Showing posts with label Agriculture. Show all posts
Showing posts with label Agriculture. Show all posts

Sunday, October 9, 2022

Agriculture and Colonialism

The study of colonialism is incomplete without understanding the role of export agriculture and plantation economy. The hidden factors behind the industrial revolution and the advent of the modern era have a dark history of racial slavery, imperial violence, and oppressive economic exploitation of natural resources to extract exceptional profits from the colony. 

Colonialism was an economic prescription, a set course of augmenting European profits and markets by extracting natural resources (such as food, rubber, minerals, and lumber) and people (through slavery and indentured servitude) from colonized regions. The key facets of colonial-era agriculture were forced consolidation of land-holdings, slavery and servitude, and the increased globalization of foods, all of which modified people’s access to different varieties of food, altered people’s subsistence patterns, and entwined peasant farmers into the global capitalist economy. [Source]

Tobacco, Spices, scents, and silks were the core commodities of world trade for millennia. The expansionist policies of Europeans accelerated the exploration of far-off lands ranging from the United States, Latin America, and the Caribbean, to Asia and Africa. Initially, the desired African goods were gold and ivory, but from the early 1700s, the slave trade became dominant. 

Colonial-era agriculture was organized around export-oriented, cash-crop production, ushering in centuries of plantation economies to export commodity products such as Indigo, Tobacco, Banana, Sugar, Tea, Coffee, Cocoa, Cotton, Palm Oil, and Rubber.  Unlike small, subsistence farms, plantations were created to grow cash crops for sale on the market. The plantation system was an early capitalist venture and proved to be profitable. Therefore, cheap labor was used. Initially enslaved African and Indigenous people to work the land was replaced with indentured Indian, Malay, and Chinese populations. A brief account of the history of slavery in plantation agriculture can be read here.

The emergence of export agriculture began during the protracted abolition of the Atlantic slave trade, decades before the European Scramble for Africa (the latter happened essentially between 1879 and 1903). The major products were groundnuts (peanuts) and palm oil. The former was produced for export on the coasts and estuaries of western Sudan (mainly from Senegal, the Gambia, and Guinea Bissau) the latter from the forests of the Guinea coast (especially from Sierra Leone to south-eastern Nigeria and into Cameroon). The 1880s to the 1900s saw the global frenzy for wild rubber, which West Africans helped to supply, from what became French Guinea east to what is now Ghana. [Source]

Tea consumption took off with the industrial revolution in Britain, initially sourced from China through an East India Company monopoly. The trading of tea created a balance of payment for Britishers due to payment with silver bullion. British merchants would first buy tea in Canton (Guangzhou) on credit and would pay their debts by selling opium at auction in Calcutta. This opium was then transported to the Chinese coast aboard British ships, where it was sold to native merchants who would sell it in China. The opium trade was a precursor of the opium wars between the British and China. When this monopoly expired amid growing unrest in China, the British imperial government in India took a strategic interest in fostering tea production in northeastern India where a semi-wild tea variety was already growing. The rights of contracted workers were subjected to many cases of abuse (death rates were high in the early years) and labor rights and conditions have continued to be an issue until today. 

Under colonial-era laws, many tenant farmers in India were forced to grow some indigo on a portion of their land as a condition of their tenancy. Cash crops like indigo and opium encroached on the food crops growing area and produce was then bought by the Raj at unfairly low prices.  Champaran Satyagraha of 1917 in politics and Nil Darpan, a Bengali play written by Dinabandhu Mitra are widespread documentation of colonial interference in agriculture.  

Colonialism throughout the world has had lasting consequences on land management practices, relations between different social groups, and forms of subsistence. The colonies paradoxically had to begin importing food since cash crops generally took a majority of the available farmland, sometimes up to 80%. The governments of the occupying countries often imposed harsh new laws and taxes on the indigenous people. The large plantations drove out the small landowners and left the sharecroppers permanently in debt. These land purchases present short-term benefits to the local communities in the form of jobs and capital for rural development but destroy local social systems and displace people for their livelihood.

Similarly, “free trade” policies, such as forcing developing countries to eliminate agricultural subsidies while the US Farm Bill maintains subsidies for their own corn farmers, reproduce colonial-era practices. The expansion of the plantation system today is following the same script ( China & Gulf Countries) as played out in the past. Private investors and governments have recently stepped-up foreign investment in farmland in the form of purchases or long-term leases of large tracks of arable land, notably in Africa. 

Friday, June 17, 2022

What ails Krishi Vigyan Kendras (KVKs)?

What is the objective of Krishi Vigyan Kendras (KVKs)? The government of India has set up 727 Krishi Vigyan Kendras (KVKs) to undertake significant activities across the country with the mandate of technology assessment and demonstration for its application and capacity development. KVKs organize training programs for farmers including rural youth and women farmers for their knowledge and up-gradation of their skills in agriculture and allied sectors.  Besides these, various agro-clinical services like soil, water, leaf, and petiole analysis for effective nutrient utilization and disease and pest analysis are also provided by the KVKs. 

KVKs are envisaged to provide the necessary technical input and development initiatives under the District Agriculture Plans.  KVKs contribute along with ICAR and the state agriculture universities (SAUs)  to the preparation of the District Agriculture Contingency Plans (DACP), recommending location-specific climate-resilient crops and varieties and management practices for use by the state departments of agriculture and farmers. MoRD has joined up with KVKs to train the workers under MGNREGS for organic manure preparation and basic storage of the crop produce. Krishi Vigyan Kendras provides the skill training conducted on the Qualification Packs developed by the Agriculture Skill Council of India (ASCI) in agriculture & allied areas in compliance with the National Skill Qualification Framework. 

