New Opportunity to Farmers: the Commodity Hedge

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New Opportunity to Farmers: the Commodity Hedge

Journal Title: International Journal of Agricultural Science and Research (IJASR) - Year 2017, Vol 7, Issue 6

Abstract

In an ironic manner, we get news by the NCRB (National Crime Records Bureau), as 16,632 farmers, including 2,369 women, killed themselves last year (2014), constituting 14.4% of the total number of suicides in the country. A Situation of Farmers study undertaken by the NSSO (National Sample Survey Organization) of the Government of India indicates that 40% of farmers, given a choice wish to get out of agriculture. Agriculture is subjected to high risks because of the volatile nature of the factors involved. Herein, we poring on Price Movement risk to get a reasonable return on the time and money invested by farmers to get rid of aforesaid issue up to a great extent. To address it, integration of Farmer Producer Company & Commodity Future market (hereafter-Commodity Market) looks to be one plausible solution via Hedging to offset the aforesaid risk. Here, Key players are FPO (Farmer Producer Companies) & Commodity Market. FPO as Lehman language “Group of farmers (producer) on the basis of symmetry in geographical conditions, Crop, land holding & living status etc. to get the optimum return through conjoint effort.” & next is “Commodity Futures are contracts to buy/sell specific quantity of a particular commodity at a future date” through exchange. Key tool-The word hedge means protection. The dictionary states that to hedge are “Any technique designed to reduce or eliminate risk” and the term hedging is defined as the practices of protection from unwanted effects. In the context of futures/ commodity trading, that is precisely what a hedge is a counterbalancing transaction involving a position in the futures market that is opposite one’s current position in the cash market. These factors not only affected the farmer’s livelihood and incomes but also put negative pressure on the viability of the agriculture sector and its potential to become a part of the solution to the problem of livelihood of the farmers and the allied labor. This paper is designed to help the farmers/ producers to manage their price risk with help of different tools i.e. future contracts etc. Although, it cannot able to cover full risk or it does not assure to cover complete risk but it is specifically capable to reduce or mitigate the risk up to a great extent. Under this we try to cover whole in short, overview of commodity market, FPO & Hedging process, before spotlighting the New Opportunity to Farmers: The Commodity Hedge. We started with nitty-gritty introduction of pre-requisites. A principal objective of this paper is to better enable you to use such tools effectively. Research Methodology is based on analysis of secondary data that has been analyzed and interpreted with simple tools for sketch out the conclusions.

Authors and Affiliations

Deepak Pal, Laveena Sharma

Keywords

FPO Future Commodity Market Hedge Producer Company & Risk Management Tool

EP ID EP251782
DOI -
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