Deeg in Bharatpur district of Rajasthan is primarily a mustard producer area. The soil here is fertile, but water is a problem. With salty ground water, farmers in the region are left with little choice but to depend on rains for farming. Precisely, this could be the reason why farmers choose mustard on 80% of the cultivable land during Rabi season, and wheat on the rest. The variety they grow is of premium quality with oil content as high as 44% against an average of 33-34%. But the story of these farmers’ misfortune starts when they take their produce to the nearby ‘well developed’ mandi to sell.
One can’t imagine that during peak arrival season, there is no place even to stand in the market yard. Farmers are asked by Arthias to just dump their crop and go home without fixing the price.
“The commission agent says we would be informed the rate later. Many times the rate is below Rs. 3,500 (per quintal) slipping to as low as Rs. 3,000,” said Devraj Faujdar, Chief Executive Officer, Deeg Wheat and Mustard FPC. For years, farmers in this region were at the mercy of traders and forget the profit, but many times farmers could not even recover the cost of production, said Faujdar.
But the year 2020 came with a ray of hope for farmers in the country, but mustard and chana farmers in particular. The regulatory approval for the “Options in Goods’’, soon followed by the launch of Options familiarization Programme(OFP) by India’s leading agri commodity Exchange, National Commodity and Derivatives Exchange (NCDEX) showed farmers the way to fix their sell price at the time of sowing itself. Needless to say the programme was supported by the Securities and Exchange Board of India.
“We are really fortunate to have this dream scheme at a right time ahead of mustard sowing. We wasted no time in seizing the opportunity and sold a reasonable quantity of our expected crop at over Rs. 5,000 (per quintal) by buying Put Options. This is unbelievable for our member farmers that the FPC has locked these prices for their produce at the time of sowing itself. And icing on the cake is that NCDEX has given the premium on behalf of us,” CEO Faujdar said.
Deeg Wheat and Mustard FPC is not the only one to hedge their crop price. More than two dozen Farmer Producer Organisations (FPOs) across half-a-dozen of states have already participated in the scheme and the number is increasing each day. FPOs, which is the backbone and focus area of the Centre’s agriculture policies in recent years, are fast learning to use Options for their price security, and using their goodwill to expand the footprint among fellow farmers, thus complementing the Centre’s goals of doubling farmers income by incorporating 10,000 new FPOs in the next 5 years.
Besides, states like Odisha, Madhya Pradesh, Telangana and Haryana etc. have announced a number of steps to guarantee a minimum price for the crops produced by farmers. Clearly, India is on the cusp of new era in the agricultural landscape, the seeds of which were sown in 2003 with the restart of commodity futures trade on the state-of-the-art national commodity exchanges.
More than one-and-a-half decade down the line, the agricultural marketing space witnesses yet another milestone with the launch of OFP. The program opens a whole new world of imagination of how farmers in this country can be secured against any price fall without government’s direct market intervention via Minimum Support Price (MSP). Though MSP plays a significant role in supporting farmers’ income, its outreach is extremely limited, according to the National Sample Survey Office (NSSO) report of 2012-13 crop year, states, that only 6% of the total farmers in the country actually get it. Also, though MSP exists for 23 commodities, it acts only as indicative benchmark in most of them.
Practically, is it not possible for any government to buy entire farm produce in the country at MSP. In this backdrop, market-based instrument like Put options offers a huge potential for farmers and governments as a magnificent tool for securing farmers against any unexpected fall in prices and simultaneously allowing them to gain if prices rise. This view was acknowledged by many FPOs who participated in the OFP.
“The best part of the (Put option) tool is that we are free to sell our crop in open market if the price goes above the strike price at the time of delivery,” said Virendra Kumar, Director of Samruddh FPC in Ujjain, Madhya Pradesh.
However, introducing a new market tool to farmers has its own challenges, especially when it involves a cost or premium in this case.And that is where innovative ideas like OFP play a crucial role.
“FPCs often work on a very thin margin and face shortage of working capital. So participating in a new scheme, is a tough decision for them. I don’t hesitate to share my experience that had my FPC not got the premium borne by NCDEX, it would have been difficult for us to sell our Chana via Put options,” said Yogesh Dwivedi, CEO of Madhya Bharat FPC which is a consortium of around 125 FPCs working in 43 districts of Madhya Pradesh.
The participant FPOs are becoming the brand ambassadors of the benefits and value the Put option creates for farmers. This may, of course, encourage more and more FPOs to come forward to take advantage of Options. However, looking at the financial constraints of farmers or FPOs, there is a need to train farmers to adopt the cost of Options as part of the input costs such as seeds, pesticides, crop insurance among others. No doubt, NCDEX and SEBI are going extra mile in encouraging more and more FPOs to use these Options as the lowest-cost tool to protect themselves from price falls, there is a need for more, particularly from institutions having connect with the network of FPOs to make Indian farmers empowered and financially independent as we enter the new decade.
We witnessed a glorious period post Green Revolution in 1960s which made the country self-reliant in key food grains. It will not be wrong to say that Options in Goods will trigger the second revolution in farming that will make millions of farmers self-reliant in securing the right price for their produce besides helping governments in their market interventions in the most cost-effective manner.
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