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Agricultural marketing: For the Kisan, it’s the Bania who still calls the shots

The bulk of Indian farmers continue to sell their crop to village-level dealers and produce aggregators.

Written by Harish Damodaran | New Delhi |
Updated: April 14, 2016 11:34:53 am
Farmers at Punjab’s Khanna grain mandi. (Express Photo: Kamleshwar Singh) Farmers at Punjab’s Khanna grain mandi. (Express Photo: Kamleshwar Singh)

A majority of farmers in India offload their produce to local private traders and input dealers. They do not even bring their crop to the mandis, leave alone sell to government agencies/cooperatives or processors who may offer better prices.

The National Sample Survey Office’s (NSSO) recently released ‘Some Aspects of Farming in India’ report shows almost 85 per cent of coconut growers selling their produce to retailers and dealers in their immediate neighbourhood. These ratios are well above 50 per cent in most crops.

In some crops, though, a significant section of farmers do also sell in mandis, with their proportions ranging from 35 per cent in wheat to 45-48 per cent in rapeseed/mustard, soyabean, bajra, chana and arhar. These farmers probably have greater bargaining power, relative to those left with little option other than disposing of their whole crop to the local arhatiya or produce aggregator, who may, then, sell in the mandis.

The NSSO data on crop sales by farmers is based on the results of its latest 70th survey round, covering two halves of the agricultural year from July 2012 to June 2013.

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The survey data also provides a possible reason why most farmers lack the flexibility to even take their crop to the mandis, where the presence of more buyers could arguably lead to better price discovery. 87.3 per cent farmers reported having sourced their fertilisers from local traders and input dealers during July-December 2012. This was higher, at 89.5 per cent, for January-June 2013.

Similar levels of dependence on village-level retailers were reported by farmers with regard to purchase of plant protection chemicals (94.5-96.5 per cent) and animal feed concentrates (82.5-83.9 per cent). As against this, a mere 11 per cent of farmers bought their fertilisers from government or cooperative agencies in July-December 2012, while being still lower, at 9.8 per cent, for January-June 2013. The corresponding proportions were, likewise, low at 4.1 per cent and 2.4 per cent respectively for plant protection chemicals and 4 per cent and 4.4 per cent in the case of concentrates.

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The NSSO report does not provide similar source-wise breakup vis-à-vis farm credit. But it is quite likely that the local traders are also the main suppliers of credit for seasonal agricultural operations to a majority of farmers. Such loans — a result of the abysmal penetration of formal credit, be it from commercial banks or cooperatives — are typically conditional upon the farmers entrusting their harvested produce to the lenders, who are also input suppliers and traders. This control over the farmer’s produce sale as well as input purchase decisions, linked to supply of credit, is what makes the village bania such an enduringly powerful institution.

It naturally follows from all this that not many farmers sell their produce to government agencies/cooperatives, who would assure payment of a minimum support price (MSP). The NSSO survey, in fact, reveals that even in paddy and wheat — where the MSP mechanism is supposed to work best — hardly a tenth of farmers reported selling to state/cooperative institutions. Almost a third of paddy farmers actually offloaded their crop to local traders and input dealers, who may well have received the MSP. According to the survey, 32.2 per cent of paddy farmers and 39.2 per cent of wheat growers were “aware of MSP” — the percentages were way lower in other crops — but that alone obviously would be of little help.

Interestingly, even in Punjab — where farmers are considered to be a strong “lobby” — only 27 per cent of paddy and 39 per cent of wheat growers reported sale to cooperative and government agencies. The highest percentage of farmers (57 in paddy and 50.5 in wheat) disposed of their crop to mandi-level traders. The latter are largely commission agents or intermediaries between the farmers and the buyers, predominantly comprising state agencies.

The one exception, however, is sugarcane, where over two-thirds of farmers supply directly to government agencies/cooperatives (cane societies) or millers. That, in turn, has to do with the perishable nature of the crop. Cane, once harvested, has to be processed within 24 hours or so, failing which it suffers rapid depletion in sucrose content. It is in the interest of mills, hence, to contract directly with growers rather than via intermediaries. The government, too, is in a better position to enforce MSP in cane, unlike in other crops where there is no guarantee that the farmer is even the ultimate seller.

Worse, the agriculture produce market committee or APMC laws enacted by various states make it impossible for processors to procure directly from farmers — even if they were to get a better price than from selling to intermediaries.

What is national Agriculture Market?

Can the National Agriculture Market (NAM) — the online trading portal for farm produce being launched by Prime Minister Narendra Modi today — make a difference to farmers?

On the face of it, yes. The current state-level APMC laws permit the first sale of crops — after harvesting by farmers — to take place only in regulated market yards or mandis. It, thus, restricts the farmer’s universe of buyers to just the traders licensed to operate in the mandi under the concerned APMC’s jurisdiction. Even traders have to procure separate licences to operate in different mandis within the same state. NAM would essentially be a common electronic platform allowing farmers to sell their crops to buyers anywhere in the country and vice versa. The benefits to buyers — be it large retailers, processors or exporters — are obvious, as they can log into the platform and source from any mandi in India connected to it. They don’t need to be physically present or depend on intermediaries with trading licenses in those mandis.

But with farmers, it may not be as simple. Most farmers do not take their crop to the mandis; they sell off to the local arhatiya or produce aggregator even before that. Even the ones who take would offer a trolley load or two at most — hardly enough to excite distant buyers bidding online. To that extent, the possibilities for better price discovery through a widened universe of buyers, both local and online, are quite limited for them.

Farmers can, however, still benefit if they were to find ways for aggregating produce on their own, bypassing the arhatiya and even the local mandi in the process. This is where farmer producer organisations and cooperatives can play a role, by facilitating aggregation and creation of volumes that is intrinsic to the success of any ambitious virtual marketplace experiment.

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