First make farmers part of the value chain

The Tribune, 28 April, 2016
The electronic National Agriculture Market scheme launched recently has no place for the promotion of farmer producer organisations. Without this, all such schemes provide an added advantage to commission agents with the infrastructure & capacity to participate in such projects.

AT the policy level, the focus of the Union Government seems to be on reforming the marketing system of agriculture to increase the income of the farming community. This is evident from the Shanta Kumar Committee Report in 2015 and the launching of the electronic National Agriculture Market (NAM), recently in 2016. The trading community seems to benefit more from these rather than the distressed farmers, especially the small and marginal farmers.

Agriculture remains essentially a primary source of food for the population and raw material for a large number of industries. It continues to fulfil these needs by enhancing production from the existing land under cultivation by increasing cropping intensity and rising per acre yields. Since the mid-20th century, agricultural production has increased manifold to meet the growing food and raw material requirements of the population in the world.

In India, food production increased from 55 million tonne in 1949-50 to more than 252 million tonne in 2015-16. The rate of growth of foodgrain production has outstripped the growth rate of population, which increased from 36.1 crore in 1951 to 121.07 crore in 2011. The growth in the recent period has been contributed by increase in productivity and rising cropping intensity. The rise in production has made the country achieve food security but has made agriculture unviable for a majority of the farmers steeply trapped in debt, leading to farmers’ suicide (numbering more than 3 lakh).

The dominant reason for farmers’ distress is their transformation from subsistence farming to commercial/capitalist farming and the small size of holdings. Commercial farming has induced the farmers to produce for selling in the market and resort to specialised production based on the inputs acquired from the market. These inputs range from seeds, chemical fertilisers, electrical/diesel pump-sets, tractors and other equipment acquired most of time through loans, from both institutional and non-institutional sources. The small and marginal cultivators have lost control over the agricultural processes to the market forces. The prices of their produce are determined by others i.e. the Union Government in the case of MSP or private traders in the case of non-MSP crops.

The input prices are largely fixed by corporate producers. The cultivators lose through the complex gamut of market process in the input and output prices. Apart from the complex price and credit web, cultivators are excluded in a wider value chain which has developed with commercial agriculture in India. This has created a wide gap between prices paid by the consumers and prices received by the farmers.

The primary producers have been excluded from the value chain in the commercial farming. They have been increasingly depending on market supply of inputs, such as seeds, fertilisers, mechanical implements for cultivation, irrigation, harvesting and transport. Earlier this was coming from their domestic sources in traditional farming. This has led to an increase in the cost of cultivation.

At the same time the farmer’s share in consumer price has been progressively declining in proportion to the expansion in the value chain. The part of income which earlier accrued to the farmers has been transferred to input suppliers and participant traders/companies in the value chain. In the traditional market system, the middlemen, including commission agents, wholesale buyers, retailers, owners of stores and warehouses and processors of agricultural produce, have been the major beneficiaries in the whole process of commercialised agriculture.

The food retailing industry has an annual turnover of about $176 billion, which is a little more than half of the total retail trade of $330 billion in 2009-10. This becomes more than around 5 per cent of our GDP. This is a fast-growing component of Indian economy and does not include the trade of raw materials and agricultural inputs.

The studies conducted on the producer’s share in the consumer price bring out how under regulated markets in Punjab, the share of farmers shrinks as and when the number of intermediaries increases. The studies also brought that in case of paddy the producer’s share is around 53 per cent while in case of wheat it has been 77 per cent. In case of fruits, it falls to 20-25 per cent of the consumer price while in case of vegetables this share ranges between 42 and 50 per cent. This allows a large margin of the prices to be cornered by the middlemen.

The research points out how the system works in favour of intermediaries where the exclusion of the farming community is well known. The farming community in the region lacks marketing skills and connections. There is low financial capacity and a lack of storage facilities. The farmers depend heavily on the intermediaries which are well-entrenched in marketplaces. The decision of the Union government to develop the electronic platform under the National Agriculture Market (NAM), to be operated through Small Farmers Agri-business Consortium (SFAC), is to facilitate the increasing of the farmers share in consumer prices. Three conditions have been imposed for this: (i) The concerned state must amend the APMC Act to include the provision of electronic trading; (ii) the state must provide a single licence to anyone willing to trade in the NAM; and (iii) the high taxes imposed by some states (like Punjab) will have to be reduced.

This will integrate the local markets with the national market but will not eliminate intermediaries due to the lack of IT literacy among the farmers. At the same time, it will not include the farming community in the value chain from which they have been systematically excluded in the past. Without bringing the farmers into the value chain, their share in the consumer price cannot be increased. The objective to double the income of farmers during the next five years will prove hollow without making farmers a part of the expanding value chain of agricultural produce.

One of the essential conditions for making farmers a part of the value chain is to develop farmers’ groups by cooperative farming and cooperative marketing, formation of self-help groups, group cultivation and farmers’ companies broadly referred to as farmer producer organisations (FPOs). It is through FPOs that farmers, especially the small and marginal ones, can be included in the value chain and their areas of activities expanded. Primary processing includes cleaning, grading, waxing, dehydration, dehulling, decorticating, shelling, peeling, grinding/milling, polishing, extraction; curing, storage and packaging. Agro processing by the FPOs can be integrated with marketing and transport operations. The FPOs can encourage their members to improve literacy and knowledge of information technology, acquire new production technology and participate in marketing. This would facilitate gaining access to national and international markets.

In the present scheme of e-NAM, there is no place for organisation and promotion of FPOs. Without this necessary condition, all schemes like e-NAM will provide added advantage to commission agents who have the infrastructure to participate in such operations. Besides inclusion of farmers in the value chain, their bargaining power too has to be increased through organised strength. Enhanced public support for research and development, substantial investment in rural infrastructure, irrigation, market support, rural health, education and massive employment of youth will provide better avenues for raising farmers’ income and reducing rural distress.

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