New agriculture law may not spell the end of commission agents
The last of a two-part series finds how farmers in Punjab depend on commission agents for credit
Though it is not procurement season and most mandis in Punjab wear a deserted look, Khanna, Asia’s largest grain market, is a hub of activity. Workers from Bihar and West Bengal sit in open sheds, sorting and cleaning mounds of wheat. Trucks trundle by, ferrying wheat, and hundreds of commission agents (arthiyas) are busy dealing with buyers and farmers.
The Centre has defended The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act on two principal counts — it provides greater choice to farmers and, more importantly, frees them from the clutches of commission agents. But many farmers in Punjab are unhappy about losing the services of commission agents who not only sell their produce — and charge a commission of 2.5 per cent on the sale value, — but also lend them money in times of need.
In Punjab, the procurement by the Food Corporation of India (FCI) and private companies at various mandis is always done through commission agents. Even at Adani Agri Logistics’ silo storage facilities, which touts the ability of farmers to sell directly without involving commission agents as one of its unique selling points, payments for wheat procured by the government have been routed through these agents for years.
The commission agent sorts, cleans, weighs and sells the produce the farmers bring to the mandis. The procuring agency pays the commission agent, who deducts 2.5 per cent of the amount, before handing over a cheque to the farmers. The government has often urged commission agents to transfer the entire minimum support price (MSP) to the farmer and then take payment for their services, but this practice is seldom followed.
Punjab’s Agricultural Produce Marketing Committee (APMC) Act states that the commission is to be paid by the buyers. But since the commission agent is responsible for both receiving and distributing the farmers’ money, there is little accountability on who ends up paying the commission.
Interestingly, commission agents are also the farmers’ credit support system. Even though interest rates on the loans they give range from 18 to 24 per cent, most farmers don’t mind paying it. Bahadur Singh, 62, a farmer from Sangrur, said, “Arthiyas help us with money whenever we are in need. They lend us money for seeds, farm operations and even for our children’s education. Will any big company or bank lend me money without any paperwork within a few hours’ notice?”
There are 27,000 licensed commission agents in Punjab. Each has a network of over a 100 farmers who hail from their own village and those in the neighbouring areas. The farmers sell through them and are financed by them.
Sanjeev Dhammi, a commission agent at Khanna, has been in the business for 30 years, while his family has been in it for 50 years. “The farmers we lend to have been our family acquaintances for generations. When a farmer approaches me for a loan, I give it without any paperwork or collateral. That’s because of the trust and mutual respect between us. The government wants to finish us off by ending mandis with this new law. It must realise that without our services, the procurement system would become a nightmare.”
While arthiyas like Dhammi play a crucial role in financing farmers, companies like Fairfax which has emerged as the biggest player in agricultural storage, have also been operating in this space. And by the looks of it, the new law may not have much of an impact on the activities or influence of either Fairfax or Dhammi.
The Fairfax-owned National Collateral Management Service (NCMS) provides credit to farmers in the postharvest season when there is a glut of produce in the market and, consequently, prices often fall. Farmers who want to hedge their bets on higher prices in the off-season a few months down the line, approach the NCMS warehouses and silos with their produce.
The NCMS, which has a tie-up with 68 banks, pledges the produce of the farmer with banks as collateral through which the farmer can avail loans of upto 70 per cent of its value. Banks ask NCMS for a warehouse receipt and the latter issues it after due diligence and checking the produce for quality. So the farmer not only gets access to institutional credit, but is also able to get a higher price for his produce as and when prices rise.
But the NCMS’S role is largely restricted to the post-harvest season. The farmer borrows most in the presowing season. With banks mostly lending to bigger farmers, the bulk of the 86 per cent of India’s farmers who are classified as small and marginal turn to commission agents like Dhammi.
Ravi Shankar, head of business operations at NCMS, says, “We are running a project in Kota and Sriganganagar where commission agents and farmers can sell directly to us. Commission agents are a single source for collecting the produce of hundreds of farmers. Big corporations don’t have the capability to go to every farmer and collect their produce. Even with the new law, commission agents will actually expand into newer private markets. Unless the government makes it easier for small and marginal farmers to get bank credit, they will continue to borrow from commission agents. The arthiyas are not going anywhere.”