The agricultural marketing is in dire need of reforms. Farmers suffer on all accounts, while supply chains are marked by inefficiencies due to unnecessary regulation.
Lists of some reforms that can help agricultural markets in a big way are as follows:
1. Linking Farmers with Markets:
Singh (2011) writes that linking small primary producers with markets is one of the major issues in improving livelihoods for millions of poor farming households. So far, the system has impoverished farmers, prevented modernization of agriculture and has led to huge food wastage. Mehta and Singh (2008) write that the Indian farmer suffers as he is not linked to the consumer, which has led to perpetuation of poverty, they write.
2. Improving Infrastructure:
Poor transport, lack of infrastructure and marketing facilities ensure that farmers are unable to get good prices. The monopolistic systems encouraged by APMCs are also a hindrance. Isolated regional markets means that farmers cannot sell their produce where it is needed. Agents, wholesalers and processors enjoy significant clout in agricultural markets.
Intermediaries at each stage earn sizeable margins for little value addition. One way of reducing the length of marketing channels is by limiting intermediaries through better connectivity consisting of roads, railway connections and lorries. This would remove geographical isolation and bring the farmer closer to the consumer. Better and accessible financial services, credit facilities helped by microfinance, will help the famer.
3. Storage Facilities:
Modern systems of storage have still not been constructed in India; they are too expensive for individual farmers and government has not invested in them. Storage infrastructure such as warehouses and cold storages help save the harvested crops. Agricultural produce is still stored in jute bags. As a result, the produce cannot be stored for long. Many farmers resort to distress sale of their produce to clear the loans from moneylenders.
They cannot even wait for government procurement. Nair (2015) reports, “In collusion with unscrupulous local traders and commission agents, government agencies delay procurement of grains by, in some cases, as many as 50-60 days.” This causes farmers to sell out to local traders at much lower prices. Storage facilities, even at the government-owned FCI, are lacking; produce is stored in the open, causing huge damage.
4. Direct Sales:
Direct sales help bring the produce close to the customer. Some farmers are able to bring their produce at a highway and sell through makeshift stalls to passing vehicles. However, farmers’ markets have not had a major impact on farm incomes as sales through this marketing channel are generally small, both in terms of number of the farmers participating and volumes of produce.
5. Transportation:
Farmers face a double whammy to transport their produce – bad roads and lack of adequate transport. According to Planning Commission Report of the Working Group on Agricultural Marketing Infrastructure for the XII Five Year Plan 2012-17 (2011), transportation and handling facilities for perishable commodities are inadequate and poor.
“Physical infrastructure in market yards is inadequate. Most of the rural primary markets (including livestock markets) have no infrastructure. Due to lack of proper handling facilities at the village level, about 7 percent of food-grains, 30 percent of fruits and vegetables and 10 percent of spices are lost before reaching the market,” it says.
6. Access to Finance:
The ability to hold on to stock depends on the financial condition of the farmer. Nair writes that most farmers are under debt; average debt per household is Rs. 47,000, while average income is Rs. 36,973 per annum. Nair (2015) writes, “While average income from 2002-03 to 2012-13 increased by 318 percent, most worryingly, total debt per household increased by 273.5 percent during the same period, proving that while income from sale of agricultural products increased due to a price advantage during the last one decade, it has not translated into a reduction in rural indebtedness.” As a consequence, the farmer is always under pressure to sell stocks to meet his burden of debt.
Farmers lack access to formal channels of finance in many parts of the country. Crops are not considered a financial asset against which farmers can take loans. Low-cost warehousing and negotiable receipts with an electronic registry for commodities can bring lenders closer to the farmers keen to pledge their crops.
7. Price Information:
Farmers in remote villages lack the means to track prices in markets and are often at the mercy of agents. Even if they know the prices, they are unable to make use of the information, because harvesting and transporting of a crop cannot be done in a day.
8. Food Processing Facilities:
Food processing is a potential source for driving the rural economy as it helps farmers find a ready market for their produce. A well-developed food processing industry increases farm gate prices, reduces wastages and ensures value addition. It assists farmers in getting knowhow from factories and promotes crop diversification. However, unless government rationalizes food laws, sets up the mega food parks and encourages foreign investment, facilities for food production are unlikely to come up in a big way.
Integrated facilities for procurement, processing, storage and transport complement the food processing industry. Private sector and foreign investments can play a role and for that the government must allow 100 percent FDI in food processing, cold chain infrastructure and retail.
9. Free Trade and an Open Market:
There is an urgent need to open up the agricultural sector by encouraging free trade and an open market. Government intervention creates distortions, cartelization and inaccessibility. Moreover, even the most efficient farm will fail to produce profits if the harvest cannot be sold at the best possible price in a timely manner. That is why, only free trade will promote investment in better quality, crop diversification and packaging.
Importance of Trust:
Most agricultural contracts are verbal and are based on trust. Masuku (2009) finds that trustworthiness and reputation of wholesale traders significantly affects the proportion of produce sold through them. This is not surprising since institutions such as contracts and enforcement mechanisms are less developed or absent. The development of relational contracts (shaped in a given social system) between supply chain participants is an appropriate strategy for agricultural marketing where formal contracts are non-existent.
Relational contracts characterized by trust and cooperation are self-enforcing, which makes third-party enforcement mechanisms less needed. Marketing cooperatives, therefore, should work on building trust, improving price information networks and establish well-defined contracts that govern exchanges, grades and standards.