Different Strokes!
At the outset, it is important to make a clear distinction among the different segments in agricultural business: the large corporate houses and organized players on the one hand and Farmers organizations like primary Co-ops, farmers Clubs, SHGs and JLGs on the other. In fact it is the latter that finds itself at a ‘policy disadvantage’ The last two decades have seen several large corporate houses enter agribusiness in big way – from Spencer’s to Del Monte, Tatas to Mahindra and ITC to PepsiCo. The Government of India have announced several concessions for investments in this sector, and the Ministry of Food processing (at both GoI and state governemtn levels) have been launching special campaigns to attract investments in this sector. Mega Food parks have been announced, and ‘anchor investors’ have taken the lead in attracting other players to the Food Park. Business houses with interest as diverse as Bidi manufacturing to cement industry are trying to enter into JVs to get a foothold in this new sunshine sector.
However, much of this buzz has not ‘affected ‘ farmers’ organizations, many of which now find that in comparative terms, it is more difficult for them to get into value addition and processing sectors than their counterparts in the private sector. This is because the corporate sector is regulated by provisions which are far more liberal than those which govern the functioning of the co-op societies or farmer’s organizations. Having said this, it may be noted that the reasons for the stunted growth of farmer’s organizations is not because of legislation alone. Farmers organizations, including co-ops are affected by the general economic environment of the domain and region, and management systems and practices play an equally if not more important role. This author has pointed out that Amul has become a global brand name and ushered prosperity for its members not because, but in spite of legislative polity. The main factors in the success of Amul include excellent management practices, an exceptional leadership, domain expertise in dairying and proximity to a large market.
The Amul success story has obviously not been replicated in other domains, and the success in other regions has also been limited. In most parts of India, and for most cereals, oilseeds, pulses, fruits, vegetables etal, agriculture production grew in substantial measure during the last few decades, but farmers incomes were not commensurate with this increase, largely because they were out of the purview of ‘value addition’. It has to be understood that the way agricultural commodities are transacted is changing. Farmers are producing essentially for the market. There is increasing standardization (post harvest sorting, grading, primary storage and quantity lots) which producers have to do on their own to get better price realizations. Thirdly, farmer organizations which played a stellar role in the early years of the Green Revolution by providing essential inputs like credit and fertilizers through their network of primary credit societies, could not replicate the same for post harvest management for several reasons which the paper will examine later. Meanwhile the phase of liberalization in the nineties saw the dismantling of control regime in several sectors of economy, but the agricultural and rural sector was left largely untouched by reform. It has however resulted in making it much easier for the larger firms, including MNCs to enter into food processing and agricultural commodity trading business, but the barriers to co-operatives and farmer organizations continue to be as stringent as before. Producer Organizations, Farmers Interest groups and Commodity Groups promoted by Nabard, Mother Dairy and state/apex federations
Abundant Yields: Constant to Low returns.
Even as the agricultural production in the country shows a graphic increase in the thirty year period from 1975 to 2005, the realization for the farmers per crop per hectare has not shown a commensurate increase. In fact in certain years, there has been stagnation, and a decline in real price realization for the farmers. Thus even as the input prices rose, and the dependence of the farmer on external inputs increased, the price recommendations from CACP did not keep pace with the increase in manufacturing and services sector. These years witnessed an increase in farmer indebtedness, decline in the ratio of public investments in agriculture and thousands of farmer’s suicides which finally led the government to adopt a slew of measures which brought the focus back to the farmer. These include the Loan Waiver, RKVY, NFSM and controlling fertilizer prices at substantially high costs to the exchequer. However, the realization that profitability in agricultural sector comes not from production, but post harvest management and value addition has yet to become the ‘cornerstone of the new policy paradigm’. More money is made by the several intermediaries in the potato trade than the grower. Most of these transactions are informal, and the financial gains of the intermediaries is perhaps not recorded anywhere. By the time the central and sate governments can announce the MIS; the commodity is already out of the hands of the farmer. Lack of capitalization at the level of PACS and /or SHGs inhibits the capacity of these organizations to make effective interventions, and offer competition, or pro -competition to the private intermediaries.
