What Happened
- NABARD and NCDEX have launched a price protection scheme that subsidises premiums for put options for Farmer Producer Organisations (FPOs) across seven states.
- The scheme covers three spice crops: turmeric, jeera (cumin), and dhaniya (coriander), enabling FPOs to hedge against price declines using commodity derivatives.
- Under the scheme, NABARD subsidises the premium cost of purchasing put options on NCDEX, effectively providing a price floor to farmers without the fiscal burden of direct price support.
- Put options give FPOs the right (but not the obligation) to sell at a predetermined price, protecting growers from sharp post-harvest price crashes while allowing them to benefit if prices rise.
- The scheme represents a shift from traditional price support mechanisms (MSP, procurement) towards market-based risk management instruments for agricultural commodities.
Static Topic Bridges
National Bank for Agriculture and Rural Development (NABARD)
NABARD is an apex development financial institution established under the NABARD Act, 1981, on 12 July 1982, by transferring the agricultural credit functions of the RBI and refinance functions of the Agricultural Refinance and Development Corporation (ARDC). It is mandated to provide and regulate credit and other facilities for the promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts, and other allied economic activities in rural areas.
- Established: 12 July 1982 under NABARD Act, 1981
- Headquarters: Mumbai; fully owned by the Government of India
- Functions: refinance to rural financial institutions, credit planning, institutional development, supervision of State Cooperative Banks, DCCBs, and RRBs
- Key developmental roles: promotes FPOs, finances innovation in agriculture, supports climate-resilient farming practices
- Supervisory role: statutory inspection of RRBs, State Cooperative Banks, and DCCBs
Connection to this news: NABARD's subsidisation of put option premiums for FPOs is an extension of its developmental mandate, using financial innovation to protect small farmers from commodity price volatility rather than relying solely on traditional credit instruments.
Farmer Producer Organisations (FPOs) and the 10,000 FPO Scheme
FPOs are collective entities of farmers, particularly small and marginal farmers, formed to improve bargaining power, access credit, technology, and markets. The Central Sector Scheme for "Formation and Promotion of 10,000 FPOs" was launched on 29 February 2020 with a budget outlay of Rs 6,865 crore (till 2027-28). The scheme is implemented through SFAC, NCDC, NABARD, and NAFED as implementing agencies.
- Scheme launch: 29 February 2020; budget: Rs 6,865 crore till 2027-28
- The 10,000th FPO was registered in Khagaria district, Bihar (February 2026), focusing on maize, banana, and paddy
- Financial support: up to Rs 18 lakh per FPO for 3 years; matching equity grant up to Rs 2,000 per farmer member (max Rs 15 lakh per FPO); credit guarantee up to Rs 2 crore
- Implementing agencies: SFAC, NCDC, NABARD, NAFED
- NCDEX has onboarded 761 FPOs across 16 states with a farmer base of over 12 lakh
- Objective: aggregate small, marginal, and landless farmers to enhance economic strength and market linkages
Connection to this news: The price protection scheme operates through FPOs as the unit of participation, demonstrating how collectivisation enables small farmers to access sophisticated financial instruments (commodity derivatives) that would be inaccessible to individual growers.
Commodity Derivatives and Price Discovery in Agriculture
Commodity derivatives (futures and options) are financial contracts whose value is derived from the price of an underlying commodity. In India, NCDEX is the primary exchange for agricultural commodity derivatives, regulated by SEBI. Futures contracts enable price discovery and hedging, while options (puts and calls) provide asymmetric risk protection at a known premium cost.
- NCDEX: National Commodity & Derivatives Exchange Limited, established in 2003; primarily focused on agricultural commodities
- Regulated by: SEBI (Securities and Exchange Board of India) since 2015 (transferred from FMC after its merger with SEBI)
- Put option: gives the holder the right to sell at a strike price; premium is the cost of this protection
- NCDEX launched options on turmeric, coriander, and jeera futures in January 2025
- Price discovery through futures helps farmers make informed sowing and selling decisions
- Correlation between NCDEX futures and spot prices makes the platform effective for hedging
Connection to this news: By subsidising put option premiums, NABARD effectively converts a market-based hedging tool into an accessible price protection mechanism for FPOs, combining the efficiency of derivatives markets with the developmental objective of farmer income security.
Agricultural Price Support Mechanisms in India
India uses multiple mechanisms to protect farmer incomes from price volatility: Minimum Support Price (MSP) announced by the government on CACP recommendations for 23 crops, government procurement through FCI and state agencies, the PM-AASHA scheme (Pradhan Mantri Annadata Aay Sanrakshan Abhiyan) for price assurance, and the Price Stabilisation Fund (PSF) for pulses, onions, and potatoes. Market-based mechanisms like commodity derivatives offer an alternative approach.
- MSP: announced for 23 crops based on CACP (Commission for Agricultural Costs and Prices) recommendations; covers both Kharif and Rabi seasons
- PM-AASHA (2018): three sub-schemes -- Price Support Scheme (PSS), Price Deficiency Payment Scheme (PDPS), and Private Procurement & Stockist Scheme (PPSS)
- Limitation of MSP: effective only for crops with government procurement; market prices for spices like turmeric, jeera, and coriander often fall below cost of production
- Turmeric, jeera, and coriander are NOT among the 23 MSP crops, making derivative-based protection especially significant
- PMFBY (Pradhan Mantri Fasal Bima Yojana): crop insurance against yield loss, not price loss
Connection to this news: The NABARD-NCDEX scheme fills a critical gap for non-MSP crops like spices, where farmers have no government price guarantee and are fully exposed to market price fluctuations; put options provide a price floor without fiscal procurement costs.
Key Facts & Data
- NABARD established: 12 July 1982 under NABARD Act, 1981
- 10,000 FPO Scheme: launched 29 February 2020; budget Rs 6,865 crore; 10,000th FPO registered in February 2026
- NCDEX: India's leading agricultural commodity derivatives exchange, regulated by SEBI
- Crops covered under scheme: turmeric, jeera (cumin), dhaniya (coriander) -- all non-MSP crops
- States covered: seven states (specific names to be confirmed)
- NCDEX FPO reach: 761 FPOs across 16 states; farmer base of over 12 lakh
- MSP covers 23 crops; spices like turmeric, jeera, and coriander are excluded
- FMC (Forward Markets Commission) merged with SEBI in 2015, bringing commodity derivatives under SEBI regulation
- Put option mechanism: FPO pays subsidised premium; if market price falls below strike price, FPO exercises the option and receives the difference