Rabo seeks nod to launch weather derivatives

Rabo India Finance, part of the Netherlands-based $ 375 billion Rabobank group, has sought permission from the Reserve Bank of India (RBI) for launching weather derivative products in India.

Last week Rabobank International's director-environmental financial products, Greger Flodin, made a presentation to the RBI on the monsoon-hedge products that Rabobank has developed for the Indian market.

"We have had discussions with a number of corporates and agricultural intermediaries to make monsoon hedging a viable business from the start. Rabobank's monsoon hedging tool can be used to reduce the weather-induced volatility of earnings for various agricultural sectors," said Flodin.

He had meetings with a host of prospective customers for the monsoon derivatives.

As against single-year risk cover in insurance, weather derivatives specifically cover multi-year exposures, thereby reducing the marginal cost of hedging.

Weather hedging claims are settled automatically as events defined occur based on data from independent sources.

A weather derivative contract can easily be re-structured or unwound, whereas an insurance contract is inflexible even if circumstance change.

While Flodin declined to divulge the names of corporate entities, he said interest has been shown by sugarcane crushers, brewers and agricultural intermediaries wanting to hedge monsoon risks.

Rabobank's monsoon hedge product can also be used by government organisations to design their own hedges to suit their specific needs.

Rabobank has developed two products for the Indian market "" a monsoon precipitation level hedge and a monsoon arrival day hedge.

The hedging of precipitation levels allows for covering risks arising from too much or too little rainfall. The monsoon arrival hedge covers risks that arise as a result of a dealyed or an early start to the monsoons.

Different crops can get affected in different ways on account of excess rains in July and/or a delayed or early start to monsoon, Flodin said.

Rabobank would use data from approved weather stations to measure the key variables and clients will have the option of using one or several weather stations with different weightings to match their specific risk.