The Policy Regime for Primary Societies
If lack of funds for intervention was not enough, there were overriding policy constraints as well. The Policy regime for primary societies, which are linked to District and State Co-operative banks for the refinance facility of agricultural credit facility from NABARD is still governed by the archaic Co-op Societies Act which give sweeping power to the officials of the co-op department to micro manage the affairs of the primary or even district level co-operatives. In several states, PACS also require permission to accept grants under RKVY for the establishment of a Farm mechanization Hub: the ostensible reason being that manpower cannot be hired without following the governemtn norms. Somewhere in the model Bye Laws, it has been stipulated that PACS will not employ anyone without the necessary clearance from the governemtn. It must be mentioned here that in most cases this permission is given because governments are also under pressure to utilize the RKVY funds, but why should this be required in the first place. It also gives an idea of how difficult it is for PACS to ‘capitalize ‘ the rural economy – whether from its own funds, or grants from central and state governments. One must also mention that no such restrictions are placed for co-op societies under the Mutually Aided or Self Reliant Co-op societies Acts, but then the vast majority of the Primary Co-ops, especially those which channel NABARD funds are under the conventional Act.
Apex Federations: Farmers Cause or Government Directives
The problem of capitalization is not limited to primary societies alone. Even apex federations like NAFED face a liquidity crunch for effective market interventions without governemtn support. While the primary cause for this is the failure of the three tier co-op structure to ensure a transaction-fee based equity growth fund the fact that in most states ,legislation preventing another ‘federation’ from coming up in the same domain allows the management of these bodies to take things complacently. Whenever government directs them to make interventions through MSP/MIS, they do so based on the ‘advance’, or ‘bank guarantee’ arranged with government support. Thus , rather than be a powerful instrument in the hands of farmers (as in the case of AMUL), apex federations in most states play second fiddle to state policy. The problem with state policy is that it is always reactive, and its basic DNA prevents it from being pro-active. Thus potato procurement through state support can start only if and when prices crash, even though a bumper harvest can now be predicted on the basis of satellite imagery at least two to three weeks before the harvest.
APMC Act: Restrictive Provisions
Contrary to what its name suggests, the APMC Act does not facilitate, but restricts agricultural trade. Whatever the noble intentions behind the passage of the Act, as things stand today it has created any artificial monopoly for traders and organizations which are registered by the Mandi Samitis, and those who do not have access to the powers that control the APMC are denied the privilege of transacting agricultural commodities which is a violation of the fundamental right of both farmers and traders to engage in price discovery and get the best deals. The APMC Act was conceived at a time when information asymmetry prevented the farmers from knowing the prevalent rates in different markets, and they were often taken for a ride by unscrupulous traders. Today, bringing all the commodities first to a designated centre, rather than to the processor, or aggregator only adds to transport and logistics. Moreover cereals are only a fraction of what gets transacted in an agricultural market today: perishables are an important component of the total transaction. Therefore technically potatoes have to bring out of a cold storage to be resold again. The Act is also applied selectively – because if any state tries to implement the Act for the produce of all its farmers, the system would get completely clogged. Therefore the Act is used selectively and is often used as an instrument to dispense patronage, or create nuisance.
Producer Organizations: A viable Option?
At a recent Roundtable organized by the AFC on this subject, it was argued by Pravesh Sharma, Jack Croucher and others that producer organizations are a viable option to connect local produces to global market place. This columnist feels that Producer organizations have to be nimble and flexible with the limited objective of aggregating farmers produce, and/or facilitating contracts with regard to inputs with a corporate entity. The advantage it has over a co-operative is that regulatory hassles, tax issues and leadership problems are virtually nonexistent. Producers may come together with a specific purpose, for a specific crop and a specific time. They are also free to join more than one producer group: thus if a farmer has an orchard for lychee, and one for mango, he can be part of two groups. In one he could be playing a leadership role because his contribution to the aggregate produce is much higher.
It is best to leave these organizations alone. Let then not get into formal arrangements with financial institutions or government Departments. At best workshops, seminars and exposure to best practices can be demonstrated to farmers under ATMA and RKVY.
Contract Farming
The response to contract farming in our country has been mixed. Several state governments have included a chapter on contract farming under their APMC Act wherein conditions have been laid down. These have been done to ensure that under no condition should the farmers land be mortgaged to the corporate body on account of the failure of the farmer to fulfill his share of the contract. States like West Bengal have supported the idea of Partnership Farming where corporate are encouraged to enter into arrangements with PACS/SHGs/Farmers Clubs/JLGs. In general it has been seen that when contracts have been done by farmers with firms directly engaged in utilizing the produce the results have been positive. Therefore Contract farming legislation should ensure that only organizations directly involved in using the farmers’ raw material should be allowed to enter into these contracts.
What then are the principal recommendations of this paper? Tenant , marginal and small farmers need nimble and flexible organizations like producer groups in which they can work with larger producers as well, APMC Acts should facilitate, rather than block trade in agriculture, primary societies should be encouraged to think beyond supply of credit and sale of subsidized inputs, apex co-ops should intervene in markets for farmers economic gains, rather than intervene to stabilize prices when governments so desire .