The Hindu Business Line : Broadband versus narrow elitism

Farming and farm-related activities are exposed to high risks and low incomes. By contrast, easy profits characterise a major part of the commerce that underpins the rural economy. In the era of broadband, there are profitable relationships set in a competitive marketplace, but there should be no coercive economic rights, which will lead to economic wrongs, says G. Ramachandran.

Choupal Saagar, ITC's mall at Sehore near Bhopal in Madhya Pradesh... Effective ICT initiatives enable farmers to embrace modernity, autonomy and prosperity.

VESTED interests and intermediaries in India's rural outback have a history of earning trading profits from the unvested by undermining the structure and magnitude of rewards accruing to the unvested farmers. Vested interests also gain from constricting the economic and social scope of rural livelihoods.

Therefore, farming incomes derived from rural enterprise, resourcefulness and risk-taking are suppressed while trading profits are expanded. Recent empirical data support the hypothesis that trading profits are disproportionately high and farming incomes are disproportionately low after reckoning with the deployment of resources and the risks borne by traders and farmers.

Farming and farm-related activities are exposed to high risks and low incomes. By contrast, easy profits characterise a major part of the commerce that underpins the rural economy. Such commerce includes the channels for farm inputs and the markets pertinent to farm output.

The structure and magnitude of rewards in the rural economy have been so undermined that innumerable generations of intermediaries have regarded easy profits as their perpetual right and have somehow vested themselves with the right to coercively enforce the status quo in their favour.

Therefore, it is not surprising that soybean traders have struck work indefinitely in Madhya Pradesh, the madhya (centre or hub) of India's soybean industry (Business Line, December 17). Soybean trading has been brought to a halt because traders are protesting against transactions effected by farmers through the electronic markets (e-choupal) established by ITC, an agro-business company. It is a pity that the traders have chosen to protest against the freedom and fundamental rights of other citizens.

Lifting rural lives

What has e-choupal done that it should raise the hackles of the commercially powerful and the socially privileged? e-choupal has vested the unvested and energised entrepreneurial farmers. It provides farmers information on crops, produce prices, the weather and more. It gives them access to experts in agronomy at the agricultural universities.

Above all, e-choupal provides them the unbridled freedom to directly market their produce to buyers that pay farmers the best price. It has simultaneously made it possible for farmers to directly buy inputs at the lowest possible costs. e-choupal has deployed information and communications technology (ICT) to cause a direct impact on the realised prices for farm output and on the costs borne by farmers for farm inputs. It has worked towards improving farming incomes and lifting rural livelihoods.

Threat to easy profits

Traders have regarded the commercial empowerment of soybean farmers as a threat to their own trading incomes. If traders have historically expropriated some part of the income that should have accrued to farmers, then the new freedom of farmers to directly market their produce at the best prices possible is indeed an economic threat to traders.

A fall in the magnitude of easy profits is inevitable if traders choose to do nothing towards expanding their own capability to serve farmers and the rural economy.

Farmers had hitherto unwillingly and without much defence permitted traders to retain a disproportionately — disproportionate to the effort expended and risks borne by traders — large part of the margin between realisable market price and farm-gate costs.

They have now been enabled by e-choupal to expand their farming incomes by retaining a proportionate — proportionate to the effort expended and risks borne by farmers — part of the margin between realisable market price and farm-gate costs.

The mandi misery

India's regulated market yard system — mandi — was an innovation at the time of its establishment because it enabled farmers to sell to the most competitive buyer. However, the mandi (physical marketplace that is regulated by a market committee), enables traders to act in collusion.

They can extract higher trading profits by offering lower prices to farmers and by selling produce to processors and to the retail markets at higher prices. India's farmer-friendly institution is now an intermediary-friendly device. Farmers have become unwilling and disadvantaged price takers at the mandis.

However, farmers in most agrarian communities have no choice but to use the mandi. Though it involves auctions that provide an ideal price discovery mechanism to fragmented farming operations, farmers face and then bear the adverse outcomes of the sunk cost of transporting produce to the mandi.

Without bearing the cost of transportation, most farmers would not be able to gather price information and sell their produce. Nevertheless, after taking the produce to the mandi, the economic pressure to sell — especially at very low prices — becomes intense.

Hence, unavailability of information before moving produce to the mandi and the cost sunk in the transportation of produce to reap the benefits of the oral auction and price discovery are serious shortcomings of the mandi market system.

The mandi suppress the incomes of farmers. It has thereby become yesterday's elitist solution to yesterday's economic problems.

Autonomy and prosperity

Farmers have historically had to sell their produce soon after the harvest, especially to the most influential buyer in the locale. They have had no choice to postpone the timing of the sale so that they could realise better prices. Farmers were strangers to futures prices and prices in the future. Moreover, influential buyers paid the least to farmers. e-choupal has made it possible for farmers to shop around for better prices in real time and the best time to effect sales. It links the farmer with consumers in local and global markets. It empowers farmers with price information and improves their decision-making.

Price is known in the village before farmers incur any cost of transportation. In the process, many overheads such as multiple transportation, handling and bagging are avoided. Farmers also benefit from more accurate weighing, faster processing time and prompt payment.

But e-choupal is not a coercive marketplace. After accessing price information free of cost, farmers are free to decide whether to sell their produce through e-choupal or to sell to traders through the mandi. e-choupal does not constrain the freedom of farmers to choose their channels and their counterparties. Quiet clearly, e-choupal has enabled farmers to embrace modernity, autonomy and prosperity. Without that, farmers would have continued to live in the past, sacrifice their autonomy and forfeit the just rewards for their enterprise and resourcefulness.

Practicum for the preachers

India's influential social thinkers continue to urge the private sector to get involved in uplifting the economic lives of the rural poor. These thinkers would like the private sector to apply ICT that makes a positive difference to the activities, incomes and aspirations of poor households in the rural outback. However, when the private sector applies cost-effective and user-friendly ICT that has a direct and positive impact on the activities of the rural poor, vested interests that have hitherto gained at the expense of the rural poor are likely to be displaced. To avoid displacement, the intermediaries that have historically thrived on easy profits need to reengineer themselves just as farmers will have to when the global markets for produce are opened up.

Displacement is a natural corollary of the purposeful reinforcement of the principles of progress based on autonomy, freedom and cost-effectiveness. For example, more people around the world will greet one another electronically at the time of Christmas and the New Year this year than they did last year. The world has moved on some distance from "paper, print and post'' to electronic mail, and text and multimedia messages.

Soybean traders, like other traders of produce, are entrepreneurs. They are self-employed participants in the economy. Their decision to withdraw from trading should cause no concern at all. It is their decision to stay away from their enterprise. But it is not a strike. Society has no agreement with them to buy any services just as consumers do not have any agreement with farmers to buy soybeans from a set of farmers. In the era of broadband, there are profitable relationships set in a competitive marketplace, but there should be no coercive economic rights, which will lead to economic wrongs.

Soybean traders have a right to earn their incomes by serving the larger commercial interests of the rural economy. But it is patently unacceptable that they should have a case for curbing the right of farmers to market their produce directly to buyers who choose to pay the best prices. The so-called strike by soybean traders is a test case that will determine if India's local and national leaders are modern messiahs who have the practical capability to uphold the economic rights of farmers. If they uphold the economic rights of farmers, it will be a shot in India's arm. If they do not, it will be a shot elsewhere.

(The author is a financial analyst. He was a member of the Shankerlal Guru committee on agricultural markets, commodity futures, warehouse receipts, farm credit and direct marketing in 2001. Feedback may be sent to indiagrow@yahoo.com)

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