A majority of farmers in India unload their produce to local private traders and input dealers. They don’t even bring their harvest to the mandis, and don’t sell it to government agencies / cooperatives or processors who can offer better prices.
The recently published “Some Aspects of Farming in India” report by the National Sample Survey Office (NSSO) shows that nearly 85% of coconut farmers sell their produce to retailers and resellers in their immediate vicinity. These ratios are well above 50 percent in most crops.
In some crops, however, a significant portion of farmers also sell mandis, with proportions ranging from 35 percent in wheat to 45-48 percent in rapeseed / mustard, soybeans, bajra, chana and arhar. These farmers probably have greater bargaining power, compared to those who have little choice but to sell their entire crop to the local arhatiya or the commodity aggregator, who can then sell in the mandis. .
The ONSS data on crop sales by farmers is based on the results of its latest 70th survey, covering two halves of the agricultural year from July 2012 to June 2013.
The survey data also provides a possible reason why most farmers do not have the opportunity to bring their harvest to the mandis, where the presence of more buyers could arguably lead to better price discovery. 87.3% of farmers reported purchasing their fertilizers from local traders and input dealers between July and December 2012. This figure was higher, at 89.5%, for January-June 2013.
Similar levels of dependence on village retailers were reported by farmers for purchasing plant protection chemicals (94.5-96.5%) and feed concentrates (82 , 5 to 83.9%). On the other hand, only 11% of farmers bought their fertilizers from government or cooperative organizations in July-December 2012, while being even lower, at 9.8%, for January-June 2013. The corresponding proportions were also low at 4.1% and 2.4% respectively for plant protection chemicals and 4% and 4.4% for concentrates.
The ONSS report does not provide a breakdown by source similar to agricultural credit. But it is very likely that local traders are also the main providers of credit for seasonal farming operations to a majority of farmers. Such loans, due to the abysmal penetration of formal credit, whether through commercial banks or cooperatives, are generally conditioned on farmers entrusting their harvested produce to lenders, who are also suppliers and traders of ‘inputs. This control over the sale of the farmer’s produce as well as over input purchasing decisions, linked to the supply of credit, is what makes the village banya such a lasting powerful institution.
The natural consequence of all this is that few farmers sell their products to government agencies / cooperatives, which would ensure the payment of a minimum support price (MSP). The NSSO survey, in fact, reveals that even in rice and wheat – where the MSP mechanism is supposed to work best – barely a tenth of farmers reported selling to state / cooperative institutions. Almost a third of rice farmers actually offloaded their harvest to local traders and input dealers, who may well have received the MSP. According to the survey, 32.2 percent of rice farmers and 39.2 percent of wheat farmers were “aware of PSM” – the percentages were much lower in other crops – but that alone would obviously be little help.
Interestingly, even in Punjab – where farmers are seen as a powerful ‘lobby’ – only 27 percent of paddy farmers and 39 percent of wheat farmers reported selling to cooperatives and government agencies. . The highest percentage of farmers (57 for paddy and 50.5 for wheat) sold their harvest to mandi-level traders. The latter are largely commission agents or intermediaries between farmers and buyers, mainly made up of state agencies.
The only exception, however, is sugar cane, where more than two-thirds of farmers directly supply government agencies / cooperatives (sugar cane companies) or millers. This, in turn, has to do with the perishable nature of the harvest. The cane, once harvested, must be processed within about 24 hours, otherwise it will experience rapid depletion of sucrose content. It is therefore in the interest of the mills to contract directly with the producers rather than through intermediaries. The government is also in a better position to enforce the MSP for cane, unlike other crops where there is no guarantee that the farmer is even the ultimate seller.
Worse, the Farm Commodity Market Committee or APMC laws enacted by various states prevent processors from sourcing directly from farmers – even if they were getting a better price than selling to middlemen.
What is the national agricultural market?
Can the National Agricultural Market (NAM) – the online trading portal for agricultural products launched today by Prime Minister Narendra Modi – make a difference for farmers?
At first glance, yes. Current state-level APMC laws allow the first sale of crops – after harvest by farmers – to take place only at regulated market prices or mandis. It therefore restricts the universe of farmers’ buyers to only traders authorized to operate in the mandi under the jurisdiction of the concerned APMC. Even traders must obtain separate licenses to operate in different mandis within the same state. The NAM would essentially be a common electronic platform allowing farmers to sell their crops to buyers anywhere in the country and vice versa. The benefits for buyers – whether large retailers, processors or exporters – are obvious, as they can log into the platform and source from any mandi in India that is connected to it. They do not need to be physically present or depend on intermediaries with business licenses in these mandis.
But with farmers, it might not be that simple. Most farmers do not bring their harvest to the mandis; they sell to the local arhatiya or produce an aggregator even before that. Even those who do take would offer one or two carts at most – barely enough to excite distant buyers bidding online. To this extent, the possibilities for better price discovery across a wider universe of buyers, both local and online, are quite limited for them.
However, farmers can still benefit if they find ways to bundle their produce on their own, bypassing arhatiya and even local mandi in the process. This is where producer organizations and farmer cooperatives can play a role, facilitating the aggregation and creation of volumes that are intrinsic to the success of any ambitious virtual market experiment.