Commodity Derivatives for Price Risk Management by FPOs in India: Evidence from NCDEX Futures & Options (Soybean, Turmeric, Guar‑Seed)

Author(s): Niraj Shukla and Dr. Bramhanand Deshmukh

Abstract:

Smallholder farmer producers in India face substantial income volatility due to price fluctuations in commodity markets. Commodity Derivatives Market provide these smallholder farmers with additional option of an alternate modern national market which has potential to secure and or better realization of farmers. Farmer Producer Organisations (FPOs), through aggregation and better potential of a formal market engagement, have the potential to use commodity derivatives (futures, options) on platforms such as NCDEX to hedge this risk. This paper investigates hedging behaviour for three commodities viz., soybean, turmeric, and guar‑seed, and quantifies hedged volumes, examines experiences of FPOs obtained via primary interviews, and explores the enabling factors and constraints. Data sources include published statistics and case‑studies, plus semi‑structured interviews with FPOs who have implemented hedge trades. Key findings: futures are the dominant instrument to lock in price and manage downside risk; options are less used but effective where cost of premium is low or upside price potential is high. Among the three commodities, guar‑seed shows the highest and most consistent hedging volumes; turmeric and soybean follow, with significant variation depending on region, quality grading, and timing of harvest. Operational enablers include aggregation, grading standards, access to warehousing and delivery centres, margin/finance availability, and institutional support and training. The major constraints are basis risk, premium & margin costs, regulatory uncertainty, and limited awareness. Recommendations include extensive capacity building, pilot programmes with subsidised premium for options, strengthening of quality of produce/aggregation, improved access to warehouse receipt financing, and stable regulatory policy.

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Pages: 180-182     |    1 View     |    0 Download