NCDEX, one of India’s leading future exchanges, will soon sign a memorandum of understanding (MoU) with the Maharashtra government to subsidise turmeric growers to take part in options trading. 

Farmers will particularly take part in “put” options trading through farmer producer organisations (FPOs). 

“The State government has earmarked funds for this and the MoU will be signed soon,” NCDEX MD and CEO Arun Raste said in businessline’s State of the Economy podcast. 

The exchange is in touch with Andhra Pradesh also to subsidise farmers to take part in options trading through FPOs. 

AP, a little slow

“Andhra Pradesh has been a little slow (in taking the initiative). So, Maharashtra is in the process,” the NCDEX MD and CEO said. 

The futures exchange is in talks with Nabard (National Bank for Rural and Agricultural Development) to help FPOs to participate in options trading. 

“We have taken it up with Nabard which has asked to meet the FPOs that have benefitted from options trading. We have arranged for it,” Raste said. 

FPOs  are a little hesitant to take part in put options as they have to convince their board and not many are aware of its advantages. Therefore, to encourage them, NCDEX is trying to get Nabard to finance their participation. 

Supplementing MSP efforts

NCDEX carried out a pilot project by getting markets regulator SEBI to help FPOs take part in put options on the exchange. “We helped 41 FPOs to take part and of these, three returned to trade on their own,” he said. 

Some 500 FPOs have registered with NCDEX to take part in derivatives trade and many of them took part in soyabean futures. With the Centre banning derivatives in soyabean and its products, some of the FPOs are now active only in the spices derivatives, he said.  

According to Raste, helping farmers participate in put options can be a move to supplement the Centre’s efforts to ensure minimum support price (MSP) for agricultural produce. 

A participant will have to pay an upfront margin or premium to take part in a “put” options contract. This could be 4-5 per cent the price of the commodity for which the deal is struck. 

“Put” options can be a good instrument to ensure the minimum support price (MSP) for crops. “Option trade has a potential to supplement and complement the MSP regime,” said Raste.

Sun oil, carbon credits next

Farmers will not lose anything by taking part in put options. “In this method of trade, farmers will not have to sell their produce below MSP,” the NCDEX chief said.

As part of its moves to explore ways to help farmers take advantage of put options, NCDEX has been of the view that they should be given subsidies to start with.

Once they gain confidence, then the subsidy can be lowered gradually to say 60 per cent, 30 per cent etc.  

 Raste said subject to regulatory approvals , NCDEX plans to introduce derivatives trading in 2 or 3 nes products. “We will first introduce futures in sunflower oil. We have submitted our proposal to the regulator and are awaiting its clearance,” he said.

Next would be derivatives in carbon credits and NCDEX is set to submit its proposal on this soon.

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