The challenges faced by KVKs are listed below: 

1. Lack of  Budget and Human Resources: There are huge numbers of unfilled vacancies for technical support staff and especially scientists. Several KVKs have infrastructure such as laboratories and equipment for soil testing but lack technical assistance. There has been a reduction in budgetary allocations over the years which is minimizing the coverage of KVK activities. There have also been delays in sanctioning budgets, leading to a financial crunch and affecting the activities of KVKs housed in SAUs.   

2. Failure to pay for Extension Services: The ability to pay for extension services is another significant hurdle in the effective delivery of services. This is both due to the social unwillingness to pay for government programs and the economic inability to do so. 

3. Emergence of Private Extension Services:  There has been a rise in the private players providing extension services to the farmers' associations and farmers. They have limited reach and generally are linked to input supply or output purchasing and contract farming arrangements. They provide agricultural extension services to the extent necessary to preserve the profit margin they gain from selling products. eg ( JFarm Services by TAFE)

KVK as part of the public extension system has to be reoriented away from traditional supply-driven, production-focused approaches, and towards more market-oriented approaches. Delivery of public extension services could be improved by introducing decentralized strategic planning, with the active participation of farmers and other stakeholders.  The roles of extension in KVKs at the grassroots level are changing. These changes will involve capitalizing on ICTs as a viable option. GoI is also planning a scheme in PPP mode on the delivery of digital and hi-tech services to farmers by involving public sector research and extension institutions with private agri-tech players. The future lies in the customized solutions and diffusion of innovations in agriculture and technology to the farmers. The shift in strategy has been done in selected KVKS from target crops to target farmers' needs through all the initiatives.

Monday, May 4, 2020

Asia Landscape - Impact of the COVID-19 pandemic on agricultural value chains

VCB-N has launched a series of Webinars on the COVID crises to offer a platform for learning and exchange about the current situation. This is the summary of the webinar on impact of the COVID-19 pandemic on agricultural value chains by VCB Network.
Speakers:

1. Mr. Barua Kaushik, Country Director IFAD Cambodia & Mr. Fabrizio Bresciani, Regional Economist IFAD Rome - IFAD perspectives
2. Anirban Bhowmik, Country Director, Swisscontact, Bangladesh – the smallholder farmers and the informal sector perspectives in Bangladesh
3. Mr. Andrew Wilson, Regional Coordinator Market Systems, HELVETAS – The market perspective
4. Prof. Liu Yonggong, China Agricultural University (CAU)- The market perspective from China

Summary:

1. The COVID crisis does negatively impact households in three inter-connected areas i) food security ii) income and iii) investment ability. In rural areas, the down-fall of prices has diminished the investment ability thus working capital of smallholder farmers which will again affect the production thus income and broader food security in the mid-term. The decreased ability to invest in next season’s crops is further deteriorated by the insecurity about next season’s markets. Farmers are falling back on local food systems and traditional production and solidarity mechanisms to deal with the crisis.

2. IFAD is using Rural Poor Stimulus Facility having 4 main pillar: i) safeguarding access to inputs and basic access for production purposes ii) facilitating access to markets incl. support to logistics, storage etc. iii) targeted funds to assure access to services mainly through existing programmes and iv) funds to develop / disseminate digital services / tools to farmers. This will help actors to overcome both Income shocks and Asset shocks.

3. Upstream actors like traders and retailers saw their income flow diminishing with falling business volumes and are short of liquidity which hampers their ability to pre-finance inputs for smallholders. Ability to extend credit line to farmers will be reduced for next season as traders are getting hit.

4. Food production chain especially fish will face big trouble in Bangladesh. April and May are the peak season of stocking of fish and many smallholders are not going to stock due to poor transport, price and availability of inputs. Hatcheries are only able to supply at least 50% of their total production and struggling to keep these all fish fry in their limited area.

5. International value chains for non-perishables like the trade in food ingredients are less affected by the logistical complications. As their exists a 6 weeks lag between shipment and retail at destination markets the real impact on trade volumes is still unclear.

6. “Stress reveals the cracks” : Structural weakness of agriculture value chain related to access to finance along the chain (production and forward market linkages) has been exposed in the current food systems.

7. Policy Narrative- Fiscal and Non fiscal: Non fiscal interventions must focus on production support with timely supply of seeds, fertilizers and pesticides. Fiscal support must be given to the farmers to manage their debt and allow them to invest in future production cycles.

8. Technology based entrepreneurs are not enough and form minuscule part of supply chain. Investments should be balanced along the VC (farm-level, storage, processing, logistics, and market access) to avoid bottlenecks which can be a "time bomb" for commodity prices, and farmers' income in the end.

9. Responses at company level should typically include software (adapted procedures, regulations) as well as hard-ware (protective gear etc.).

10. Responses as applied in China might be difficult to duplicate in other countries that lack the mechanisms for direct support to producers or financial reserves to apply similar support measures.

Thursday, April 16, 2020

Ankur Capital Dialogues - Navigating Recovery Post COVID-19 for Consumer Food Brands

I have the privilege to attend a webinar on 15th April, Wednesday Navigating Recovery Post COVID-19 for Consumer Food Brands organized by Ankur Capital.


The panel had good expertise in FMCG and the food industry. They shared a more comprehensive range of challenges and issues faced by the consumer food brands amid lock-down. I will summarize the webinar in six points:

1. Managing human resources: The legal aspects of managing human movement was relatively easy for the firms. But, a lot of personal communication was established by the leadership team to establish trust between them and employees. There were a lot of queries on the risk involved as the mainstream media has heightened a sense of panic and anxiety. Communication with the employees and all key stakeholders is the key!

2. Organization culture: While business metrics are important, companies should adopt a people-first approach and ensure that the well-being of their employees and customers is the key. The whole culture has been put to the litmus test and the lock-down has put the values of the companies in the action.

