How India can make farming a profitable affair

Sometime in early September of 2016, I had a chance encounter with Savitri Gaur, a woman farmer from Khatgadi Village in Bundi Block of Kota District in Rajasthan. In the small but vibrant office of Samruddhi Mahila Crop Producer Company Ltd, a producers’ company owned by 2,200 women farmers, she was shifting through the slides of a powerpoint presentation to explain the deep and intricate nature of the producers’ enterprise to an audience of around 25 male farmers who were part of an exposure visit to learn about starting their own enterprise.

To start their entrepreneurial venture, they had raised nearly Rs 22 lakh through patient contributions as they scaled up their enterprise, investing in small-scale processing machines to make value-added products of soybean and had even set up an inputs outlet selling seeds, fertilizers and other farm related inputs. With the help of professional support from SRIJAN, among India’s foremost grassroot organisations working towards enabling both livelihoods and water security for marginalised farmers across the country, they even tied up with Bunge, a multinational agri-value chain corporation for technical support and forward buying arrangements. They even had established credit linkages with the help of Friends of Women World Banking and had a credit line for collective buying and selling of agri inputs and outputs.

Given the neatness in design and completeness in purpose of the enterprise, I found it quite hard to find a segue into helping the enterprise with my own assessment and identify possible gaps in their business model. Thinking of technical inputs, I thought of how zinc plating could be effective against corrosion, forgetting that the technical term for zinc plating was actually a process called galvanising.

Later, and after the male farmers were seen off by the board members of Samruddhi, Savitri Bai shared with me her journey of galvanising and organising the community, first, into self-elp groups (SHGs) and then, once the cohesiveness of group turned strong with regular credit flowing into these SHGs and their strong repayment thereof, these SHGs were brought into a more formal entity by means of a producer company. The producers’ enterprise role, apart from being financially viable, was to also ensure a disintermediation of input, credit and output markets. It was at this point that she flagged a concern of how, while the inputs business was doing well, due to excess volatility and unpredictability of yields, they had still not figured out a farm-to-factory model of linking their produce with markets. Donning the problem-solving hat, she pinned down volatility around prices as among the foremost of reasons that pre-empted any attempt to forge formal and lasting linkages with the later segments of the commodity value chain.

Selling a standing crop

Volatility in agricultural commodity markets has indeed been the subject of India’s agricultural story and I presented to her how a range of solutions had been experimented with, including the direct use of futures contracts by farmers so that they could transfer some of the price-based risks using the commodity derivative marketplace. In the few hours that followed she lost no time in probing me further and understanding the finer nuances of how her farmers could use this platform. After awhile, she summarised the discussion and exclaimed, “Yeh khadi fasal ko ek nishat bhav me bhejne ka tarika hai (This is an assured way of fixing our price for our standing crop)”, and arrived at what I thought was the most comprehensive and succinct explanation for what a futures contract is and how it can be used for hedging. Within a span of three days to that day, the enterprise had managed to enter into such contracts to guard against falling soybean prices that season. After careful understanding and collective deliberations, they took positions at around Rs 3,300. In the following months prices ended up bottoming out at Rs 2,700, marking what was the first such time that these contracts had been used in a pre-emptive manner in Rajasthan directly by and for farmers.

Minimum Support Price pitfalls and larger implications

The significance of this story is not lost against the larger backdrop of the recent nationwide farmers agitation, from Tamil Nadu to Madhya Pradesh, where given the acute and wide scale agrarian distress, political parties have vied with one and another with farm loan waivers, which have resulted in as much as even 40 paise of accumulated loans being waived off for some fortunate UP farmers. Another popular demand, which has been to raise Minimum Support Price (MSP), is fraught with its own set of issues. Policy circles are now more than familiar with the knowledge that mere announcement of MSP has no real implication for farmers, and for it to be effective it has to be backed up by procurement. However, procurement of multiple crops at such a large scale, using public entities, has wide ramifications, including running the risk of cutting off private investments in the much starved rural and agriculture sector.

The last kharif season, the government had also embarked on its most ambitious procurement of pulses at MSP using a network of co-operatives, Primary Agricultural Co-operative Societies, and even Producer Companies, which were encouraged to procure pulses at MSP through Central agencies, such as Small Farmers Agri Business Consortium and NAFED. However, the limited time window for registrations, elite capture by big farmers and accessibility for farmers who cannot travel to APMCs, where such procurement occurs, have resulted in poor access, awareness and have come in the way of realising the ultimate outcome of the MSP acting as a price support.

Says Prof Ramesh Chand, Member of Niti Aayog, in an interview to the Mint that MSP cannot be a permanent solution and that procurement from farmers cannot become nationalised. “The government cannot buy everything, everywhere—that will lead to nationalisation of agricultural trade.”

Despite a staggering increase in pulse procurement, one can see from the data below that only an estimated 14 percent of tur, urad and moong produced were procured by State and Central agencies as compared to nearly 40 percent of all the rice and wheat produced in the country, which is the scale required to achieve price stabilisation objective, carrying with it a substantially huge exchequer burden.

Strengthening institutions: asserting identifies

A futures contract is certainly not a panacea for the larger issues confronting agricultural commodity markets. There can be no foolproof safeguard against the structural nature of commodity markets where supplies flood the market disproportionate to consumption demand during the harvest seasons and thus suppressing prices. However, today, ranging from women farmers in Bihar of Aranyak Agri Producer Company Ltd who have aggregated and sold over 13,000 tonnes of maize using regulated and electronic market platforms, to farmers in Gujarat experimenting deliveries using commodity market platform for both hedging and delivering produce represent a serious effort that uses the collective power of institutional arrangements such as producer enterprises which are helping farmers contest their rightful share in entrenched market platforms which until now precluded the possibility of equal and fair exchange. Just in as many as the last twelve months, the exchange as seen a staggering 100 farmer organisations register on the platform holding the promise to sell their produce across the constraints of axes time (in forward direction) and space, thus staring at the possibility of every space and any time being a marketplace. Imagine one could buy and sell their produce into the future? And farmers selling produce out of a village warehouse to private buyers with market risks being underwritten by a regulated exchange instead of mandatorily going only to a mandi.

As the recent economic survey points out, the APMC yards must become just one of the many possible alternatives available to the farmers to sell his/her produce. Efforts like the E-NAM would become transformational only when the smaller Mandis are completely integrated with larger Mandis, both price wise and with free flowing logistical connectivity which would ensure fair and free arbitrage between Mandis. Even when this materializes, the E-NAM would still be a spot market which cannot do much to give farmers the flexibility to hedge against seasonal price shocks.

In order to therefore realize a truly liberated agricultural commodity market, reforms must consider strengthening institutional arrangements like producer companies who can then take empowered decisions much like Savitri Bai and other women leaders.

Moving beyond the rhetoric of empowering women, producer companies having strong women membership open out the possibility for engendering genuine transformation and empowering entrenched systems like agricultural commodity markets become more accessible and inclusive.

Such an institution led reform would then ensure that MSP arrangements, competitiveness introduced through E-NAM, hedging of commodity risks by farmers through national and local entities including Co-operatives, introduction of regulated forward markets and the use of Option Contracts to guard against market risks are all necessary but not sufficient conditions to ensure that farmers realize their freedoms to sell. To recount the words of Baba Amte, true development is in liberation.

The views expressed by the author are his own and do not necessarily reflect that of YourStory.