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#39;Long term reform measures an opportunity to strengthen agricultural commodity supply chains and marketing system#39;

May 19
15:04 2020

Tulsi Lingareddy

Indian farm sector is one of the worst affected sectors by the indispensable nationwide lockdown causing disruptions in the agricultural supply chain. While the government has been taking every possible measure to help, the highly unorganised and inherently vulnerable farm sector is still struggling to sell the rabi foodgrains and fruits & vegetables due to the supply chain disruptions. Under such a scenario, a notable success of direct farm-to-kitchen models such as the one facilitated by the Maharashtra State Agricultural Marketing Board (MSAMB) and State Agriculture Department evidently demonstrates the urgent need to ensure the presence of farmers in agricultural commodity supply chains for their success.

As the country is gearing up to exit the lockdown, there is a potential opportunity to strengthen the agricultural marketing system implementing the long-awaited reforms while ensuring the necessary infrastructure and institutional mechanisms in place. In order to achieve this, certain short-term, as well as medium-term strategies, need to be devised and implemented effectively. In the short term, the recent government initiatives such as declaring Warehousing Development and Regulation Authority (WDRA) notified warehouses as deemed agricultural markets and permitting direct sale for farm produce restricting the jurisdiction of APMCs for three months are very welcome steps in the right direction and need to be reinforced and extended across the country.

The most crucial step is to enable the farmers’ holding capacity of foodgrains till they receive remunerative prices by ensuring adequate availability of regulated warehouses and facilitating immediate access to institutional finance through electronic negotiable warehouse receipts (eNWRs). The total warehousing capacity in the country is much lower at about 160 million tonnes (mt), against the average production of 250 mt of cereals, 21 mt of pulses and 20 mt of oilseeds in the last five years. Of the 160 mt, only about 5 percent is registered with WDRA and eligible for finance through eNWRs. Hence, there is an urgent need to bring all the existing warehouses under WDRA regulation and then the creation of additional regulated warehouses to meet the requirement.

In this regard, the Union Budget FY21 has already proposed for the creation of such warehouses at taluk or block level, particularly encouraging the self-help groups. Immediate steps to implement these proposals will not only fulfil the objective of creating adequate regulated warehousing but also help in creation of job opportunities in rural areas. With reverse migration to rural areas in many states following the lockdown, it may be the right time and opportunity to initiate the construction of such warehouses across the country.

In order to ensure access to institutional finance through eNWRs, banks and financial institutions can set up portable loan desks near the warehouses to facilitate digital financing process based on warehouse receipts. Further, such loans can be provided at subsidised interest rate with special incentives to small and marginal farmers. This will not only eliminate distress sale by the farmers but also reduces the need for price support and procurement operations thereby reducing the need for government’s intervention and resultant fiscal burden.

In the medium term, once adequate regulated warehousing capacity is created and connected across the country, the real-time information on the supply scenario of agricultural commodities in the country will be available helping the policymakers and various stakeholders in decision making to ensure adequate availability for domestic consumption as well as for import or export depending on the deficit or surplus scenarios. Further, such transparent and efficient physical market will augur well with the efficient functioning of derivatives markets thereby facilitating farmers and other stakeholders in agricultural commodity value chain to hedge their price risks. The efficient agricultural derivatives markets can provide effective market-based price risk management instruments to replace market interventions practices.

The next step is to establish quality testing and assaying facilities at all the regulated warehouses and mandis to issue quality certificate for the produce, which the farmer can upload using the farmer/FPOs trading module, recently initiated with eNAM platform. This will help the buyer with authentication of the quality of the produce electronically thereby facilitating online trading process.

Another important measure is to ensure the availability of suitable grading and standardisation facilities at all the designated markets and mandis. At present, farmers sell their produce ungraded and get less price even for superior grades. Creation of grading and standardisation facilities will add value to the farm output fetching a better price for the farmer while providing additional employment opportunities for rural labourers.

Such a scenario can, in turn, create potential opportunities for the manufacturing sector, especially for the start-ups, to innovate and develop affordable machinery customised for grading & standardisation and quality testing of various farm commodities produced locally. Furthermore, manufacturing (automobile) sector can also take up the challenge and provide innovative and affordable cold storage and refrigerated transport options in the form of portable refrigerated trucks or trolleys attachable to tractors thereby preventing the wastage of perishable farm products like fruits and vegetables. A rental market for such farm machinery can be created through FPOs and also engaging rural non-farm workforce for making the use of such machinery affordable for small and marginal farmers.

While the Budget FY21 has proposed for the introduction of special train ‘Kisan Rail’ for the transport of perishables, availability of affordable refrigerated road transport system is essential to ensure the reach of perishables to the proposed Kisan Rail without spoiling from their remote production centres, eliminating the wastage significantly. It is estimated that over 15 percent of fruits and vegetables produced in the country are wasted every year due to lack of adequate cold storage facilities. This is not just a loss of revenue for farmers, it is, more importantly, the loss of scarce natural resources utilised for crop production.

Thus, this is a potential opportunity to engage farmers in agricultural commodities supply chains and strengthen the marketing system in the country with necessary measures and institutional mechanisms in place aiming for the overall development of rural areas augmenting farm as well as non-farm employment opportunities.

The author is Senior Manager at MCX.

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