In a first for the country, finance minister Arun Jaitley on Sunday launched options trading in a farm commodity on National Commodity & Derivatives Exchange (NCDEX) and affirmed the move will enable farmers to hedge their price risks better.
NCDEX has introduced options in guar seed, one of its most important products in the futures segment. It is the second exchange to launch options trading after MCX but the first one to introduce an agri options product.
Stressing that options trading is one of the tools to ensure farmers get remunerative price for their produce, Jaitley said: “We see in some places the problem of falling prices because of higher production. Farmers are not getting the right price for their produce. Many steps have been taken in the last few years to take farmers out of this situation. There has been some positive impact,” he said.
The finance minister said agriculture is the top priority for the government, because an overwhelming portion of our population is dependent on it.
He added that the economic growth doesn’t become equitable unless gains are visible in this key sector as well.
Three guar seed options contracts that will expire in February, March and April of this year are being made available on NCDEX for trading initially.
Options trading was allowed to complement the existing array of futures contracts and help strengthen the price discovery process in the commodity market. MCX had launched options trading in gold in October last year following policy changes, 14 years after India adopted modern derivatives trading in commodity futures in a big way.
NCDEX chairman Rabi Narayan Das said: “Agri options will serve as a powerful tool to empower farmers by allowing them to lock in the prices of their produce at a minimum cost….While, as of now, options trading is allowed in only one agri-commodity, we can expect more commodities under this over a period of time.”
NCDEX managing director and chief executive Samir Shah said options will protect farmers in case of a price crash while giving them an opportunity to sell their produce at higher prices if the price increases. FE