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Indian Weather Markets….. Weather Risk Management Services Pvt. Ltd.

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Presentation on theme: "Indian Weather Markets….. Weather Risk Management Services Pvt. Ltd."— Presentation transcript:

1 Indian Weather Markets….. Weather Risk Management Services Pvt. Ltd.

2 Read how organizations describe their exposure…

3 Indian Market…… o EID Parry sales, net down 86 pc on monsoon failure. - The Hindu, Jan 17, 2003 o The Company's business is seasonal in nature and the performance can be impacted by weather conditions - Notes to Accounts, Syngenta (I) Ltd. o Monsanto India continued its strong profit growth on the back of positive all- round business performance aided by a good monsoon. - Annual Report 2003-04, Monsanto Ltd o The delayed monsoon has hit the fertilizer stocks badly. - Analyst, Hindu Business Line o Over 1000 farmers commit suicide in vidarbha and Telangana in last two years – TOI o An average drought costs upto Rs 4 bn to the state exchequer,Gujarat earthquake resulted in direct damages of about Rs.153 billion -NDMC

4 Indian Market

5 Impacts Yields

6 Impacts on Acreages

7 Impact on Prices 2003200420052006 Area Sown40.90844.43941.92245.501 Yield in Kg/Hect 1019 824796 Prices before sowing (May & June & July) 161015201380 181016801839 126812851301132312601263 RainfallActual% DepPriceActual% DepPriceActual% DepPriceActual% DepPrice June12922152081-25168082-24128526-831260 July3153 1380 215-30 1839 37924 1301 28211263 Aug216-321250423341891132 -581265 459581261 Sept25945 1380 47 -73 1724165 -6 1218257571238

8 Impact of Weather on Farming o Makes the earnings volatile, Affects working capital repayment o Affects contractual obligation o In plantations/ corporate Farming Fixed : Variable cost ratio is high o High Fixed Costs puts profits under pressure When production reduces in the key producing months Happens primarily on account of weather o Possibly affects expansion plan when price outlook is positive

9 Impact of Weather on Farming 15 May-10 June 11 June – 31 July Aug 1 – Sep 30 Establishment Flowering & Veg Growth Pod Formation & Maturity 60mm 160mm 100mm Rainfall Index: Stages: Time: Which crop to go for ?? When to apply pesticides ?? When to harvest ??

10 Seed Sale = f (Acreages, Competition) Acreage = f (Onset, Price, Credit)

11 Seed Sale = f (Acreages, Competition) Acreage = f (Monsoon Onset, Price, Credit) Around 60% sowing finishes by 20th July

12 Seed Sale = f (Acreages, Competition) Acreage = f (Monsoon Onset, Price, Credit)

13 Pesticides Sale = f (Acreages, Weather Conditions during Vegetative growth, Competition)

14

15 Weather & Agri-Value Chain Farmer Fertilizers Seed Pesticides Farm Equipment Agro-processor Farmer Fertilizers Seed Pesticides Farm Equipment Agro-processor Farmer Fertilizers Seed Pesticides Farm Equipment Agro-processor Credit Risk Value Destruction - Weather Higher Inventory Loss of sales opportunity

16 Weather Becoming More Extreme o Extreme rainfall incidents have seen a huge jump in recent decades over northwest India (including Maharashtra and Gujarat) during the summer monsoon o Orissa has been reeling under contrasting extreme weather conditions for more than a decade: from heat waves to cyclones and from droughts to floods. The death toll due to heat waves in Rajasthan, Punjab, Gujarat, and Bihar is on the rise o The coastal regions have been undergoing stronger wind and flood damage due to storm surges associated with more intense tropical storms in recent years. Frequent inundation of low lying areas, more flooding and increase in the salinity of rivers, bays and aquifers in the coastal regions have occurred more often during the past decade.

17 Weather risk management Financial weather risk is the occurrence of an observable weather event or variability in a measurable weather index that causes losses either to property or profits for an individual, government or corporation. Weather risk management products – packaged as either (re)insurance or derivatives – are settled off of the same index that has been determined to cause losses and reduces weather risk through mitigating payouts.

18 Manageable weather risks Temperature Precipitation Snowfall Wind Speed Streamflow Sunshine hours Soil Moisture Humidity Hurricanes A WEATHER INDEX IS GENERALLY CONSTRUCTED AS A FUNCTION OF FREQUENCY OF OCCURRENCE AND MAGNITUDE OF EVENT

19 PRICEVOLUMEREVENUEx= PRICE RISK MANAGEMENT WEATHER RISK MANAGEMENT LOWER EARNINGS VOLATILITY + Weather impacts volume

20 Less volatility equals greater value U/HH Earnings$75 M$73 M EPS$0.75$0.73 Multiple8x9x Stock Price$6.00$6.57 Market Cap$600MM$657MM Debt$100 M COD8.00 %7.90 % Debt Svc$8.0MM$7.9MM Historical Revenues UNHEDGED Expected Revenues Without Weather Protection $75 Million HEDGED Expected Revenues With Weather Protection $73 Million Reducing the volatility due to weather has a budget cost but increases returns per unit of risk and can potentially improve stock valuations and the cost of/access to financing.

21 Sales Expansion Thru Weather Insurance Larger scale may also ensure reduction in price of seeds, thereby facilitating sales Several precautionary measures built in sales process to tackle weather risk, which inhibit sales; scope for process improvement

22 Processing of data received from sensors and converting it according to specific product On Site wireless Sensors Farmers Console (GIS) Organizing Real Time Data o Covering important agricultural zones real time, at a cost of approx. Rs.500 per sq.km or Rs.5 per ha o Generation of Historical records for any given long.- lat. Position Statistical & Neural Network model o Building UAV and Advanced remote sensing applications to assist this

23 Spatial Interpolation RMS error ( under square root transformation) ~ 2mm

24 Decision Support System Identification & Quantification of the Risk Current Weather Data Forecast Inputs -Crop Planning -Irrigation planning -Pest Management -Yield forecast -Risk Transfer Front-end Output Scientific modeling of risk Simplified output in vernacular language for farmers Needs to be customized for Bank’s portfolio

25 Hybrid Products – Filling the Gap

26 Thank you

27 El Nino/La Nina association with all-India summer monsoon rainfall anomalies during 1871-2001 Number of years with … Deficient monsoon Deficit>10 % Normal monsoon(- ve) Normal monsoon (+ve) Excess monsoon excess>10 % Total El Nino 11 4026 La Nina 019818 Other 1123421187 Total 22355519131 More on Monsoon and ENSO


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