Middlemen in crisis

The number of arhtiya suicides may not be anywhere close to those by farmers, but they do suggest a certain trend. When prices of commodities, be it basmati rice or cotton, were good, farmers planted with gusto.

By: Express News Service | Updated: March 26, 2016 12:04 am

The ongoing agrarian crisis has spread beyond farmers to consume even arhtiyas or grain commission agents, as a report in this newspaper from Punjab has shown. The number of arhtiya suicides may not be anywhere close to those by farmers, but they do suggest a certain trend. When prices of commodities, be it basmati rice or cotton, were good, farmers planted with gusto.

Equally, there were those willing to advance money to them to plant against delivery of the harvested crop. It is precisely this role that the arhtiyas performed — extending credit to farmers as well as aggregating their produce on behalf of processors, exporters and other large buyers in return for a commission fee charged on the purchase price. In many cases, even the money the arhtiyas lent was borrowed from bigger traders and financiers, who may, in turn, have sourced from banks.

When the value of India’s basmati exports zoomed from $433.73 million to $4.87 billion between 2003-04 and 2013-14, everybody made money. The situation has, however, reversed in the last couple of years, with basmati paddy prices more than halving from their peaks. This, in combination with extreme weather events (especially the unseasonal rains and hail in March 2015, causing widespread damage to the standing rabi crops), has led to farmer distress. With farmers defaulting on their loans and millers, too, not paying for the crop taken on credit, citing falling export realisations, the arhtiyas are the ones feeling the heat.

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There are estimates of outstandings to commission agents in Punjab’s Khanna wholesale grain market alone totalling Rs 150 crore, with similar dues being reported from other mandis. But this is a story extending to a host of crops across the country. A common thread running through these is the expansion in credit that took place during the boom, with the arhtiyas and small retailers financing cultivation by farmers and using funds obtained from a chain of larger dealers, distributors and banks. It is this complex credit and crop buyback system, underpinned by strong export demand and high prices, which has now collapsed.

The impact of all this will primarily be on farm credit. It is easy to condemn arhtiyas as middlemen prone to exploiting farmers, but the fact is they are an integral part of India’s agricultural trade ecosystem. Rather than wishing them away, a more sensible approach would be to recognise their key role as produce aggregators closest to the farmer — which makes them ideally suited for channelling credit. Currently, bank loans to arhtiyas are not treated as agricultural loans. There is no reason not to do so, when this may reduce their own borrowing costs that can, then, be passed on to farmers.

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