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Soon, a shield against vagaries
of weather |
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Nandini Goswami, DNA Money, May 17, 2008 |
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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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