Agri Business

New agri reforms will bring a paradigm shift in agri-marketing: NCDEX MD & CEO

TV Jayan New Delhi | Updated on June 12, 2020 Published on June 11, 2020

Vijay Kumar Venkataraman, CEO and MD, NCDEX

The ordinances to widen agricultural marketplace and protect farmers in contract farming agreements with private firms and changes in the Essential Commodities Act can bring a paradigm shift in agriculture marketing supply chain functioning, says NCDEX CEO and MD Vijay Kumar Venkataraman in an interview with BusinessLine. Excerpts:

What do you think about the latest agri sector reforms initiated by the government?

Earlier the government’s focus was on production. That is why India has become the large producer of wheat, milk, etc. Now there is a need to apply the same modernity to selling side.

Having huge surpluses, we need large companies to come in, buy and hold for a whole season. Agribusiness is such that we have a crop once a year, but consumption happens over 12 months. The farmers can’t hold it. They have to sell and get their money to be ready for the next crop.

One way to take care of this is to have millions of small traders. An alternative is allowing large companies who have capital, infrastructure and ability to do risk management to come in and service the requirements of industry, food processing plants, wholesale and retail.

These ordinances and the ECA amendment have given the signal that they are welcome. We are in a new paradigm. Once that happens, this shift will be even more rapid.

Currently, how much is sold through electronic marketplace and how much through mandis? What would be a desirable number?

At our exchange, half a million tonnes of commodities get delivered every year. All of it is covered under eNWR (electronic Negotiable Warehouse Receipts). We have exchange accredited warehouses where these commodities are stored. Outside the exchange ecosystem, there are two repositories. These repositories (NERL which is owned by NCDEX and CCRL owned by CDSL) are much bigger ecosystem. The advantage of eNWR is that farmers can get access to funding against their warehouse receipts. The potential of these repositories is huge. Right now, their business is small. As they build up, they scale up quickly.

At the time transaction occurs, the goods need not move. The goods can remain where they are — godowns or storage places. The buyer has trust. Today, the same thing happens in the stock markets and in futures markets. This needs to happen in more and more commodities.

Earlier, liquidity used to lie in physical locations. Now, it has moved to the terminal. The physical product could be in a vault, or a warehouse where the trust is preserved.

Will this help in government procurement, too?

Even the government procurement would be easier, if it moves in this direction. The government, for instance, gives MSP where it physically buys. Tomorrow, it would be able to extend the same to other locations, where it has no large scale procurement facilities. Today, the Food Corporation of India covers only 20 per cent of the farmers. If this paradigm shift happens, farmers in areas where the government currently does not have a procurement mechanism could also be able to supply to the government.

This is what the government wants to do with One Nation One Market — where multiple markets are connected with one another. It’s a bit like UPI. You can have your bank account anywhere and if you want to send money to someone who has an account with another bank what you need is his UPI address. Using UPI-like foundation, you build marketplaces and connect your warehouses.

So, trust is an important element in such a business...

We have done delivery of 100 lakh tonnes in the last 10-12 years. This is not a small amount. We may have had only one or two disputes.

When systems improve it would be even better for the farmers. The grains stored in a scientifically managed warehouse is better than grains stored at farmer’s house where it is subjected to humidity or weevil attacks, etc.

What is the transaction cost that the farmers have to bear?

It may work out cheaper for him. Why should the farmer put grains in gunny bags? If he is growing it in bulk, put it in a tractor and take it to a silo. If loading gunny bags into a truck takes one hour, it takes five minutes with a crane and it gets unloaded in 5 minutes. He saves money on gunny bags, on labour and time, too.

But for a small farmer, say, who has 100 quintals of wheat to sell, the scale is not really going to help him...

This is where the Farmer Producer Organisations (FPOs) come in. Commodity markets are essentially of scale. The smaller the farm, more expensive it is going to be. FPOs are almost like a backbone of this initiative. This paradigm shift will only help them. Such changes have already happened in other sectors. The same farmer who physically goes to mandi to sell his produce is already buying his train tickets online using the same system.

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Published on June 11, 2020
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