Agri markets and small farmers

Market intermediaries and farmers have usually been at odds with each other, in spite of the interdependence of the two. The multi-faceted relationship between farmers and the intermediaries in the market for their produce facilitates both horizontal and inter-temporal transactions.

However, the arrangements do not always work for the best. The search for an appropriate institutional arrangement for agricultural markets continues. The wide variation in the nature of commodities, the distance between consumer markets and the location of producers has meant that no single model of market intermediation is likely to be successful for all commodities.

Competing in the global markets has required a further set of regulations and institutional structures for taking the produce through international markets.

SMALL FARMERS' INTERESTS

While a large share of the produce comes from a small percentage of farmers, market institutions must also serve the large proportion of small producers. This has been the main challenge in designing agricultural market institutions.

The objectives of public policy have not been limited to facilitating transactions, so that supply and demand are balanced. The policy has also sought to raise production, while not raising prices for the consumers. The markets, therefore, are divided; there is the PDS and the open market. Government agencies became the largest market intermediaries, setting prices that taxed output in kind. Processor-farmer linkages have also emerged to reflect benefits of vertical integration. But this integration has also not worked when the government as attempted to re-allocate benefits between the processor and the farmers.

The regular and periodic disruptions in the sugar sector are a pointer to the unsustainability of the arrangement. What has worked for the farmers? No single solution has worked for all times. The unregulated money-lender/ trader model came to an end as it did not serve the small farmers. Ability of the markets to provide stable and rising prices has indeed been the best outcome farmers could have looked for. The presence of small and large farmers in the market has meant that the ability to bear market risk varies greatly across farmers. As farm holdings shrink in size, stable and rising prices become even more critical. Any solution that does not provide these outcomes is likely to give rise political pressures for alternatives. The price and non-price interventions in the international trade of farm commodities reflect both farmer and consumer sensitivities.

Farmers' ability to pool output and share the price or output risk is the greatest when there are cooperative marketing institutions. The success of cooperative institutions requires many enabling conditions. It has also been critically dependent on fiscal support at different stages in the development of these institutions. Sustainability of cooperatives has, however, been threatened by the fiscal pressures they create while becoming political power centres.

The insurance schemes offer an alternative, but perhaps not without fiscal support, if the schemes are to cover large and small producers.

The interventions to establish some ground rules for trade, such as the regulated markets and market committees, have now become counter-productive, making it harder for the market intermediaries reach the farmers. The interventions have also become revenue-generating mechanisms for the government, rather than the market places for efficient transactions. The benefits of larger scale of operations and transparency in transactions have also accrued to the state.

POLICY SUPPORT

The new initiatives under the reform of the agricultural markets will lead to large and modern market centres with grading, storage and transport facilities. Large buyers may also buy directly from the farmers establishing longer term contracts for supplies at remunerative prices. There may be other linkages between market intermediaries and the producers: seeds, fertilisers and other inputs.

The concerns will remain — will the smaller farmers be covered? Will their produce be attractive enough to the buyer? Will the cost of covering the smaller producer prove to be unviable for a commercial aggregator? While there are incentives and opportunities for the buyers to become larger in volume of operations, for the individual farmer growth would be far more modest in scale.

The challenge of marketing solutions for our farm sector will not merely be one of bringing the buyers and sellers together effectively. It will also have to recognise the wide variety in the farm conditions and farm incomes. Most importantly, the marketing solutions will also have to address the risks faced by the small producer. If there are no technological or business innovations to address these issues, the agricultural marketing arrangements will require an element of policy support.

(The author is a Senior Research Counsellor, NCAER. The views are personal. >blfeedback@thehindu.co.in )

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