3. Alternate partnerships: Companies have ensured seamless supply through partnering with new partners and tackling logistics issues. Companies have re-prioritized the channel distribution strategies by considering the willingness, infrastructure, and payments of the partners. The situation is different for each partner.

4. Embracing technologies solution: Leadership has been pushing for technology like Microsoft Team and Zoom to the reluctant adopters.

5. Financial Liquidity: Startups have negotiated cash discounts to distributors. The Cash crunch has led to the cutting cost and made them functional for 2-3 months. There will be changes in the product portfolio, and processes to make companies more efficient.

6. Ecosystem Recovery: The recovery curve will be U shaped rather than V-shaped in consumer food brands. The behavioral habit of the consumer such as out-of-home shopping, and dining will change as people venture out less often. There will be trust building by brands through reassurance, hygiene, quality, and the process they follow at the back end. Unknown brands will be either buried or raised from the debris. The online groceries ecosystem will change and rapidly evolve in the next 6 months. A lot of medium food brands will change the rules of engagement in the online space.

Covid is a moment of truth and companies are looking to emerge from this stronger. Brands should focus their efforts on building trust and ensuring that the values that the organization stands for come to the forefront during times like these.

Saturday, April 4, 2020

Solving for agri procurement and market linkage in times of Covid

I attended a webinar on 4th April, Saturday Solving for agri procurement and market linkage in times of Covid organized by Hemendra Mathur, Gauri Sarin, Abhilash Thirupathy, Om Routray, Ashish Khetan and Vijay Pratap Singh Aditya.

Agenda: The idea is to table the challenges and solutions in the context of upcoming Rabi harvest during and after the lock-down. The focus of discussion will be on post-harvest interventions needed from first mile including farm labor, harvesting, procurement, warehousing and cold chain. The stakeholders likely to join the call are mandi traders, farmer bodies, NBFCs, warehousing, cold chain, logistics companies, agri startups in the market linkage side, industry association etc.

Speakers: Anil Kumar SG - Sammunati Jayant Chattarjee (Star Agri ), Pushpendra Singh (Farmer Leader), Khalid Hussain, ITC, Sachin Sharma ITC, Aleen Mukherjee (NCEDX), Aneesh Kumar (NAFPO) and Rahul Gupta, Avanti Microfinance

Discussion: The focus of the call is on food supply chain with areas like farm labour, mandi auctioning, value chain financing, significant credit line and warehousing.

1. Anil Kumar SG- The two phases of the lockdown to be addressed are before and beyond 14th April. The agriculture sector has best of the chances to bounce out earliest. This means that agriculture will get resource allocation, priority attention and collaboration. Samunnati is paying attention towards liquidity crisis as working capital becomes most important in this scenario for both demand and supply partners. Samunnati is looking for: What do FPO have currently, require in next few days and planning in next 3 months with timeline? Access to loans become most important to all the value chain players.

2.Jayant Chattarjee: Agribaazar is a platform to get buyer and seller to meet similar to like e-nam. Since trade must go on to minimize impact on farmers, there is need of alternative market place.

3. Pushpendra Singh: 70% economy is nearly closed at this time and food security of 130 Crore population is in focus. Labour problem is affecting Rabi harvest and will eventually sowing season of Zaayad and kharif is approaching fast. The supply chain is broken due to which both consumer and farmer are paying high prices. Poultry is affected by the rumors and supply chain disruption of feeds. There is an urgent need of liquidity that can be provided through PM Kisan Yojna by increasing the amount by 4 times. Jan Dhan Yojna accounts holder estimated to be about 38 Crore can be transferred INR 1000 per month. KCC limit can be doubled for existing farmers.

4.Khalid Hussain: The cascading of the information hasn't happened in the lower layers of the bureaucracy. Currently, the mandis are closed and harvesting has been stalled. There is need to open mandi in phase manner and allowing private player to purchase directly from farmers with price control as the farmers are exposed to vagaries of the weather. The warehouse and processing units has to be declared as market yards to disperse farmers at multiple points . The financial support will be required for private players working in the loose grain supply chain and logistics. Concor has done a wonderful job by giving subsidy on empty container. For agri-processing, UP Power Corporation has given waiver for few months to food processing industries. To safe guard fruits and vegetables, the import duty has to be increased on fruits and vegetables concentrates. Government has to intervene on the export sector and port functioning to build trust with exporting partners.

5.Sachin Sharma: Procurement of food grain is very important especially APMC acts should be make liberal for the private players. This will avoid crowd gathering at Mandi. There is need to give confidence to labours so that smooth migration becomes easier for them. Green corridors has to created for the movement of milk tankers, truck and food containers. Railway can help through multi point loading and reducing freight charges. Need to re-look RODTEP scheme. Processing of F&V has to be encouraged due to perishable nature of products and power sops can boost the industry.

6.Aleen Mukherjee- Digital transaction has to be increase on FPO level. The storage part has become an issue as silos/jutes bags aren't available on the farm gate level. NCDEX is working on solutions especially through two ecosystems: NERL and NEML spot market. Electronic warehouse receipt can be issued as generating finance can becomes easy. This will ease cash flow on FPOs. MSP procurement can be done through electronic ware house level that is already working with strict quality norms. The third aspect is about uncertainty around futures bench-marking. Percolation of the government instruction on transportation of essential commodities has become essential. FPO as sourcing points will ease on cash flow issue for farmers.

7. Aneesh Kumar: There is a pending payment for NREGS that will create liquidity in the rural areas. Extending the insurance coverage can ease the situation for the farmers. Creation of support cell in Agriculture Department in each state maybe helpful. Major consumption centers like Delhi will not be fully opened for the business. The new economic challenge is returning migrant in the rural areas. Basic Income transfer to mitigate the risk is an urgent step that can be taken.

