are as follows:
 Websites
 Books

15. Spot trading for perishable
commodity
• The spot market is a commodity or security market where goods, both perishable and
non-perishable are sold for money and delivered immediately or within a short span of
time.
• The spot market is also recognized as the cash market or physical market.
• The purchases are settled in cash at the current prices fixed by the market as opposed to
the price at the time of distribution.
• A commodity is basic goods, which is substitutable with other similar commodities.
Some examples of commodities are grains, meat, vegetable, fruits, milk and other
agricultural products.
• The world spot market or foreign currency trading is a vast spot market. It is the
simultaneous exchange of one nation’s currency with another. The way it works is
through a stakeholder choosing a currency pair.

16. Types of Spot Market
The spot market which is also called the cash market is a financial market, in which the
financial commodities and instruments are transacted for instantaneous delivery.
A spot market can be:
1. Exchange-
 It is also called an organized market where the security or commodity is traded on an
exchange using and changing the current market price.
2. Over the counter (OTC) –
 In OTC, the trades are based on contracts which are done openly between two parties,
and not subject to the guidelines of an exchange. The contract terms are approved
between the parties and might be non-standard.

17. Future trading for perishable
commodity
• Perishable commodities, which can be stored in cold storage, are being allowed for
futures trading.
• Various factors like change in domestic area of cultivation, pesticide attack, change in
weather conditions, demand from food processing units, transportation charges, size of
arrivals of goods in the market, contribute to the change in movement of prices. These
factors may be temporary, but it has bearing on the consumer. The price volatility for
perishable commodities normally over around 5% to 20%.
• The Exchange introduces contracts for perishable commodities with quality of the
commodity being used by market at large.
• Delivery centers are fixed, where it has the potentiality of the proximity of production
and market.
• The Exchange allows those commodities for perishables, which can be kept in cold
storage. The fresh perishables like fruits and vegetables are not allowed for trading
because the skin of the commodities is thin and it gets peeled off while rubbing on the
jute bags. Once the skin goes off, the products become perishable.
• The futures contracts are fixed in such a way that it enables the traders to activate the
interest in the business.

18. • If the futures contract is very small, the member’s interest will also come down.
The futures contracts generally value between Rs.1 lakh and Rs.10 lakh.
• The farmers can plan their production schedule by observing the futures prices on
the commodity exchange.
• They can even sell their goods on the futures contract and a better price can be
realized. With the thrust on agriculture, the banks are providing 80% to 85% of the
value of the commodity.
• The stockiest can also sell in the futures market against physical stock, if the prices
start falling. Even in the case of financiers, they can hedge their commodities by
selling the futures contract. The consumer of the product can buy a futures contract
against physical requirement and they can be protected against the price rise.
• Even the traders can make commitment by buying the futures contract and the
volume of the business will increase.
• Normally, the Exchange fixes the price band limit up to which the price movements
can take place. The Exchange collects initial margin before allowing trading and
marked-to-market margin is collected daily on the basis of price movement.
• If there is excess volatility, the exchange can impose additional margin. If the
margin is not paid, the clearing members can square off the contract. The Exchange
can also impose limits on open positions at the client / member level.

19. Perishable Agricultural
Commodities Act (PACA)
 The Perishable Agricultural Commodities Act (PACA) was enacted at
the request of the fruit and vegetable industry to promote fair trade in
the industry.
 PACA protects businesses dealing in fresh and frozen fruits and
vegetables by establishing and enforcing a code of fair business
practices and by helping companies resolve business disputes.
 AMS is responsible for administering PACA and offers many PACA-
related services to the produce industry.
 PACA experts receive hundreds of telephone calls each week from
companies requesting assistance on problems unique to the industry,
such as interpretation of inspection certificates, advice on contract
disputes and bankruptcy payments.
 Working in partnership with the fruit and vegetable industry, PACA
facilitates fair trade practices through education, mediation,
arbitration, licensing and enforcement.

20. The major Commodity Exchanges in
India
• Multi- National Commodity and Derivatives Exchange of
India, Mumbai (NCDEX).
• The Multi Commodity Exchange of India Limited (MCX),
• National Multi Commodity Exchange, Ahmedabad
(NMCE).
• Indian Commodity Exchange (ICEX)
• National Spot Exchange Limited (NSEL)
• ACE Derivatives & Commodity Exchange Ltd.
• National Horticultural Research and Development
Foundation(NHRDF)
• Universal Commodity Exchange(UCX)
• Chicago Mercantile Exchange (CME) Group - Agricultural
Commodities Products

21. Conclusion
• Perishable commodities is traded more in future trading than spot trading because
various factors like change in domestic area of cultivation, pesticide attack, change in
weather conditions, demand from food processing units, transportation charges, size of
arrivals of goods in the market, contribute to the change in movement of prices.
• These factors may be temporary, but it has bearing on the consumer and also affects the
farmers and traders.
• Government of India developed a special market for Perishable commodity’s trading.
There is an also one act for perishable commodity trading called PACA (Perishable
Agricultural Commodity Act). PACA protects businesses dealing in fresh and frozen
fruits and vegetables by establishing and enforcing a code of fair business practices and
by helping companies resolve business disputes.
• In India, more traded Perishable commodities are Vegetables, Fruits and Dairy products.
• Trading in perishable commodities is difficult and differs from trading in other
commodities. So, government of India gives special focus on trading of perishable
commodities.