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India needs robust agri marketing reforms

FPOs should be used as a market mechanism to deliver MSP as well as to leverage the price deficiency payments to farmers

India needs robust agri marketing reforms

India needs robust agri marketing reforms

Unless the growing FPO movement is able to usher in an era of guaranteeing an assured and profitable price to farmers, it will end up as another intermediary layer in the existing supply chain

Every other article I read about the agrarian crisis, especially after the repeal of the three contentious farm laws, is talking of increasing crop productivity and reducing post-harvest losses as a way to increase farm incomes. If I look back, at least for the past three decades, the thinking hasn't changed. Despite the farm crisis worsening over the period, the policy prescription remains the same.

With the passage of time, the focus shifts to newer challenges agriculture is faced with like the climate crisis ahead but still an assured income for farmers doesn't seem to be anywhere on the horizon. In fact, most writers, including some of the well-known policy makers, economists, academicians, as well as corporate activists, seems averse to the idea of according a legal sanctity to Minimum Support Price (MSP). Barring a few saner voices, leaving farmers to the same exploitative market forces that have devastated farm communities in the rich developed countries, is the predominant dictum.

Well, it's therefore quite clear. The dominant economic thinking on how to bail out the aggrieved farming community from the clutches of the demand supply conundrum that has usurped farm incomes everywhere in the world hasn't changed. It only shows either the so called experts are not well read, or they fear the tyranny of long distance travel. If only they could venture out into the villages, spend time with farmers, and if possible stay with them, I am sure their pre-fixed economic thinking will turn upside down and we will have more realistic analysis and suggestions. It is time to move beyond what has been said in the textbooks, and find out why farming continues to be a loss making enterprise.

Nevertheless, simply bypassing the extra effort to reach out and learn from farmers, the focus has shifted to new players in the supply chain – Farmer Producer Companies (FPOs) and Agritech Startups. To an average consumer in the cities the home delivery of food products 'straight from the farm' generates confidence in the role of new technologies and farmers collectives, and while they get fresh produce they believe farmers too are getting a higher price. Not sure, if that is really true. Here let me explain about FPOs. More and more the talk of collectively leveraging their production and marketing strengths to enhance farmers income, the more I realise that while everyone claims to provide farmers with a higher price but what constitutes a 'higher price' has not been defined.

Take moong dal as an example. While the MSP for moong is roughly Rs 72 per kg, the price farmers get in the market oscillates between Rs 50 to Rs 55. If an FPO provides a price of Rs 58 or Rs 60 per kg to farmers, it claims it is providing a 'higher price' to growers. Technically speaking they are right, but the farmer in reality is being underpaid. To justify this, FPOs say farmers are also being invited to be a shareholder in the company. But that's not a fair argument considering that a shareholder in any business enterprise does not have to, by way of qualification; forego part of his rightful income. For any successful social business enterprise, and considering the nation-wide spread of FPOs, and with lot of expectations hanging on it for bringing in the much wanted marketing reforms, I am hoping that an assured price by way of an MSP at least becomes the hallmark of the growing movement.

The tragedy is that in any agri supply chain a farmer is the one who works the hardest and that too in harsh environments, and yet is the least paid; often not even covering the cost of production. In much of the literature on FPOs that I have come across higher incomes for small farmers is always talked about, but I haven't seen (and correct me if I am wrong) many case studies that tells us how a producer company has ensured that farmers get at least a minimum assured price on the lines of MSP or higher. There are some examples where farmers have been paid 50 to 55 per cent of the end consumer price. This is encouraging indeed, but the catch is that if the end consumer price remains low as is generally the case, farmers remain at the receiving end, invariably producing food at a loss.

There are a few FPOs operating in the organic space that provide MSP to growers in certain commodities, but not all. Going even a step further and in the right direction, it is heartening to learn that a small FPO in the Wayanad district in Kerala, called Thirunelly Agri Producer Company Ltd (TAPCo), operating with 86 farmers cultivating traditional rice varieties, provides farmers a price close to MSP plus 50 per cent profit as per the Swaminathan Commission's recommendations. Set up in 2017, and reaching a turnover of Rs 65-lakh this year, TAPCo even provides deficiency payments to farmers.

Against the MSP of Rs 25 per kg that prevails in Kerala (higher than the price announced by the Centre), TAPCo pays a price of Rs 29 per kg to farmers cultivating red rice. Says Rajesh Krishnan, CEO: "For aromatic rice, which is grown by only one community, we pay a price of Rs 50 per kg. For medicinal rice, in which case the yields are very low, we pay a still higher price of Rs 80 per kg." Regarding deficiency payments, he explained that this year they were unable to purchase the entire quantity of red rice, and therefore urged them to sell it in the government procurement system, and paid them the price difference.

This makes me wonder why FPOs can't be used as a market mechanism to deliver MSP as well as to leverage the price deficiency payments to farmers. For which, FPOs need to be provided with adequate finances to cover up for the deficiency payments. After all, making agriculture economically viable should be what the FPOs should be striving for. For this, the lexicon has to change. A higher price should mean a price higher than MSP. Even if this causes a disruption in the supply chain, so be it. After all, we need robust marketing reforms that can augur well for the beleaguered farming community, pulling them out of the continuing grave crisis, arising primarily from being denied a living income all these years.

Simply put, unless the growing FPO movement is able to usher in an era of guaranteeing an assured and profitable price to farmers, it will end up as another intermediary layer in the existing supply chain. Warns Rajesh Krishnan: "Too much is being said about the collective bargaining power of FPOs. But be careful, it can also collectivise poverty."

(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)

Devinder Sharma
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