It is here that weather derivatives play a key role. These act as a hedging mechanism against sudden changes in weather.
KOLKATA: Rain, snow, mist, heat, a cold wave may be merely climatic conditions for you. But a slight change of these can lead to big losses not only in agriculture but also for several companies whose business is dependent on weather fluctuations.
For example, if it is known that the average temperature in Delhi this summer will be lower at about 26 degree Celcius, a power company can expect reduced consumption of electricity and losses in revenue.
Similarly, a soft-drink firm can be prepared for lower sales. Earlier or later-than-expected rains can impact the business of theme parks, restaurants etc.
It is here that weather derivatives play a key role. These act as a hedging mechanism against sudden changes in weather.
Though weather derivatives (the international market for weather futures is estimated to be close to $50 billion in traded volumes) have been around for long overseas, they are yet to be introduced in India.
Recently a Bill was introduced in Parliament for enabling trading in commodity-related intangibles like weather derivatives. The commodities market regulator, the Forward Market Commission, is also believed to be in favour of their introduction.
Meanwhile, silent and clandestine weather betting in the country has swelled to almost Rs 5,000 crore.
Several companies are lining up weather derivative offerings. “We are devising weather derivative products to help corporates hedge their exposure to temperature fluctuations,” Arindam Baidya, manager, alliances, Weather Risk Management Services (WRMS), told DNA Money.
WRMS also plans to launch a trading platform for weather derivatives by June this year.
“We are in talks with private sector power distribution companies in New Delhi and Mumbai. We are also in talks with a beverage major to provide weather insurance solutions. The concept will be piloted in a few cities in Punjab,” Baidya said.
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