8.Rahul GuptaAvanti Finance is involved in both Balance sheet lending and off balance sheet lending. Financing is critical hence moving on the paperless and cashless digital platform becomes more important. Relevant will be government intervention to PSBs for priority sector lending. This can be passed to the end use either farmer or FPO to fight liquidity squeeze.

Wednesday, June 6, 2018

Analyzing Model Contract Farming Act

The agriculture ministry on 22nd May released the Model Contract Farming Act, 2018. Mr. Ashok Dalwai, CEO, National Rainfed Area Authority has chaired the committee that drafted the model law.

Contract Farming: Contract farming is a container concept that covers a wide range of contractual arrangements, which makes it difficult to draw overly general conclusions. Under contract farming, agricultural production (including livestock and poultry) can be carried out based on a forward agreement between buyers (such as food processing units and exporters), and producers (farmers or farmer organisations) frequently at predetermined prices.

The Model APMC Act, 2003 provided for contract farming however, only 14 states notified rules related to contract farming, as of October 2016. Only Punjab has a separate law on contract farming. The NITI Aayog observed that market fees and other levies are paid to the APMC for contract framing when no services such as market facilities and infrastructure are rendered by them. In this context, the Committee of State Ministers on Agricultural Reforms recommended that contract farming should be out of the ambit of APMCs. Instead, an independent regulatory authority must be brought in to disengage contract farming stakeholders from the existing APMCs. (Reference)

Salient features of Model Contract Farming Act, 2018

1. In addition to contract farming, services contracts all along the value chain including pre-production, production and post-production have been included.
2. “Registering and Agreement Recording Committee” or an “Officer” for the purpose at district/block/ taluka level for online registration of sponsor and recording of agreement provided.
3. Contracted produce is to be covered under crop / livestock insurance in operation.
4. Contract framing to be outside the ambit of APMC Act 2003.
5. No permanent structure can be developed on farmers’ land/premises
6. No rights, title ownership or possession to be transferred or alienated or vested in the contract farming sponsor etc.
7. FPO/FPC can be a contracting party if so authorized by the farmers.

Policy Analysis by Experts:

1. As per Professor Sukhpal Singh of IIMAhmedabad: The new model Act 2018 opens up agricultural markets to contracting agencies without adequate safeguards for farmers.

2. Opinion Piece by Smriti Sharma, Policy Analyst with the National Institute of Public Finance and Policy on role of the government in Contract Farming Act

3. Opinion Piece by Jayshree Sengupta, Senior Fellow (Associate) with ORF's Economy and Development Programme on making contract farming suitable for Indian farmers.

Policy Analysis and Suggestions:

1. FPOs as aggregators: From the draft Model Act, it is not clear whether FPOs can also be contract farming sponsor. There may be a situation where FPOs would like to expand the cultivated area without increasing number of the farmers as members. The model law should clarify that how can FPO will be able to expand farming activities adhering to contract farming route.

2. Pro Farmer Policy: The Act lays special emphasis on protecting the interests of the farmers, considering them as weaker of the two parties entering into a contract and has been provided for reasonable protection to the weaker party to the contract, i.e., the producer, the pre-agreed price, category wise as under Section 18(2). Where no price premium exists, and a competitive price is paid on local markets, the intermediary role of FPOs may become more important for enabling higher income effects of the contract farming arrangement.

3. Capacity of State: The model contract farming Act proposes a state-level agency, the Contract Farming (Development and Facilitation) Authority, which would put contract farming outside the scope of the APMC. There is already acute shortage of extension services in Agriculture Department and current Act is proposing for an officer at the district/block/taluka level.

4. Corruption and Transaction Cost: More the responsibilities taken by the government staff, there is a higher chances of bribery for the online registration of sponsor and recording of agreement with a registering and agreement recording committee. Registration imposes extra procedure mechanism and costs on the parties, while small and marginal farmers cannot easily afford these transaction costs. Transaction costs embedded in contract farming need to be outweighed by the benefits, both for sponsoring corporates and farmer.

5. Monopoly, Fraud and& Settlement of disputes: Sponsoring agri business companies will exploit the monopoly position and similarly farmers will sell outside the contract (extra-contractual marketing) and divert inputs supplied on credit to other purposes, thereby reducing yields. There is no provision of budget for the establishment of body for dispute settlement mechanism at the lowest level possible required for quick disposal of disputes.

6. Insurance and Risk Management:  Agricultural investments always involve risk. The five most likely reasons for investment failure in agriculture are poor crop management, climatic disasters, pest epidemics, market failure and price volatility. The standard approach in agribusiness to compensate the farmer against quantity shortfalls is crop insurance. The contracted produce will also be covered under crop/livestock insurance in operation. But the government-run crop insurance schemes are proving to be unsatisfactory

7. Price Discovery and Market: Normally, contract farming does not work in an ecosystem when either party is looking to fetch a better price without any product differentiation. This is where derivative market integration with farm sector can help. This will eventually lead to both party trying to get the best price from the market instead of the each other. Where there are fixed price contracts there is no apparent risk to farmers with regard to payment for their crops. If a market collapses, the sponsor should automatically shoulder the loss. However, if the sponsor becomes bankrupt, farmers could be permanently affected. Where contracts are on a flexible or spot-price basis the stability of farmers' incomes is always at risk.

8. Farm income varies between commodities: The costs associated with contracting is high hence, it tends to be limited to high-value commodities (including meat, milk, fish, fruits, vegetables, and cash crops) being grown for processors and exporters who sell into quality-sensitive markets. An apple grower benefit from higher yields (presumably due to technical assistance), while contract green onion growers receive higher prices (presumably due to better quality).

