Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

Correcting the agri market

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Agriculture Infrastructure Fund

Mains level : Paper 3- Measures to achieve better price realisation for agri commodities.

The article analyses the highlights the importance of post harvest infrastructure for the better price realisation of agri-commodities. It also suggests the two areal which could help the farmers in this regard.

Purpose of Agriculture Infrastructure Fund

  • Creating post-harvest physical infrastructure is as important as the changes in the legal framework (like the recent ordinances).
  • The recently announced Rs 1 lakh crore Agriculture Infrastructure Fund (AIF) will be used over the next four years.
  • This fund will be used to build post-harvest storage and processing facilities.
  • NABARD will steer this initiative in association with the Ministry of Agriculture and Farmers Welfare, largely anchored at FPOs.
  • The creation of the AIF presumes that there is already large demand for storage facilities and other post harvest infrastructure.

 Reforms in 2 areas which could help farmers get better price realisation

1) Negotiable warehouse receipt

  • More and better storage facilities can help farmers avoid distress sellingimmediately after the harvest.
  • But small farmers cannot hold stocks for long as they have urgent cash needs to meet family expenditures.
  • Therefore, the value of the storage facilities at the FPO level could be enhanced by a negotiable warehouse receipt system.
  • FPOs can give an advance to farmers, say 75-80 per cent of the value of their produce at the current market price.

How NABARD can play an important role

  • Since NABARD is also responsible for the creation of 10,000 more FPOs, it can create a package that will help these outfits realise better prices
  • FPOs will need large working capital to give advances to farmers against their produce as collateral.
  • NABARD can ensure that FPOs get their working capital at interest rates of 4 to 7 per cent.
  • Currently, most FPOs get capital from microfinance institutions at rates ranging from 18-22 per cent per annum which is not economically viable unless the off-season prices are substantially higher than the prices at harvest time.

2)Improving Agri-futures markets

  • A vibrant futures market is a standard way of reducing risks in a market economy.
  • Several countries — be it China or the US — have agri-futures markets that are multiple times the size of those in India.

Way forward

  • 1) NABARD  should devise a compulsory module that trains FPOs to use the negotiable warehouse receipt system and navigate the realm of agri-futures to hedge their market risks.
  • 2) Government agencies dealing in commodity markets — the FCI, NAFED, State Trading Corporation (STC) — should increase their participation in agri-futures.
  • That is how China deepened its agri-futures markets.
  • 3) The banks that give loans to FPOs and traders should also participate in commodity futures as “re-insurers” for the healthy growth of agri-markets.
  • 4)  Government policy has to be more stable and market friendly.
  • In the past, it has been too restrictive and unpredictable.

Consider the question “Creating post-harvest physical infrastructure is as important as the changes in the legal framework. In light of this, highlight the importance of recently announced Agriculture Infrastructure Fund and suggest the measures to increase the price realisation of agri-products by farmers.” 

Conclusion

India needs to not only spatially integrate its agri-markets (one nation, one market) but also integrate them temporally — spot and futures markets have to converge. Only then will Indian farmers realise the best price for their produce and hedge market risks.

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