SOLUTIONS TO EASE RURAL DISTRESS: INDUSTRY STATUS FOR AGRI OR CONTRACT FARMING OR FPOs?

Farmer Producer Organisations (FPOs) was first introduced in the year 2011-2012. The process of implementation of this initiative has been slow and steady, mainly because this model is based on the trust factor (building one takes time). While trust factor is the key in its formation, factors like governance, skill set along with trust are vital for FPOs to function smoothly. But can FPOs alone address the distress among farmers? This was discussed during a webinar ‘Rural distress, the government doles and Agri finance’ which was organised by SIES and Free Press Journal in association with NSE, NCDEX Investor (Client) Protection Fund Trust, and East-West Seed. The panellists for the session were (in alphabetical order) Kavita Jha, AVP, NCDEX; Suhas Joshi, Head-Sustainability and Business Stewardship, Bayer South Asia; Arun Raste, Executive Director, NDDB; and P V S Suryakumar, Deputy Managing Director, NABARD. The session was moderated by RN Bhaskar, Consulting Editor, Free Press Journal; and the welcome address was delivered by Dr Vaneeta Raney, head, BMM at SIES College.

Rural distress: What it means for India

Kavita Jha, AVP, NCDEX: Agriculture has been at the forefront in the Indian government’s agenda. The government is on the mission to double the farmers’ income. The intent of the government is right but the way policies are executed need to be tweaked.

Agriculture contributes 14 per cent to our GDP. The sector employs half of India’s working population which in itself is a sign of distress. It has to be noted that compared to the rest of the world, the contribution of agriculture to the Indian GDP is double. The global average is 6.4 per cent.

Today, agriculture is repositioned as one of the sectors that will lead to growth in the economy. During the COVID-19 times, there have been a lot of changes and ordinances (scrapping of the Essential Commodities Act, APMCs) that have come into place. However, it remains to be seen how these are executed. These steps are in the right direction.

Suhas Joshi, Head-Sustainability and Business Stewardship, Bayer South Asia:

Around 3,00,000 farmers have committed suicide in the last one-two decades. The country mobilised its complete machinery to curtail COVID-19 crisis, at a time when the casualty numbers were just a few hundred. If the government had put the same effort to address farmers’ distress, the situation would have been different today.

A crisis like farm distress does not develop overnight. There are two reasons for the crisis getting out of hand— lack of timely intervention and not realising the severity of the issue. This made it difficult to reverse or cure the situation. So, superficial measures like farmer loan waiver will not help.

P V S Suryakumar, Deputy Managing

Director, NABARD: India has the highest gross cropped area — 195 million hectares. We have grown in production from less than 50 million tonnes in the 1960s to 295 million tonnes (today). Now, we are going to touch 300 million tonnes. This is a remarkable development since our Independence (1947). A programme like Garib Kalyan Yojana was possible because there is a huge stock of grains in the country. We have achieved a lot. But there are no doubt pain points — malnutrition in the system, food wastage, issue of marketing among others.

Arun Raste, Executive Director,

NDDB: As per the census of 1951 and 2011, the population in the rural areas tripled from 29.81 crore (in 1957) to 83 crore (in 2011). However, the share of people in rural India went down from 82 per cent to 69 per cent. In absolute terms, the number of people in rural areas increased but in percentage terms, the cities bore the brunt.

As per the socio-economic survey of 2015, only 30 per cent of the rural households are dependent on cultivation and 51 per cent are dependent on casual or manual labour. It is a myth if you say the rural economy is based on agriculture. About 31 per cent (poorest of poorest) who earn less than Rs 5,000 a month are from this (casual labour ) segment. While the contribution of agriculture to GDP is 16 per cent, it employs 44 per cent of the rural households. This is very skewed and increases poverty.

As per the National sample survey of 2003, 40 per cent farmers want to leave farming and get into another form of activity. In 2014, there was a repeat survey and the situation has worsened. The younger generations of the farming community want to enter other professions (as they feel agriculture is not a feasible profession). If this persists for the next 20 years, there will be no farmer left and there will be no grain in the country. Unless of course, people from urban India migrate to villages.

In terms of non-farming rural areas, 30 per cent of the farmers that are moving out of farming are getting into construction because they are unskilled. This population is out of the social security bracket. There is no skill mapping or training for people who are shifting from agriculture to other sectors.

Industry status to farming or Contract farming

Suhas Joshi: Industrial status to farming is a good concept, but politically it will be a hot potato. Here I am talking about 50 per cent of the population involved in non-remunerative agriculture — many of them holding less than one or two hectares of land.