9. Establishment of Forum: A major feature for market to work is a "market matching" exercise. This can be done by organizing forums where agribusiness entrepreneurs could meet FPO/ farmers' representatives to discuss their requirements. The forums can be followed by more detailed discussions between individual sponsors and individual cooperatives or farmer organizations.

10. Literature Review: All studies report at least one case of contract farming that has a positive and statistical significant income effect. The lack of studies on ‘failed treatments’ leads to an overestimation of the effectiveness of contract farming. The practitioner-oriented literature indicated the high risk of failure in the first years and stressed the need for adaptive management and mechanisms to settle disputes. Apart from food security effects, the role of contract farming in rural development, such as (sector-wide) innovation, and livelihood resilience, will need more research.

Conclusion: Modest expectations and careful planning are needed for contract farming to be effective and sustainable. However, it is important for policymakers to be realistic about the potential scope of contract farming. Thus, policymakers should not think of contract farming as a solution to the problems of credit, information, and market access for all small and marginal farmers . Model Contract Farming Act should be a promoting and facilitating Act as is intended, and should not end up as a over-regulating act distorting the market for both players.

Thursday, January 14, 2016

Agricultural Commodities - Pulses

Market at the micro-level has to serve three main stakeholders with different expectations. Farmers wants good price and constant demand, distributor wants fat margin and consumer wants low prices and quality product. In the market scenario at macro-level production of the pulses, demand-supply conditions within India, volatility in global commodity prices, variation in exchange rate, policy of the government, and a surge in import can lead to determination of final price of the any commodity. 

This article series aims to provide an introductory overview on the agricultural commodities in India. The first article of this series will carry the discussion by offering an analysis of the pulses in India. India is the world’s largest pulse producing, consuming and importing country. Bengal Gram (Desi Chick Pea / Desi Chana), Pigeon Peas (Arhar / Toor / Red Gram), Green Beans (Moong Beans), Chick Peas (Kabuli Chana), Black Matpe (Urad / Mah / Black Gram), Red Kidney Beans (Rajma), Black Eyed Peas (Lobiya), Lentils (Masoor), White Peas (Matar) are major pulses grown and consumed in India. During 1950-51 to 2013-14, area under pulses increased by 31% from 19.09 million hectares [mha] to 25.23 [mha] and productivity per hectare increased by 46% from 441 kg to 764 kg with significantly disappointing 0.64% CAGR of productivity. Even the area under cultivation for pulses has seen marginal increment, there is shift in the quality of land used for pulses production.
Green revolution has pushed pulses cultivation in tough terrains resulting in declining productivity. As pointed out by Santa Kumar Committee Report: "GoI needs to revisit its MSP policy. Currently, MSPs are announced for 23 commodities, but effectively price support operates primarily in wheat and rice and that too in selected states. This creates highly skewed incentive structures in favour of wheat and rice. While country is short of pulses and oilseeds (edible oils), their prices often go below MSP without any effective price support. Further, trade policy works independently of MSP policy, and many a times, imports of pulses come at prices much below their MSP. This hampers diversification." Hence, the government needs to create a crop-neutral incentive structure for farmers, which is at present skewed in favour of rice, wheat and sugarcane.


Pulses have low carbon emission and water needs which make them ideally suited in India’s farming system. Rainfall in India is highly unreliable both in time and geography, leading to fluctuation in the production. The major driver of food inflation was the hike in prices of pulses, which was caused by the crop loss due to untimely rains. India’s pulses production fell from 19.25 million tonnes in 2013-14 to 17.3 million tonnes in 2014-15, while imports rose from 3.18 million tonnes in 2013-14 to 4.58 million tonnes in 2014-15. With the sky rocketing prices of the pulses, the government has taken haste decision to import 7,000 tonnes of Tur (5,000 tonnes earlier, and 2,000 tonnes now) to tame prices. In a country where the consumption of tur daal hovers between 3.3 to four million tonnes, aiming to control rising prices by importing 7,000 tonnes tur shows both the policy failure in pulse price management and strong cartel of importers artificially jacking up the prices. Ineffective policy measures appear to be knee-jerk reactions more than calibrated responses of policymakers.

No pulses are currently traded in future in international markets and only Chana is traded in future in domestic markets. The Securities and Exchange Board of India (SEBI), which also regulates the commodities futures market, may consider banning forward trading in chana (gram) as part of the government’s measures to bring down prices of pulses. By suspending futures and forwards markets, the government can simply shot the messenger. This is only evidence of a rather sloppy conceptual framework of policymakers. Merely scapegoating traders as  “hoarders” and “speculators” is not going to be effective in today’s times. Also, traders hold the strings to the political purse, and a crackdown against hoarding would be damaging for ruling political party. Forwards and futures markets are supposed to give signals for effective price discovery and efficient price risk management. It is therefore necessary to develop suitable futures contracts for major pulse varieties separately, as also for all pulses together in the form of index futures.

Pulses are now termed as crops for poor, largely cultivated in marginal lands prone to poor irrigation supplies. Low pulse yield in India compared to other counties is attributed to poor spread of improved varieties and technologies, abrupt climatic changes, vulnerability to pests and diseases, and generally declining growth rate of total factor productivity. Lack of effective market news system and existence of different grades and qualities have also contributed to these imperfections in market. Appropriate reporting with quality differences and graded produce could go a long way to reduce the high price differentials, spatial as well as temporal.

Readers can also read a good article in IPGA examining the price issue of pulses. Jokes comparing  butter-chicken  to pulses are already in the market, and the trend doesn't look good for next year. It will be much shame for current government promoting 'Make in India' campaign while importing pulses, oil-seeds etc from foreign nations. India government needs to get the act together if they are truly committed to the food security of our fellow citizens.

