22 December 2012

Remarks On Rural Credit For Globalising Farmers

I happened to be the chair for the technical session on 'Rural Credit for Globalising Farmers' at the 26th National Conference on Agricultural Marketing, organised by Indian Society of Agricultural Marketing (ISAM), Nagpur and Gokhale Institute of Politics and Economics (GIPE), Pune held at Yashanvantrao Chavan Academy of Development Administration (YASHADA), Pune, during 20-22 December 2012. The following are my remarks for the session.

Credit is an important requirement for the farmers, who are risk-taking entrepreneurs. This will help them take up usage of inputs or a technological innovation that they perceive or are made to perceive is beneficial for them. Of course, as an aside, one can state that many technological innovations (including the green revolution) are taken up because of a subsidy component that distorts the actual prices as well as perceptions. Besides, the mindless transfer of such technology meant for certain agro-climatic conditions or to certain cropping patterns to all scenarios may not be appropriate. 

Taking a clue from the Presidential address by Professor V. M. Rao, one may also add that the reaction to the food non-availability crisis in the mid 1960s was an emergency requirement; the danger was to have converted such an action to be part of the normal design. This manner of functioning was inefficient in the sense that it distorted prices but it was also iniquitous by focusing on some well-endowed regions. Unfortunately, its inappropriate application also had adverse implications for such well-endowed regions down the line.

Another point that I would like to stress to this august house is on some important but distinct connotations that the word 'market' can have. For instance, market is a place where the farmer (as also you and I) have the freedom and right to buy and sell.

We also at times imply by market to a state where the price is efficient. This second usage draws from the classic condition that in a market there are large number of buyers and sellers, and hence, none of them can influence the price to suit their own vested interest. Such a market clearing price at equilibrium is efficient and fair. 

A third and an increasingly important usage of the market in a globalising context is where efficiency is measured through higher margins (note the difference in the meaning of efficiency under an equilibrium price). It is this latter logic that is invoked in many policy debates and decisions including the FDI in retail.

One has no problems with any of the meanings ascribed to the word, but it is problematic if one uses this word interchangeably. In particular, the third usage is argued to give a fair price as also freedom and space to transact. We should be clear about these distinctions and use them appropriately. 

Having said these, one would now get back to the presentations made at Technical session 1 on 'Rural Credit for Globalising Farmers' and some recommendation that emanate out of these deliberations. Nine papers were presented. The presentations are:

  • 'Warehousing Receipt Finance of Agriculture Commodities in Andhra Pradesh' by P. Kanaka Durga (Anil Kumar and Aldas Janaiah)
  • 'A Comparative Study of Cultivating Rose in Open Field and Greenhouse as Cut Flowers - An Empirical Study' by (Sujata Majumdar and) Debabrata Lahiri
  • 'Wheat Growers in Ludhiana District of Punjab - Asset Positions, Credit Requirements and its Sources' by Veena Goel (and Gurpreet Kaur)
  • 'Development of Agricultral Marketing in India' by S. K. Dhage
  • 'Measuring Inclusiveness of Agriculture Credit Flow in India' by Nirupam Mehrotra
  • 'Agricultural Credit System in the Tribal Belt of Odisha: The Case of Maize Production' by Brajaraja Mishra
  • 'Emerging Trends and Policy Options in Agriculture - Production, Marketing and Credit' by Samir Samantara
  • 'Rural Credit for Globalizing Farmers' by Sangeet Kumar
  • 'Weak Penetration of Institutional Credit and Farmers' Suicides in Maharashtra' by Dnyandev Talule

From the above nine presentation, five were based on primary field based work that enriched the deliberations because of the variety of contexts (warehousing receipts, rose cultivation, wheat growers, tribal farmers cultivating maize, and farmers' suicides) as well as their spread across the country (Andhra Pradesh, West Bengal, Punjab, Odisha and Maharashtra), two were based on secondary data on credit raising policy issues with one of them looking into some measurement issues of inequality, and two were written in the style of general essays.

Some recommendations coming from the presentations as also the deliberations are as follows:

  • The farmers usage of warehouse storage facility is constrained by a legitimate fear that the quality of the stored produce would deteriorate. This calls for improving the quality of management, quality of service, efficiency of handling and safety of the stored goods. 
  • Uncertainty in prices and the risks therein brought into discussion a possible reliance on hedging through futures market but it also raised further risks of transactions through this virtual medium that has nothing to do with physical transactions.
  • Medium and large farmers appear to be primarily accessing the storage services whereas the need for safe and efficient storing to escape distressed sale of their produce is greater for the small and marginal farmers. Efforts need to be made to make storage viable for the latter.
  • Unlike greenhouses farmers, the open field farmers producing cut rose did not have access to formal credit. The banks in this region may come forward to give them loans for setting up greenhouse structures and also for producing under open field conditions.
  • The study of wheat growers indicate that small and marginal farmers are constrained in the production process (as they have to rely on the market for renting out farm machinery and equipment increasing the cost of production) and selling of produce (during lean season at a lower price). This reiterates our earlier point of the greater relevance of warehouse facilities for small and marginal farmers. It also points out that they may need greater operational credit because of higher cost of production. Its feasibility will depend on the returns from cultivation for these farmers.
  • Interlocking of credit with input and output markets had adverse implications on tribal farmers' income. Alternative forms of agriculture that could reduce dependence on market-based inputs while not compromising on the production (low external input sustainable agriculture - LEISA) and facilitate marketing of the same at a premium price should be explored.
  • Farmers' suicides are a failure of hope as also a symptom of the crisis in Indian agriculture. There seems to be a greater debt burden for such households when compared with non-suicide households. The debt burden for such households also seems to be higher from non-institutional sources. This is worrying because the study conducted in early 2012 (which is also a drought year) seems to have negated the benefits from debt-waiver and increased the riskiness with the negative returns. It does raise the question on usage of technology-centric (Bt seeds) and financial-centric (debt waiver) solutions while not giving much focus on the real world problem (livelihood crisis). To ensure success of debt waiver there should have been focus on improving incomes while not increasing the risks, particularly in a bad year. This reiterates the relevance of LEISA indicated above.
  • The failure of seeds due to spuriousness or any other reason calls for compensating the farmers' income and not just the seed cost by the supplier.
  • Improving institutional access to credit in a timely manner and even clubbing the same with non-credit inputs could be an alternative. Formation of Self-help Groups (SHGs) and linking them to banks could also help. In short, there is a case for promotion of groups of borrowers (produce based, service based, caste based, village based, and cluster based that are either vertically or horizontally integrated).
  • There is also a case to take credit beyond production and link it with post-harvest operations like sorting, grading, packaging and marketing and this can be made to groups, as indicated above.
  • Some of the eastern states share of agricultural credit is lower than their share of area under cultivation or irrigation. These are also the states where the small and marginal farmers get a lower share of credit compared to their share of area. If focusing on East is a concern for policy planners to increase agricultural production then the credit disbursement in these areas need to change. Some thought also needs to be given on the appropriate technology.

(This is a slightly revised version of the presentation made at the plenary session. While acknowledging that I used my liberty as a chair of the session to represent the views indicated at the session and take responsibility for the same. However, if something has been left out, it was not intentional.  I am thankful to Abhay Tilak, Rapporteur for the session, for sharing his inputs and the paper presenters and all those present there for a lively discussion.)

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