Alternative policy initiatives in agricultural marketing
More than three-fifths of India’s population draws their livelihood from agriculture that adds just one-fifth to its GDP. There should be obvious serious concerns about efficient functioning of this sector both in terms of its output / productivity and its marketing. While output and productivity are supply side factors, markets provide an intermediate link between producers and final demand by consumers. Efficiently functioning markets add to welfare of producers as well as consumers. Interventions in domestic agricultural markets can affect the efficient allocation of resources negatively thus making domestic agricultural sector less competitive in international markets. This effect can get further magnified through interventions in the border trade policies. Efficient agricultural markets can also be a potent tool for poverty reduction.
Major issues and concerns
- Too many intermediaries resulting in high cost of goods and services
- Inadequate infrastructure for storage, sorting, grading or post-harvest management
- Private sector unwilling to invest in logistics or infrastructure under prevailing conditions
- Price setting mechanism not transparent
- Mandi staff ill-equipped and untrained
- Market information not easily accessible
- EC Act impedes free movement, storage and transport of produce
Alternate Marketing Systems
Indian producers are unable to realize optimal value from their produce and progress further due to fragmentation of land holdings and lack of grass-root level organizations. On the other hand, processors are not in a position to get quality raw material in right quantity.
Besides the share of producer in consumer price is abysmally low due to the presence of middlemen. To overcome these problems, direct marketing, contract farming, direct linkage with Retailers/ Processors/ Exporters and market oriented production are some of the approaches. Recently many initiatives have been taken by NABARD and other organizations to promote and involve Self Help Groups, Joint Liability Groups, Farmer clubs, Farmer Federations, SHG Federations, Producer organizations such as Producer Companies, Producer cooperatives, etc in direct marketing of the farmers’ produce for better price realization.
To promote direct interactions of producers with consumers in fresh produce, there have been farmers’ markets in India in the form of Apni Mandis in Punjab, Rythu Bazaars in Andhra Pradesh, Uzhavar Santhai in Tamil Nadu, and Shetkari Bazaar in Maharashtra, promoted by state agencies. Farmers’ markets have helped participating farmers to become aware of the products required by the markets and helped farmers to improve product quality and diversify their product portfolios, besides bringing about resource use maximization. However, farmers’ markets have not had a major impact on farm incomes as sales through this marketing channel are generally small, both in terms of number of the farmers participating and volumes of produce. The more significant govt. initiatives include Horticultural Producers’ Coop. Marketing & Processing Society (HOPCOMS – a cooperative) in Karnataka and SAFAL F&V project of National Dairy Development Board (NDDB) in Bangalore.
Producer Groups / Farmer Groups (PG / FG) – Producers’ Associations (PAs) – Farmer Common Service Centers (FCSCs)
Group Activity is more effective for the benefit of the members of the group than the individual efforts. Informally formed small groups called as self help groups have exhibited their strengths in various fields including agriculture, in improving financial conditions of the members. Farmer Common Service Centers (FCSCs) are conceptually small scale commercially viable entities owned by Producers’ Associations (PAs). The FCSCs will support 250-300 members, through Producer Groups / Farmer Groups of around 12-19 active members in each Producer Groups (PGs). Around 15-20 PGs in a village or a group of villages within the radius of 3-5 Kms.
Pledge Loan linked to Warehouse Development
Availability of finance against stored produce and improved knowledge on price risk management allows farmers and farmers’ organizations to obtain better price realization for their produce. In addition, trading through Electronic Commodity Exchange provides an alternative marketing channel, which increases potential for better price realization. With the amendment of the APMC Act in states, establishment of Electronic Spot Markets that allow online trading trough electronic commodity exchanges (outside APMCs and across state boundaries) have become possible. The three national commodities exchanges, namely, the National Commodity and Derivative Exchange Limited (NCDEX), the Multi Commodity Exchange Limited (MCX), and National Spot Exchange Limited (NSEL) are in the process of setting up systems that make this feasible. This provides the farmer with the choice of other marketing channels, which are lower in cost, transparent in processes, prices and quality assessment, provide assured payment and which enable farmers to store produce and take advantage of warehouse credit, futures markets and electronic spot exchanges.
The concept of E-trading or ‘Virtual Market’ is innovative and experimental. Virtual Markets for agricultural products are very much in their infancy but with new technological development, field results are undergoing significant revision and refinement. Various states have amended the APMC Act on the lines of the Model Act and the Rules under the Act provides for e-trading. States have already granted licenses to MCX and NCDEX for carrying out etrading activity. The e-trading system would enable producers, user organizations, electronic traders and existing traders to be able to offer product to the market and that a system would be in place that would enable buyers and sellers to broadcast buying needs and product requirements to one another. Under an electronic trading platform, there are possibilities for secured buying processes to be put in place and it is envisaged that traders would subscribe to the service and the cess income would cover the private management costs as well as provide an income stream for the State Government.
Farmers’ Markets were introduced with a view to eliminate the middlemen and arrange facilities for the farmers to sell their produce directly to the consumers at reasonable rates fixed every day. On account of the scheme, both the farmers and the consumers are benefited. Some examples of these channels are Apni Mandi, Rythu Bazars, and Uzhavar Sandies. These channels are mostly adopted in sales transactions of agricultural commodities like fruits, vegetables and flowers which are highly perishable. In this channel, the produce move quickly from farmers to consumers due to absence of middlemen. If farmers directly sell their produce to the consumers, it not only saves losses but also increases farmers’ share in the price paid by the consumer. There is need to promote more of Rythu Bazaars / Kisan Bazaars which allows farmers to directly sell their produce to consumers without intermediaries. Direct marketing by farmers is being encouraged as an innovative channel.
Supply / Value Chains
The fragmented marketing system and lack of infrastructure are the serious constraints and are acting as challenges against competitiveness for our commodities. In a globalised trade regime, it is essential to link the farmers with the markets with state-of-art infrastructure. This effective linkage can alone remove the constraints of logistics, quality maintenance and thus, compete with global products. Analysis of international market development scenario reveals that encouraging large scale integrated players to develop the supply chains in various commodities with latest technology infrastructure is the right approach suitable for Indian conditions. The existing system of fragmented handling of various supply chains should be converted into integrated handling systems with state-of-art infrastructure so as to ensure better realization to the farmers. Contract farming and supermarket procurement arrangements are two supply chain arrangements that are gaining ground amid active debate in India. Recent experience in India indicates that contract farming and supermarket procurement approaches will have to involve small-scale farmers in the medium term, because the farm structure obliges them to do so.