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‘Farmers must grow their pricing power’

Rajalakshmi Nirmal | Updated on January 15, 2018 Published on November 13, 2016

Farmers must learn to manage producer organisations. e-NAM must be a multi-layer pyramid that caters to national and local needs





Since its launch in April, the electronic National Agriculture Market (e-NAM) has covered over 250 markets. However, most of them are at a nascent stage and grappling with operational issues. R Ramaseshan, Vice-Chairman, Rashtriya eMarket Services, and Advisor to NCDEX, spoke to BusinessLine on the challenges in building a national-level market for agri commodities and how to address them. Excerpts from the interview:

The whole concept of having a single market for the whole country, is it workable?

I will say, both yes and no. It is desirable because, in any case, goods today move from one part of the country to the other, say, the turmeric of Nizamabad or the cotton of Adoni goes all over the country, and the same is the case with many other commodities. So, if there is a national-level market, the price formation will be much more efficient. There is no doubt about that. But at the same time, you also have commodities which are either restricted to the same location or you have certain varieties which are local.

So, a national platform would certainly benefit commodities that command national-level consumption. At the same time, it is like a pyramid, you need to have local markets for catering to local demand and what gets thrown from the local market then goes into the regional and national market, so, it has to function across the spectrum of the marketing chain. That’s why I am saying it is both yes and no.

What should the initial steps be to establish a good framework for a national-level agriculture market?

The first and foremost thing to realise is that this is not a technology or software product. Technology is an enabler, a means to an end. When you are building a national-level market, you need to ensure competition comes in and the market functions efficiently. You also need to ensure there is quality control and everyone trusts that mechanism. So, there are lots of bits and pieces which are non-technology related. Technology is important, it is what connects all these pieces together, but if we, in the first place, don’t have the pieces, the technology can’t work.

At the same time, you also need to understand that it is not about displacing one set of people with technology, it doesn’t work that way…

I see that you are referring to the Centre’s intention to remove the various intermediaries in the chain. Why are you saying it is not feasible?

When I was a kid, my mom used to buy dal for the entire year at once and store it. She used to do it at the peak arrival time immediately after the harvest, because it used to be cheap that time. All agriculture commodities have a similar pattern — the arrival is limited to a few months but gets consumed for 12 months; so someone has to store it. My mom was storing at the household level. But today you walk across to Food World or Reliance, and pick up a packet of dal, — this is possible only because someone is storing it. So you can’t do away with the so-called middlemen. To store these commodities, someone will have to give you the space and someone will have to incur the cost for warehousing. So essentially what I mean to say is that middlemen play a very important role. The marketing chain has got inefficiencies, not necessarily because of the number of people or the length of the chain, but because of various other factors. So, we have to only see how to make the marketing chain efficient.

In the electronic National Agriculture Market too, the farmer doesn’t have the pricing power. How do we address this?

There are two important reasons for this. First, the farmer in the Indian context is an extremely dispersed entity owning two/three/five acres of land and does not have the pricing power. And, secondly, the farmer doesn’t have the holding power. He wants to sell his produce as quickly as possible and clear his debts. He doesn’t have the finances to hold his produce in a warehouse. So, unless you change this dynamics, the farmer will continue to be in trouble.

The first one is very difficult to change because India inherently has got small and marginal farmers and unless the service sector sucks people out of it, it is not going to happen.

You can try to change the second situation partially by giving the farmer commodity-based loans so he can hold his stock for a good price later… these are the issues, you have to see how you can change the market structure.

Let’s take a rough example. If the price of dal at the time of harvest is, say, ₹40/kg and in August it is going to be ₹70/kg because it is no longer available; so this ₹30 is essentially money that is a combination of storage, transport, excess demand and less supply.

So, if a farmer can hold on to it for three months, and take the ₹30 for himself, it is fantastic. So, these are the combinations we must look at to see if the farmer gets more money.

We hear that farmer producer organisations can play an effective role in helping farmers realise better profits. But what do these entities lack now?

Bringing farmers together is a good concept. But farmers coming together per se does not mean that there will be business. Unless farmers know how to manage the farmer producer organisations (FPOs), it is not really going to take off. It’s not a question of five-six FPOs coming together with ₹500 each to start a company…the easiest thing is to incorporate an FPO as a company but the most difficult thing is to make it work.

How do you inculcate business sense in the farmer so that he is able to run a profitable enterprise — that is where the challenge lies. It is not a question of giving some subsidy to start an FPO but giving farmers managerial talent.

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