Saturday, March 21, 2015

GoI circular on FPO

GoI had issued a circular for Farmers producer organisations (FPOs) on 11th February 2014. As per circular, FPOs may be treated at par with cooperatives and other quasi- governmental institutions providing common service facilities to the farmers/users in Rashtriya Krishi vikas yojana (RKVY). Please check the circular on the government website.

Monday, March 2, 2015

Funding Mechanism for Farmer Producer Organizations

Progressing with the previous discussion of FPO: Public Policy & Value Chain Development, we are looking into credit accessibility of Farmer Producer Organizations (FPOs). India is successful despite the government because of the entrepreneurship, energy, and ingenuity of the Indian people. Our smallholder farmers are not marginal recipients of charity but instead customer entrepreneurs. Even with the linking of small and marginal farmers to FPOs, the question of reliable and affordable sources of financing for the capital requirement of Infrastructure and operation always lingers for the farmers. There is always the issue of access to credit in the agrarian sector. There are many donor agencies like International foundations, Domestic Foundations, Business related CSR, and government schemes for financing credit to FPOs. But the search for such donors with big pockets for solving the problem is elusive and unsustainable way.

Formal financial institutions (FIs) are wary of lending to these bodies, largely due to the absence of collective land titles (for collateralization) and credit tools for customer assessment. For a nascent FPO, FIs require collateral and three-year balance sheets. That sums up the tragedy of the situation. There are proposed funds coming up for the support of FPOs. I am enlisting them as per my knowledge. But the author is not legally liable for the information provided here. This is collected through various online sources and workshops.

Grants:

1. Equity Guarantee Fund- The Equity Grant Fund enables eligible FPOs to receive a grant equivalent in amount to the equity contribution of their shareholder members in the FPO, thus enhancing the overall capital base of the FPO. The Scheme shall address eligible FPOs, which have paid up capital not exceeding Rs. 30 lahks as of the date of application. Equity Grant shall be a cash infusion equivalent to the amount of shareholder equity in the FPO subject to a cap of Rs. 10 lahks per FPO.

2. Sectoral Fund- Under NRLM, there is a provision that states agencies (SRLM) develop partnerships with major government programmes and build synergies to address different dimensions of poverty and deprivation. Every Producer Organization will receive Sectoral Fund (SF) up to Rs. 20 Lac, in two installments, to invest in value chain development for livelihood promotion. The first installment of SF will be given to the PO within two months of its formation (mini. 100 members) with minimum paperwork. This installment can be up to Rs. 5 Lac. On completion of the establishment phase, the PO will submit a Business Strategy Report to RRLP together with a requisition for release of next installment. The second installment can go up to a maximum of Rs. 15 lac.

Loan Product:

1. With Collateral- NABARD has created a dedicated corpus to provide loans to producer organizations. Yet, NABARD demands FPO to offer collateral (15%of  loan amount) at the interest rate of 10.5~ 11.5 %. There is a clear impact on collateral offered over the interest rate. Since most of the FPOs are formed by small and marginal farmers, they lack collateral.

2. Without Collateral- Interest computation on daily principal outstanding of drawn amount. Flexibility to use the funds only when required thereby leading to huge savings on interest cost of (13.5-14.5) %. The agency (mostly NBFC) will take a 1% upfront processing fee and SFAC will charge 0.85% of guarantor fees. There is NO collateral required for the loan. Through the setting up of the Credit Guarantee Fund, SFAC has enabled a few credit institutions to provide collateral-free credit to FPOs by minimizing their lending risks in respect of loans not exceeding Rs. 100.00 lakhs. The lending institution shall be bound to comply with such directions as SFAC may deem fit to issue from time to time, for facilitating recoveries of the guaranteed account or safeguarding its interest as a guarantor.

3. Warehouse Receipt Finance- This seems a feasible option when the working capital crunch is over. FPO is targeting commodities like Soya bean, Cotton (including bales), Mustard, Maize, Wheat, Sugar, Paddy, Cashew, Castor, Chilli, and Turmeric only.

All the grant and loan appraisal process is designed with various parameters depending on the policies of FIs. They all focus on the high representation of women in membership as well as in the Board of Directors(BoDs). Hence, a small step in the direction of empowerment of women is taken. Thus enabling women's participation increases the chance of wealth ownership and leadership. Structural discrimination against Women, Dalits, and Adivasis can be prevented by giving voices in such forums linking business with social change.

It is the right time for financial institutions to come up with innovative financial products targeted at FPOs. On banking parameters, if not adopted, FPO policy can't be scaled up. The transformation of FPO can only happen in phases from Grants, Soft loans, and then linkage to mainstream banking institutions. Banking institutions and the rural community have a lot of ground to cover for implementing FPO policy on the ground. Even with so much of changing policies, the FPO model deserves tax holidays in the initial years to build surplus and reserves. The taxation policy of FPO (30%), insurance, and, license issues are more complex topics to be discussed in upcoming blog posts.

Sources ---

Tuesday, January 13, 2015

FPO: Public Policy & Value Chain Development

A basic concept can be read here:2014 - Year of Farmer Producer Organizations (FPOs) before going further ahead in this topic.

Public Policy: There is always so much talk on FDI in retail, so it seems a good state to channel the same money for farmers’ producers’ cooperatives and ensure they get good margins and market access. The government of India (GoI) already invest Rs 275,000 crore in an agricultural subsidy budget that is constantly touted and needs to be unpacked. Who is the real beneficiary of these subsidies, farmers, or seeds, fertilizer manufacturers, and agricultural banks? That is where good public policy comes into play.

