National Commodity & Derivatives Exchange (NCDEX) signed a Memorandum of Understanding (MoU) with the India Meteorological Department (IMD) to launch India’s first weather derivatives. This new futures market instrument will enable farmers and related industries to adapt to the current climate by hedging against the rising risks associated with climate-related adverse weather events including abnormal weather patterns that cause reduced rainfall such as the extended summer of 2023, heat domes and unseasonal wind, rain and storms.
What Are Weather Derivatives?
Weather derivatives are specialized financial products that can help give assistance to farmers, transporters and all weather-reliant industries hedge against the risks posed by climate-related weather loss events. Accordingly, NCDEX will develop futures contracts with rainfall based triggers. This development is possible through IMD’s high quality weather data with sufficient granularity to create location-based features. Specifically, NCDEX will develop season-based contracts that will represent real farming activities pertaining to location and climate.
With this agreement, this is the first instance with which such a product will be launched in India, supporting climate resilience for all associated with rural activity.
Voices from the Leadership
Arun Raste, Managing Director & CEO of NCDEX, stated that this orthodoxy creates a “new era in commodity markets.” Raste reinforced climate challenges that reduced incomes and challenged crops. Specifically, Raste assertedthat a market-based solution such as weather derivatives will allow our demonstrated ability to prepare for these climate disasters. Raste
further referred to a well-functioning operating model that could support other industries in addition to agriculture.
Dr. M. Mohapatra, Director General of Meteorology , India Meteorological Department said that IMD has provided support for agriculture and disaster warning systems and it has always been supportive of an inclusive response. Mohapatra stated, “with this MoU, IMD’s data will now have a financial component to provide support for livelihoods for farmers and associated industries sensitive to the impacts of climate.
Training, Research, and Growth Initiatives
This collaboration will establish new weather-indexed products, but also offer
• Training and workshops for farming groups, FPOs (Farmer Producer Organizations), and traders
• Collaborative research to help develop a more thorough understanding of weather risk
• Improved market tools to assist with price and risk to the farmers, traders, and possibly the insurers
• The weather derivatives will be supported heavily by historical and real-time weather data and not only be statistically sound but very actionable.
About the Partners
NCDEX is India’s largest dedicated agricultural commodity exchange, it provides opportunities for price discovery and risk management for farmers and traders of agri-commodities. Since it has been established in 2003, NCDEX has played a major role in establishing a modern or tech-based agri-market or system.
IMD was founded in 1875 and is the national weather agency. IMD exists to provide forecasts and warnings on weather and natural hazards. IMD also provides support to critical sectors such as agriculture, aviation, irrigation, and oil exploration, and serves to help mitigate against life and property losses due to extreme weather events.
