NCDEX in talks with Nabard, Centre to help FPOs take part in ‘put’ options
The National Commodities and Derivatives Exchange (NCDEX) is in talks with the National Bank for Agriculture and Rural Development (Nappard) and the Center to fund the participation of Farm Producer Organizations (FPOs) in “put” options, NCDEX Managing Director and Chief Executive Officer Aaron Rast said.
To participate in a put options contract, the participant is required to pay an upfront fee, also known as a premium, of 4-5 percent. “Outside organizations are a bit hesitant as they have to convince their board of directors and not many are aware of the sale options. So, to encourage them, we are trying to get loans for them,” he told a select group of reporters near Hyderabad.
Rast was in Hyderabad to address a meeting of Manara Farmer Producer Organizations (FPOs) organized by the Samunati Agricultural Corporation.
risk management weapon
Speaking before the meeting, he said that insurance is a “weapon” for managing market risks. But making “subtracted” choices can be a good precaution. About 500 FPOs are registered with NCDEX to participate in derivatives trading and 170 of them are actively trading. “We helped 41 FPOs participate in put options trading with the help of SEBI. Of those, three have now applied to trade on their own.
Put options can be good insurance against the minimum support price (MSP) for crops. “We have crop insurance but no price insurance. Options trading has the potential to supplement and complement the MSP system,” Rast said.
FPOs lose nothing by participating in put options. “In this way of trading, farmers will not have to sell their produce for less than the MSP. Also, large commodities can be covered under the MSP,” the NCDEX chief said.
MSP mechanism help
The center could also consider “subtract” options as a way of ensuring MSP for farmers. “There should be a mechanism to subsidize or subsidize the advance payment of premiums for selling options, especially companies that provide promotional services, so that more farmers can reap the benefits of this trading option,” he said.
The put option will help the military organizations to cover their risk as the farmers will guarantee the price of the product i.e. MSP for example in case the price of the product goes down. If the price goes up, they can sell it in the market and cancel the put option. “The derivatives market is the only solution for floating companies to compete against multinationals. Farmers will not face any loss by participating in derivatives options,” Rast said.
Referring to some people who say they are unable to understand the concept, NCDEX President said that a Bihar village woman, Kiran Devi, representative of Jeevika, an NGO, explained the concept to civil servants of Lal Bahadur Shastri National Academy of Management.
AP for premium support
He said, “If a woman who is not much educated (Kiran Devi) can understand the concept, then it must be a problem for others.”
Emphasizing the importance of derivatives, particularly for FPOs, Raste said that an FPO from Rajasthan was the first to start trading in the peanut derivatives launched by NCDEX last week.
Soon, he said, Andhra Pradesh will subsidize the premium for FPOs to participate in put options.
Asked about the continuation of the ban on seven agricultural commodities despite their low prices, Rasti said the issue has been taken up with the government. Crude palm oil (CPO) ban, for example. Their prices have fallen sharply over the past few months, but the ban continues.”
More derivatives trading
Regarding the SEBI-appointed Commodity Development and Advisory Committee that recommended derivatives trading in a slew of commodities, including aviation turbine fuel, milk, apples and weather, Raste said the proposal has been forwarded to the center.
The center will deliberate between the different ministries to get their comments. Once you get the offer, you will give the pass. “It will take some time,” he said.
(The clerk was at the conclave at Samonati’s invitation.)