The government of India (GoI) is promoting the concept of Farmer Producer Organizations going in the right step to engage and adapt agriculture to the market system. The primary objective of the collective mobilization of farmers into FPOs is to enhance the production, productivity, and profitability of especially small farmers in the country. FPO will be positioned as a gateway agency between the farmers and markets. The complete Policy and Process Guidelines for Farmer Producer Organizations; is a good framework. FPO policy will give auxiliary advantages like women’s empowerment.

Policy guidelines are the first step but we need awareness of this novel concept among a diverse range of stakeholders: the farming community, State Governments, Banks and other financial institutions, Civil society organizations, the media, and elected representatives of the people. Policies that impede the growth of FPOs, such as APMC laws, tenancy provisions, cold storage, etc. must be amended with changing times.

Value Chain Development: With the below diagram, we see how Value Chain is different from Supply Chain.


 Value chain development interventions focus on improving business operations and relationships (even contractual) at the level of primary producers, processors, and other actors in the chain. Production, harvesting, procurement, grading, pooling, handling, marketing, selling, and exporting of primary produce comes under the scope of the value chain. It can also include preserving, drying, distilling, brewing, venting, canning, and packaging the produce of its members.

Value chain analysis starts with mapping the volume of products, the number of people engaged, the geographical flow of products, and value at different levels of value chains. The supply and demand side of the business can be understood with the result of analysis only. Only then, we can start with the business planning of the enterprise. All the members of FPO are primarily farmers only but we need to build their capacities on trading, accounting, and hoarding practices over time. Farmer Producer Organizations can only result in more sustainable and better-performing business plans when farmers have a good understanding of value chain systems.

FPOs are nee steps towards organizations having higher financial autonomy and lesser government subsidy. Possibly the biggest failure of GoI is the promotion and formation of good organizations in the agriculture sector. Let us look for the big question in the livelihood sector: Is a full-fledged value chain development project through FPO the best way to bring about development? If not, then what is an alternative!

Saturday, November 15, 2014

2014 - Year of Farmer Producer Organizations (FPOs)

I always remember the words of Chinese Premier Deng Xiaoping - "It doesn't matter whether the cat is black or white, as long as it catches mice." So, now NGOs and the government are finally coming to the phase of acceptance of market forces in the development sector. The cooperative movement is already a failure except for a few notable examples. The government has never managed to manage any scheme efficiently. The government is partnering with various professional organizations for setting up a new institution in the country - Farmers Producer Company (FPC) / Farmer Producer Organizations (FPO). The legal framework is ready under the Companies Act. According to this new law, only farmer–producers can be members of the FPC and the farmer members themselves will manage this company. It takes care of the flaws in the cooperative societies but has also borrowed the strengths of the corporate companies.


FPO/FPC will be dominating future debates on livelihood and its success depends on the implementation and design of the program. Pieces of evidence will come for pros and cons of such initiative, no matter how reliable, have to be interpreted. Interpretations can differ and do differ, and such differences account for an explanation. That is a future full of possibilities. I will be updating this space related to FPO. The chart will give an overview of the FPO structure and purpose. It is a bit late to post here but the Calendar year 2014 is declared as the “Year of Farmer Producer Organizations (FPOs)”.

Monday, December 2, 2013

Producer Groups - Practical Experiences

"I learned very early the difference between knowing the name of something and knowing something."- Richard Feynman; That is why, despite knowing the theoretical concepts on the Producer Groups, there were some practical lessons gained in the field. I had worked with Producer Groups farming Groundnut, Onion, & Pulses (even one group was doing business of NTFP) at Balanagir district, Odisha. I was guided under the able supervision of Kamalendu Paul, Zonal Manager, ORMAS (Orissa Rural Development and Marketing Society). The document Community Enterprise System Manual prepared by Prof. Amar KJR Nayak came helpful during work.

All producer groups were having women members only. No producer group has been registered under any act till now. However, credit was given to them based on mutual trust between the government and Producer Groups. The legal process will be initiated soon. We were also unable to do protect farmers under the crop insurance scheme till this year. Organizing the unorganized was already done by Paul Sir before I arrived at the district. Without the help of local persons, this was not possible. The sign of government (even its vehicle) is a sign of trust in rural areas. That fast-paced our work even by Indian standards in establishing trust with the community. Our companies have usually dumped their substandard products and Chit Fund company had run away with the money of rural people. This historical tendency of companies has made business in rural areas difficult.
 

Practical Experiences:

1) 40-60 is the optimal size of the group. It is necessary for cohesion within and management of the group. Since they are small-scale, it is generally preferred that they are not much dispersed. There is an executive committee and further sub-committees in the Producer group. But, most of the members don't know the power, roles, and responsibilities of this committee. Since NRLM is a new scheme, we have to remind each time about the objective and scope of the mission to the members.

2) Producer groups were more successful in the remote areas of the district. The sense of cooperation is more seen in these regions in comparison to the relatively rich parts of the district. It is a small sample for me to draw conclusions but the poor are more honest and cooperative in nature.

3) For any business, 'budget' is the ultimate tool with which to monitor and keep an eye on the business. The lack of education becomes a major hindrance in the preparation of the annual action plans and budgets. It was easy to make them understand procurement procedures (like inviting more than one quotation) and the necessity of documentation. Since most of the women are part of SHG, they have a basic idea about documenting the meetings and cash book.

4) LSP (Livelihood Support Person) is appointed for their help in marketing linkages and proper documentation. Producer Group is more considered for a good price while the government is more strict on documentation part. An honorarium of LSP is merely 2000 -3000 rs currently. That may appear low but as per my opinion, is sufficient if billed on RS 50 per hour of interaction. Work of LSP is maximum during the post-harvesting season.

