Will the Agri Infra Fund deliver?

Kushankur Dey/Gaurav Gairola | Updated on September 28, 2021

The scheme needs to be recast, as it is one among many proposals to boost agri marketing facilities

The commercialisation of agriculture into agribusiness and smallholder collectivisation through social enterprises like producer companies appear to uphold the spirit of farming as a profitable venture. This multi-pronged policy therefore entails perpetual capital investment in agri-infrastructure creation.

Agri-infrastructure utilising such post-harvest facilities as storage and transportation contributes to market linkage and appropriate additional gains to agri-value chain actors, including farmers. The Ashok Dalwai committee on secondary agriculture estimated that an investment of ₹89,375 crore is needed for storage and transportation facilities for primary agricultural produce.

The Central Government, amid the pandemic, understood the importance of trade promotion and farm sector development and launched the Agriculture Infrastructure Fund (AIF) in August 2020 as part of a ₹20 crore relief package. This scheme is similar to the Agriculture Technology Infrastructure Fund (ATIF) rolled out in 2014–15 for ‘One Nation-One Market’, which resulted in 1,000-odd electronic National Agriculture Markets (eNAMs).

Also, the AIF is likely to subsume the Private Entrepreneurs Guarantee (PEG) scheme launched in 2008–09, the Rural Godown scheme of 2001-02 and the grading and standardisation of agricultural commodities, among others, initiated as capital investment subsidy schemes.

What is it in AIF?

AIF is aimed at strengthening and expanding the scope of Agricultural Produce Marketing Committees (APMCs) — where agricultural produce is traded and a congregation of commission agents, merchants or artiyas, and large buyers influence auctioning and price discovery. This scheme can provide support facilities to farmers and value chain actors for risk-sharing and market access.

It is envisaged that the creation of storage and market infrastructure in a project mode through interest subvention of 3 per cent on collateral-free loan up to ₹2 crore for seven years may make (smaller) projects financially viable.

Specific requirements like cluster identification or targeting State-specific APMCs and maintenance of sanitary and phytosanitary standards for organic produce marketing and exports are implicit in this scheme.

The scheme further states that district, State or national level monitoring committees will be entrusted with keeping the turnaround time for file processing to less than 60 days. The approved projects for funding the beneficiaries are to be reflected in the Public Fund Management System and reasons for not funding the project needs to be communicated to maintain visibility and transparency.

In short, the AIF scheme targets the creation of adequate post-harvest infrastructure facilities to mitigate spatial and temporal risks in the agribusiness ecosystem.

Promising yet ambiguous

Notwithstanding the promises of the AIF scheme, the central question remains unaddressed: Who will be the potential beneficiaries of this scheme — farmers or corporates? To what extent will the scheme be replicable to States and Union Territories where eNAM has already been functional (active online trading)? A critical review of this scheme is necessary to inspire the minds of agricultural policymakers.

First, if farmer producer organisations (FPOs) are assumed to be a potential beneficiary of this scheme, they need to perform as viable ventures and present a bankable project and efficient execution on-ground. How many FPOs are now viable, and how much funds from institutions such as NABARD, SFAC, and State agencies have been channelled to promote these FPOs? There is no reliable data about flow of funds and their use in public domain.

Second, as alternative, supporting resource institutions or aggregators need to act at the behest of FPOs to prepare and present an economically viable and technically feasible AIF project for funding. In return, FPOs need to pay a service fee for sourcing and executing the project.

So, FPOs to become eligible beneficiaries of the AIF scheme must be viable in the long run and create the space for such infrastructure. Will the Agricultural Produce (Trade and Commerce) Promotion and Facilitation Act, 2020, if implemented, help the AIF scheme gain ground?

Third, how the AIF will act as a market intervention scheme for market infrastructure institutions is neither spelt out, nor is the mechanism of convergence with existing schemes framed. For example, the PEG scheme attracts private investors to set up modern warehouses, and investors lease out spaces to State agencies for facilitating their procurement and distribution functions.

Private warehousing companies harnessed the potential of agri-logistics businesses utilising this scheme. So, the PEG scheme has infused private or corporate capital into agribusiness. Will the AIF be executed in a similar vein?

Monitoring and evaluation

Fourth, infrastructure creation or expanding the scope of APMCs by integrating them into eNAM structure may not avert farmers from distress sales or market failures until a monitoring and evaluation cell is put in place. Such a provision is not part of the scheme design, and there is no deliberation on hedging pure and speculative risks, farmer protection against price fluctuations, and government procurement policy.

As China has popularised a scheme called ‘futures plus’ that integrates the insurance and futures market for hedging crop failure or yield and price risks, agriculture policymaking think-tanks should consider it for modification of AIF funds linked to agricultural commodity derivative markets for improved market integration and reliable price discovery.

In sum, as centrally funded schemes co-exist for infrastructure creation, this scheme does not bring exclusivity to either post-harvest facilities or ‘mandi modernisation.’ Hence, AIF does not stand out as a distinct scheme. Rather, it is being fermented as old wine in new bottle.

Dey is Chairman, Centre for Food and Agribusiness Management, and Gairola is Executive FPM Scholar of IIM Lucknow. Views are personal

Published on September 27, 2021

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