Abstract
With drought looming large over 14 meteorological sub-divisions, spare a thought for the planted crops that are in grave danger. For the farmers in Maharashtra, Andhra Pradesh, Karnataka and Uttrakhand this monsoon has brought everything except the much-needed moisture. "Come rainy season and nearly 59 per cent of the Indian population, the people dependent on agriculture, keep their fingers crossed. Some pray to the rain God to ensure that it does not pour so hard that their crops get destroyed. On the other hand, in some villages, the farmers tie two frogs to a pole and get them married, a superstition which is supposed to bring good rainfall, Superstitions apart, the seriousness of weather cannot be overemphasised. India, as a country, faces great variations in weather conditions due to its diverse geographical structure. While some places are hit by flood, some others by drought, rising temperatures are scaling new peaks and chilling winters are breaking old records. Such diversity in weather conditions affects the business processes of many industries directly or indirectly giving agriculture the greater break. Is weather derivates the one of the solutions to the sight for agricultural risk bearing safety? This paper aims to examine the state of risk management in agriculture of India, evaluate the effectiveness of weather derivatives as risk management tools and basic framework required to hedge them.
Highlights
In India, agricultural risks are exacerbated by a variety of factors, ranging from climate variability and change, frequent natural disasters, uncertainties in yields and prices, weak rural infrastructure, imperfect markets and lack of financial services including limited span and design of risk mitigation instruments such as credit and insurance
This paper attempts to highlight the concept of weather derivatives and its relevance to Indian agriculture in managing the risk
The paper briefly discusses the risks involved in agriculture and the earlier attempts to mitigate the same which has restricted to insurance schemes, the importance of weather derivatives and its variants including an attempt on the recent Indian experience besides the cross country experience
Summary
In India, agricultural risks are exacerbated by a variety of factors, ranging from climate variability and change, frequent natural disasters, uncertainties in yields and prices, weak rural infrastructure, imperfect markets and lack of financial services including limited span and design of risk mitigation instruments such as credit and insurance These factors endanger the farmers' livelihood and incomes and undermine the viability of the agriculture sector and its potential to become a part of the solution to the problem of endemic poverty of the farmers and the agricultural labour. One can engrossed to find the possible solution to these problems in the Spot Commodity Exchange where all parties farmers, buyers, and arhatiyas – are electronically linked and certified to enable seamless transactions In this backdrop, this paper attempts to highlight the concept of weather derivatives and its relevance to Indian agriculture in managing the risk. The paper briefly discusses the risks involved in agriculture and the earlier attempts to mitigate the same which has restricted to insurance schemes, the importance of weather derivatives and its variants including an attempt on the recent Indian experience besides the cross country experience
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