5) I have attained lectures, read articles, and even studies courses on leadership. Cooperative Leadership is not just about good communication skills, democracy – it's about sound decision-making by utilizing the capacity of the group. A producer group like any other group is leader-oriented. The trivia is that an exterior person like LSP should enable but should never drive the Producer Group strategy. Since I have been working with women producers and male LSP, this scenario may occur in the future. A leader should be groomed inside the group. Even on the proxy of gender diversity, there was only a single woman among all appointed LSPs.

6) Another difficulty that the producer group or cooperative societies encounter relates to storage facilities. Most of the surplus produce in an area is assembled and sold at the mandi. Infrastructure support is a must for the producer group. Most of the farmers even if organized for the production purpose are reluctant to store for a long time to meet their immediate consumptive need. A low-cost storage facility for multipurpose use at each GP/ village for each producer group is a good solution to the problem. It may appear cheap and effective under Panchayat but the chances of either personal usage by PRI members or no maintenance are more in it.

7) The transport arrangement to market a small volume of produce is not facilitating and rural transport cost is much higher than the urban transport cost. Hence, by combining the total produce, we were able to bring businessmen to the doorstep of farmers.

8) Line departments like Agriculture Department and its extension services support have been minimal till now. Convergence is always missing in between government departments! We are hoping for their help during the training session of producers. The fund supplied for training purposes by the government will be used in the future. The caveat of guidelines in utilizing training funds: Only half of the group will get the training. A sure way of creating a rift between members. It is better to spend less on training per member but to impart training to everyone in the group.

9) There was not much inclusion of banks till now. Without any corpus fund provided as a grant, it was difficult for a bank to provide the loan amount. And, Banks heavily discourage and delay SHG/PG  members making transactions to the respective branches. That is a big issue with multiple perspectives to be debated later.

10) Agri Produce Market is not very quality conscious, but price-sensitive to a certain extent. The credit supplied to PG is used for holding the collective produce for one or two months. In the meantime, there is a definite rise in the prices of produce. We have experience of selling Pulses for a profit of more than Rs 10 per kg by holding the stick for a period of one month.

Failure of Cooperative societies should never be forgotten in the Indian context while pitching support for such groups. Cooperative societies were not harmed much by politics but by the interference of the bureaucracy. Lack of serious attention to value-added agriculture and rural MSMEs is a big task to be handled in the future. How do we make agriculture sustainable and economically viable? That is the big question.

Initiative Taken:

Previously, only office bearers and LSP words were taken for granted in meeting at district-level meetings. Producer Group registers were the only way of checking regular meetings and updates during field visits. I have collected the maximum available mobile phone numbers of members. Hence, I can actually monitor live, whether PG meeting is happening or not from district headquarter through random calls to any member.

- A DPR (Detailed Project Report)was approved by OLM (Odisha Livelihood Mission) last year. There was no provision of a baseline survey. I tried to capture data about household socio-economic conditions so that impact assessment can be made in the coming years.

Friday, November 29, 2013

Producer Groups - Theoretical Concept

"Where the poor participate as subjects and not as objects of the development process, it is possible to generate growth, human development, and equity, not as mutually exclusive trade-offs but as complementary elements in the same process." --- Meeting the challenge, Report of the Independent South Asian Commission on Poverty Alleviation, 1992.

The problem with the modern outlook of business education is to view rural/urban citizens as target consumers. Instead, if we enable them as producers, that will surely boost the economy and well-being of our producers. Most of the producers are caught in the vicious circle of poverty and even fully dependent on the monsoon for a good harvest. The government has reworked its strategy of helping marginal and small producers in breaking out of the cycle of poverty by organizing them into producer groups. The concept of Producer Group has been lifted from the cooperative societies. This concept is based on voluntary cooperation as the rural ecosystem has limited resources and infrastructure.

Why Producer Group? The main aim of the producer group is to stop the practice of ‘distress selling’. I will give three reasons for pitching Producer Groups. 1) Creditworthiness is directly related to income, farm size, age of farmers, and level of formal education of farmers. Hence, the marginal farmer is always caught with a lack of credit. 2) Marginal farmers as rural producers always suffer from an imbalance of bargaining power in market transactions. 3) Small farmers always dispose their produce at the nearest mandi at a through-away price. The size of the market for agri-related commodities is always good but highly price volatile in India. I have written more on this topic: Market Failure and Primary Producers.

A producer Group generally consists of 30 to 150 producers [depending upon nature of the Livelihood Activity] involved in a common activity. Producers groups should be formed preferably at the village level or at the GP level for tribal areas where the size of the village is very small. Producers Group may be registered under the Self Help Cooperative Act, 2001 of the Government of Odisha (Depending on the state) or The Companies Act of India in the future. As per new NRLM guidelines, a minimum of 50% of the total members should be from the BPL category. That is a good strategy for poor and vulnerable households.


There will be service charges taken from the members for purchase and maintenance of common assets like mattresses, Chairs, Lock, Box and Weighing machines. There will be the engagement of a professional resource person called LSP (Livelihood Support Person). LSP will help them in procurement, processing, value addition, and market linkages. However, the cost of LSP will be borne by the government for initial two years depending on the honorarium decided by the Producer group. There is a provision of financial (Loan for working capital @7 % & Grant for capacity building through training) for producer group.

Generally, Indian farmers have a highly unorganized and individual approach to cultivation. Organizing the unorganized through mobilizing the whole community is the most time taking part of the formation of the Producer Group. The first step within business planning is to identify the business opportunity. This is decided by members Producer group itself only. Ensuring regular meetings and interaction from a government official is a way to sustain the producer group. With enhanced collective bargaining power, Producer groups are obtaining good prices for their produce in the market. Still, there are many practical difficulties in the whole approach. That will be taken later in a new blog post.