Budget 2026: Strengthening farm incomes through smarter price risk management – The Times of India

By Dr. Arun Raste, MD and CEO, NCDXIndian agriculture has always had the backing of strong government policy support. Systems such as MSP, purchasing and buffer stocking have played a stabilizing role for decades. They give farmers confidence and ensure food security for the country. These safeguards remain important. But agriculture today operates in a very different environment. Climate events are becoming more common. Global prices are moving faster. Trade flows change 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 might move. This is where commodity derivatives markets come into play. Futures and options markets do not replace existing systems. They complement them. They convert uncertainty into manageable risk.

This approach is common practice worldwide.Price risk systems around the worldDuring the COVID period, global crude oil prices briefly turned negative. Many oil-exporting countries experienced extreme volatility. Yet their economies did not collapse. One reason for this was the structured hedging by producers, institutions and governments. The risk was transferred through exchanges rather than suddenly absorbed by public finances.China provides another example. The Dalian Commodity Exchange has grown manifold over the past twenty years. Agricultural contracts are leading in production, trade and processing decisions there. Government-related 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 doesn’t disappear during volatility.Several countries follow similar models in which government institutions cover commercial risks in a transparent manner. This means no speculation. It means professional risk management. When credible institutions participate, markets deepen, price signals improve and confidence increases throughout the value chain.The Indian farmers and FPOs can benefit from the same ecosystemWhen exchanges are active and predictable, FPOs can gather produce and hedge prices before harvest. This allows them to negotiate better with buyers. It improves access to credit because income becomes more predictable. It reduces distress sales. Over time, a culture of planned farming rather than reactive selling emerges.This becomes even more important in the context of growing global trade.India on the global platformThe recent trade engagement between India and the US signals deeper agricultural trade integration in the offing. As markets open further, Indian farmers will become more exposed to global price movements – both opportunities and risks. Export-oriented crops, oilseeds and pulses may experience sharper fluctuations based on international supply conditions. Domestic commodity exchanges are helping to manage this transition. They enable Indian manufacturers to benchmark prices, hedge risks and remain competitive in global value chains.Tariff structures also affect farmers’ incomes. For example, India’s tariff policy on US pulses is designed to balance the interests of domestic farmers with the needs of consumers. When global supply changes or trading conditions evolve, price movements can be rapid. Without hedging instruments, farmers bear this volatility directly. Exchange rate-based risk management can remove some of this uncertainty.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 futures prices reflect real-time signals of supply and demand.Institutional participation can further strengthen this system. When government-affiliated entities cover commercial risks in a transparent and well-governed manner, this builds market depth and trust in the long term. It reassures farmers that markets will remain functional throughout the crop cycle. It supports smoother purchasing planning and reduces extreme financial fluctuations.This is not about replacing existing support structures for farmers. The point is to strengthen these 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 into global trade, the question is no longer whether price volatility will increase. What matters is how well farmers are equipped to deal with it. Reliable commodity exchanges, active institutional participation and accessible hedging instruments can give farmers and FPOs more control over their income.Stronger markets ultimately mean stronger farmers – and a more stable agricultural economy for the country.