An engineer who revived one of India’s largest producer owner agri value chains, RamRahim: by the farmer, of the farmer, and for the farmerSnigdha Sinha
Raghav Raghunathan was encouraged to do what most students are told to do – study well to get into a good college, secure a good job, and live a comfortable life. He got into NIT-K Surathkal for a bachelor’s degree in Technology. However, he had a keen interest in economics and finance. With time, he knew that his inclinations towards these subjects was more than mere interest.
Raghav gave up job offers from biggies like Credit Suisse and Caterpillar to join the year-long liberal arts programme at the Young India Fellowship in 2012 with full scholarship. Raghav is also an Acumen India Fellow from the 2015 cohort.
Welcome to the real India
Raghav says, “I was immensely not just inspired, but also felt quite ashamed during the India’s political economy classes of Dr Mihir Shah, the former member of the planning commission.” These classes helped Raghav have a clear understanding about the real India. That India has been struggling not because of lack of effort on their side, but because the follies in the country’s economic, social, and political structure. Raghav adds, “This structure has sadly ensured that they stay at the bottom of the pyramid by rooting multiple obstacles along their way.”
The serendipitous train journey
In May 2013, Raghav travelled to Bagli, Madhya Pradesh, to visit Samaj Pragati Sahayog, India’s largest watershed and livelihoods based grassroots organisation. He hoped that this experience would allow him to connect with people and put to practice what he had learnt in theory. During his visit, he met nine seasoned co-founders who had lived and worked with dominantly tribal population for about 25 years in various spheres like sustainable agriculture, community media, watershed security, SHG-led microfinance, etc.
These co-founders had mentioned about “RamRahim”, an organisation that was founded in 2012. The more Raghav got to know about the organisation, the more it startled him! RamRahim Producer Company Ltd. was facilitated by the Samaj Pragati Sahayog but was promoted by the people. The driving force was the collective aspiration of 1,500 women from 162 self-help groups (SHGs) who wanted to take on the market and ensure that farmers had the right to sell their produce in the mandi (marketplace) on their terms and not what was dictated by moneylenders, traders, and middlemen. RamRahim was formed by SHGs as shareholders instead of individual farmers. Being a producers company had the flexibility to operate like a private enterprise, while at the same time being collectively owned only by primary producers.
Troubled waters for RamRahim
The objective of RamRahim was to eliminate middlemen. However, it had itself become a middleman by buying produce from its own farmers and trying to sell in the mandis. Since RamRahim was an organised entity, it had to pay both mandi tax and entry tax. Also the cost of operations was higher than that of a trader. Additionally, RamRahim had to pay a two per cent commission to take part in the auctions. They also had to centralise the process of cleaning, grading and sorting, which effectively doubled the costs of logistics. Restricted by these factors, RamRahim had to hold off selling produce on the same day to wait till the market prices increased so as to compensate for all the additional costs.
In 2013, the summer before Raghav joined RamRahim, the prices of Chana (Bengal Gram) fell by nearly 25 per cent. Due to this, RamRahim suffered losses twice its entire share capital. It was registering losses and needed someone who had a deeper understanding of entrepreneurship, policies, technology. Raghav and RamRahim fit like lock and key!
In the summer of 2014, the founders of Samaj Pragati Sahayog entrusted Raghav with the responsibility of heading RamRahim’s rejigged operations in 85 villages.
Raghav inferred that the very process of connecting farmers with organised markets had actually distanced the farmer. Raghav explained the entire value chain to the famers and stressed that they not relinquishes control until the produce had reached the last mile and fetched a fair price.
Soon, the producer community (farmers) evolved as key decision makers. The RamRahim team and farmers set up collection centres and arrived at a fixed price mechanism for farmers. RamRahim also established a direct partnership with Safe Harvest (a social enterprise that markets pesticides-free farm produce to urban consumers) that helped market the produce fairly and quickly. Raghav managed to raise a working capital with NABARD Financial Services Ltd through a collateral free loan based on the business plan and the procurement partnership with Safe Harvest. Fruition came too. RamRahim marked profits that year for the first time since its tumultuous journey that began in 2012.
In the Kharif season of 2014, to solve the problem of centralised grading that increased costs, Raghav along with Dina Bai and Radha Bai (promoters of RamRahim in Chandupura) ensured the adoption of customised spiral graders. The entire grading process is now carried out at the farm itself. This process ensures direct selling to institutional buyers rather than procuring, grading, storing and then selling.
Hedging in agriculture? Why not?!
It’s funny how our subconscious connects the dots. Little did Raghav know that an answer to a question related to hedging in currency markets, which he was asked during his interview with Credit Suisse, would become an answer to protecting the farmers against heavy losses!
According to Investopedia, “Hedging is analogous to taking out an insurance policy. There is a risk-reward trade-off inherent in hedging; while it reduces potential risk, it also chips away at potential gains. Most people would choose to take that predictable, circumscribed loss rather than suddenly lose the roof over their head.”
According to regulatory norms, a company must have a minimum net worth of 1 crore and a deposit of Rs 50 lakh to become part of the exchange. However, Raghav led the efforts to argue successfully the case of farmer-owned institutions to become part of the exchange with just Rs 7,500 as annual membership charge. In May 2014, RamRahim was granted a license to become part of the futures segment.
Raghav explains, “One of the chief reasons for RamRahim’s losses was that it stood fully exposed to the market once it had procured from farmers while it waited for prices to rise so that it could sell without losses. However, this made RamRahim a sitting duck for the market along with the fact that it was adding costs by the day (storage, interest, moisture losses). Allowing entities to use the exchange like we did, which is the first for any farmer producer company, ensures that when prices are falling we can exit by offering delivery at a fixed price at the time of hedging.” Raghav tells us how hedging helped protect the farmers, “Through this, when the prices of Soya on the stock had reached Rs 4,800, we were able to take position on the exchange. Three weeks later, when the prices of Soya crashed to Rs 3,300, our farmers and the producer company did not suffer any loss.”
Unfortunately, SEBI has once again renotified the requirement of minimum net worth of 1 crore and deposit of Rs 50 lakh to become part of the exchange, thereby ruling out the possibility of any farmer accessing the exchange. Raghav gives his take on the move,
Farmers must have the first right to participate in the exchange, rather they are being excluded from it while allowing private capital and speculation. While we are not against speculation, this speculation must be allowed as a mechanism for farmers to discover and access prices. Speculation cannot become an end in itself. The medium of producer companies is a great institution for having a market based mechanism to change the entire structures in which agricultural market and supply chains exist which are ruling out any space for the farmer.
In June 2014, RamRahim became the first company to be given an equity grant by the Government of India. Raghav has moved on from his excel macros, business plans, securing funds, and forming an advisory to a role where he spend much time directly with all the women farmers helping them embrace leadership to drive and own the entire process and truly own RamRahim as a collective.
We asked Raghav what an urban Indian can do to help the farmer. He says, “Just be grateful for the food on the table. To survive we have to eat every day and what we every day is grown by a farmer. In that way, all of us owe a part of our existence to the farmer.”