Budget 2026: Strengthening farm incomes through smarter price risk management
By Dr. Arun Raste, MD and CEO, NCDEXIndian agriculture has always had the backing of strong public policy support. Systems like MSP, procurement and buffer stocking have played a stabilising role for decades. They give confidence to farmers and ensure food security for the country. These safeguards remain important. But agriculture today operates in a very different environment. Climate events are more frequent. Global prices move faster. Trade flows shift suddenly. In such a world, income stability for farmers depends not only on post-harvest support, but also on pre-harvest price visibility.Farmers make sowing decisions months before they sell. What they need most is an early signal of where prices may move. This is where commodity derivatives markets play a role. Futures and options markets do not replace existing systems. They complement them. They convert uncertainty into manageable risk.
Globally, this approach is normal practice.Price Risk Systems Across the WorldDuring the COVID period, global crude oil prices briefly turned negative. Many oil-exporting countries faced extreme volatility. Yet their economies did not collapse. One reason was structured hedging by producers, institutions and governments. Risk was transferred through exchanges instead of being absorbed suddenly by public finances.China offers another example. The Dalian Commodity Exchange has grown manifold over the past two decades. Agricultural contracts there guide production, trade and processing decisions. Government-linked and institutional entities participate in these markets within defined frameworks. Their presence adds liquidity, credibility and continuity. Farmers and cooperatives trust the system because it does not disappear during volatility.Several countries follow similar models where public institutions hedge commercial exposures transparently. This does not mean speculation. It means professional risk management. When credible institutions participate, markets become deeper, price signals improve and confidence rises across the value chain.India’s farmers and FPOs can benefit from the same ecosystemWhen exchanges are active and predictable, FPOs can aggregate produce and hedge prices before harvest. This helps them negotiate better with buyers. It improves access to credit because revenues become more predictable. It reduces distress selling. Over time, it builds a culture of planned farming instead of reactive selling.This becomes even more important in the context of expanding global trade.India on the Global PlatformThe recent India–US trade engagement signals deeper agricultural trade integration ahead. As markets open further, Indian farmers will be more exposed to global price movements — both opportunities and risks. Export-oriented crops, oilseeds and pulses can see sharper swings based on international supply conditions. Domestic commodity exchanges help manage this transition. They allow Indian producers to benchmark prices, hedge risks and stay competitive in global value chains.Tariff structures also influence farmer incomes. For example, India’s tariff policy on US pulses is designed to balance domestic farmer interests with consumer needs. When global supplies change or trade terms evolve, price movements can be swift. Without hedging tools, farmers bear this volatility directly. With exchange-based risk management, part of this uncertainty can be smoothed.Stronger domestic exchanges therefore act as economic shock absorbers. They improve price discovery. They align expectations between farmers, traders, processors and exporters. They reduce sudden market surprises. They also help policymakers because forward prices reflect real-time supply and demand signals.Institutional participation can further strengthen this system. When government-linked agencies hedge commercial exposures in a transparent and well-governed manner, it builds market depth and long-term trust. It reassures farmers that markets will remain functional across crop cycles. It supports smoother procurement planning and reduces extreme financial swings.This is not about replacing existing farmer support structures. It is about strengthening them with modern risk-management tools. MSP provides a floor. Markets provide foresight. Together, they create resilience.Stronger Markets, Stronger FarmersAs Indian agriculture integrates more deeply with global trade, the question is no longer whether price volatility will rise. It is how well farmers are equipped to handle it. Reliable commodity exchanges, active institutional participation and accessible hedging tools can give farmers and FPOs greater control over their incomes.Stronger markets ultimately mean stronger farmers — and a more stable agricultural economy for the country.
