Opinion On the food chain

Despite MSP,the prices that small farmers — who often have the highest yields — receive are lower than those obtained by larger farmers,due to their weak bargaining power and holding capacity. Fewer than 5 per cent of smallholders are covered by crop insurance. State schemes for better farmer interface with markets are few,and are bereft of the provisions for small producers. Providing incentives irrespective of the size of the contract grower defeats the purpose; it is small and marginal farmers who need to be brought into such arrangements.

When it comes to the private corporate sector,smallholders are almost completely excluded from modern market arrangements like contract farming or retail chain linkage. It is not incidental that most of the contract farming projects are in more agriculturally advanced states — Punjab,Haryana,Gujarat,Maharashtra,Karnataka and Tamil Nadu — and not in states like Bihar,Jharkhand,Chhattisgarh,Himachal,West Bengal or those of the Northeast which have the highest concentration of smallholders.

While it is often argued that vegetable crops are more suitable for smallholders,because they are labour-intensive and provide a regular income,even here buyers do not seem to favour smallholders. So,the noise made about smallholders benefiting from retail chain linkage is exaggerated,and the “smallholders will benefit” rationale for FDI in food retail does not hold. Further,the experience of domestic players in this sector shows that if it is not paying,they do not invest in cold chain infrastructure — or withdraw as quickly as they invest,as has happened in high agri-growth rate Gujarat,where only one retail chain is left in the market.

Much reform of agricultural markets in the age of value chains assumes that state-level agricultural produce market committees,run by the APMC Act,are the culprits. Bihar has completely abolished the act. The assumption is that APMCs need to be done away with,or made to compete with private markets and contract farming. Yet despite the fact that most states have now amended the APMC Act to allow the setting up of private markets,how many private players have come forward,and where?

APMCs continue to be important for small farmers,serving as competitors to contract and “contact” farming practice. But the need is to bring more,ever more,perishable produce markets under regulation,ensure open auctions,buyer competition and better facilities for buyers and sellers. Even primary agricultural credit societies,common in villages,can be involved in marketing agricultural produce over and above providing credit and agricultural input services.

Market linkages with corporate agencies need to reduce the production and market risk smallholders face. To this end,contract farming needs to be encouraged. It helps by making production more market-oriented and cost-effective through input supply and extension. It is costlier,though,so it needs provision for group contracts — perhaps through special credit schemes for such groups. In storable commodities,like potato,producers end up making net losses while traders make substantial profits from the same crop a few weeks or months later. It is here that a warehouse receipt system can come in handy,and needs to be promoted among farmers.

The net effect of integrated markets on small farmers depends on the nature of the commodity and its market,as well as the ability of small farmers to coordinate marketing activities. For this,market-oriented farmer collectivities like producer companies need to be supported. There are already 150 producer companies in India,and a private wholesaler has organised many of them in Punjab; but they suffer from a shortage of policy support,as banks and funding agencies do not recognise them as cooperatives.

For making value chains inclusive,there is a need for a pro-smallholder policy and practice,as well as allowing for smallholder collectives to create better bargaining power. That will lead to lower-cost,better-quality inputs,and more cost-effective produce.

The writer is with the Centre for Management in Agriculture at the Indian Institute of Management,Ahmedabad express@expressindia.com