If you talk about industry status for agriculture, then it means some claim on the land. It means it has to be transferred — formally or informally, temporarily or on a long-term basis — to the corporate or industry that is managing this activity. In this political situation, it is going to be very difficult to manage this transition at least for the next 10-15 years.

P V S Suryakumar: The ordinance

that came into force recently

makes contract farming more doable than what it was earlier. Contract farming did not work in the past as one party was cheating the other, and other reasons. Thus, the government put a caveat for some activities. Contract farming cannot be limited to a particular type of crop.

Private sector thrives when farmers make money and farmers make money when the private sector makes money. Without the private sector improving efficiency, farmers cannot make money. If this mantra is used, contract farming will work big time.

Suhas Joshi: Bayer runs contract farming with 5 lakh farmers every year. We deal in (patented) proprietary commodities. In this case, a farmer is not allowed to sell outside the contract. When these farmers cannot get a price arbitrage (because the crop output is proprietary) then this type of contract farming is easy to run and implement. Thus, you are not depending on paper but market forces.

In the case of contract farming, it looks perfect on paper. But the laws are not enforceable when it comes to farmers. Despite having a contract, trying to enforce it on the farmers is almost impossible. At times, farmers sell outside the contract and the companies end up with losses.

PVS Suryakumar: At times it works when every aspect of the ecosystem is looked at. It is about the way one is looking at contract farming.

Can FPOs bring about change in agriculture

Suhas Joshi: An FPO fails because there is a lack of skill, lack of value addition and governance issues.

P V S Suryakumar: FPO is a new kid on the block. It needs time and effort to grow. It depends on many factors to grow — primarily trust. It takes a while for a new intervention to work. So, it is too soon to write off FPOs. So, NABARD feels FPOs should be given some more time.

One needs to understand that it is not very easy for farmers in a system like ours, to come and join an FPO.

The working of FPOs depends on how coherent the group is. The group of FPOs that are above political party afflictions, caste politics and other things, then most of them are successful. It is not just about making profits but making better margins.

Arun Raste: Farmers do not have the wherewithal to stand up against anybody (who is exploiting them). We need an aggregator who can take a risk for these farmers or give them working capital (till the time these aggregators can hold the produce on behalf of the farmers in the warehouse and sell it at a later date at a fair price). We can democratise the role of middlemen through an FPO. If you can fund an FPO and make him do the job of a middlemen/ aggregator (that is holding the produce until you get a fair price), it will be helpful.

An aggregator should come with a risk-bearing capacity. Unless we do not build that, FPOs will not be able to survive.

Kavita Jha: Contract farming will be a slow process in taking the whole sector to the next level. But if an FPO follows a corporate model, things will take off. Stronger FPOs have the potential to take the sector to the next level.

If contract farming or industry status is done through an FPO, things will be much smoother compared to getting into an agreement with individual farmers.

From the NCDEX’s perspective, we have a separate set-up for FPOs. We started this project about two years ago. On the exchange itself, we brought about changes like margin waivers for all FPOs ready to park their produce with us; ready to deliver their produce; and others. Apart from this, we are educating farmers to use financial products to safeguard themselves from price risk.

The government should intervene and look at options as an effective tool to help farmers and to lock in prices. This will help them to take care of the price risk with a fixed price.

Looking forward

Suhas Joshi: To reverse farm distress, there is a need to take systematic, integrated and comprehensive measures that will address this chronic situation. This is the only way to address it.

Kavita Jha: There is a lot of impetus given to digitalisation in the agriculture ecosystem. The other aspect that needs to be looked at is demand creation. The farmers are suffering on both fronts — when farm output drops and also when it increases. There is a need to work on the supply and demand side.

Post-harvest arrangements need to be robust or revamped. There is a need to equip farmers on the digital front.

The government is the largest buyer for agriculture commodities. We are educating the government (instead of increasing MSPs) to come to our platform and hedge.

Arun Raste: In the case of tenancy issue, some steps need to be taken and they are: Assess the number of tenant farmers

in the country. This will be relatively huge.

Institutionalising the effect: First is the tenancy contract and then is farmer contract

FPO is a very good notion. We run some of the biggest FPOs (NDDB subsidiaries are connected to them). It is different in the case of cash crops when you get paid everyday or in regular intervals, and the product is homogeneous and the market is defined. This is not possible in non-cash crops. I don’t know if contract farming

and FPOs will go hand-in-hand going forward. The question is will big corporates or private players step in to ensure that contract farming will be successful. At present, it is a pipe dream about FPO and contract farming. In the future, FPO might succeed.