Hedging Desk: A New Era in Indian Agricultural Marketing

In a first-of-its-kind move, the Government of Maharashtra, under its flagship SMART Project, has established a dedicated ‘Hedging Desk’ that has a potential to transform agricultural marketing by empowering farmers against the volatilities in farm prices. Initially, the initiative is aimed at providing price risk management to Farmer Producer Organisations through agricultural derivatives markets, i.e. futures & options in commodities.

The ‘Hedging Desk’ is established in collaboration between NCDEX Institute of Commodity Markets and Research (NICR), a fully-owned subsidiary of India’s top agricultural commodity exchange National Commodity & Derivatives Exchange (NCDEX), and the World Bank-assisted Balasaheb Thackeray the State of Maharashtra Agribusiness and Rural Transformation (SMART) Project.

“This is an innovative market-linked approach to mitigate price risks for farmers in Maharashtra,” said Dr. Hemant Vasekar, Project Director, SMART, at an inaugural session in Pune. “It’s about equipping our farmers with the same financial tools that institutional traders use, but in a way that’s accessible and farmer-friendly. It will ensure the handholding of farmers and FPCs in the initial stage and eventually help them to asses risks and take informed decisions about marketing of their farm produce,” Vasekar said.

While India’s agricultural production has leaped multi-fold in the last three decades, depressed farm prices remained the contentious issue in the country, leading to severe stress in the agricultural sector that provides livelihood to around 60% of the 1.4 billion population in the country. For long, the central policy support remained focussed on increasing the production, while marketing of surplus commodities is still dominated by a skeletal and six-decade-old Agricultural Produce Market Committee Act, a fragmented and monopolistic market structure in the digitally integrated world. This has made the Indian agricultural marketing infrastructure vulnerable to frequent changes in the international market dynamics.

In the domestic market too, farmers are exposed to various risks from weather, pest attacks, policy flip-flops and geopolitical events that can affect the production. Overall poor post-harvest management infrastructure also hurts farmers’ interests, thereby burdening the economy of the nation. The production risk can be mitigated via crop insurance and agronomic solutions. However, managing price risks — particularly after harvest — remains a significant challenge. Farmers often fall prey to distress sales due to sudden price crashes at harvest due to their poor financial conditions amid lack of real-time price information and lack of access to formal markets such as futures & options or electronic auction platforms.

This is an area where agriculturally advanced economies have largely succeeded in protecting their farmers by providing them price risk mitigation opportunities through robust derivatives markets. In simple words, farmers in the US, Brazil or China can lock his one or two-year forward prices by selling his anticipated production today, called as Hedging in the financial markets.

The SMART had already taken a step by creating a Risk Mitigation Cell a few years ago and the Hedging Desk, located in Pune, will act as its core operational arm. The desk has been mandated to create awareness, capacity building and handholding FPOs in using commodity futures & options. Promoting e-Negotiable Warehouse Receipt (e-NWR) ecosystem, which helps farmers to hold their product for better prices, will also be a major function of the desk. More importantly, the entire capacity building and knowledge sharing activities about the complex derivatives market will be made available in Marathi, to ensure accessibility and acceptability across rural Maharashtra.

The concept is rooted in the findings of a comprehensive study by Deloitte India under the SMART project, which underscored the advantages of exchange-traded tools in enhancing price realization for farmers. The study strongly recommended the institutionalization of a risk mitigation framework at the state level. The project faced many hurdles post Covid-19 epidemic. However, it has gained significant momentum under the able leadership of the state Chief Minister Devendra Fadnavis, who has taken the implementation of this initiative seriously.

Hedging Desk is the need of the hour and one will not be surprised to see many Indian states following the example of Maharashtra under the able leadership of Shri Devendra Fadnavis hinting at shift to the new era of proactive market-linked farming from reactive subsidy-based models in Indian agricultural marketing, Mr. Vasekar said adding that in the first phase, Hedging Desk will concentrate their operations around cotton, maize and turmeric which are important for the farmers in the state.

(The writer is a senior journalist based in Mumbai.)