Distress sale of cash crops
Interestingly enough, the government does not have to offer any bailout package for the farming sector as no one is asking for it. What the private sector wants from the government is just a policy preference to prevent distress crop sales.
Though one can list a number of steps needed to restore economic viability of the sector, improvement in marketing infrastructure should get top priority in any such effort to help small farmers survive.
Given the inefficiency of agriculture markets due to cartelisation and poor infrastructure, prices of almost all commodities fluctuate every year, almost wildly. Farmers pay the financial cost and the government gets a bad name while traders, hoarders and cartels make money.
Over the last two years, both the cash crops – rice and cotton – suffered up to 40 per cent price fluctuation in domestic markets and the wheat crop faces the same risk in the coming season in case the government fails to make a determined effort to stabilise prices.
Farmer bodies claim, farmers suffer stress sale and up to 40 per cent post-harvest losses because of lack of holding capacity; they have to sell the crop promptly for a variety of reasons, including inability to treat the crops for making them storable, debt clearance and huge crop proportion-- up to 80 per cent, according to some estimates, pledged with the middlemen.
If the government could somehow create storage and treatment facility, it would not only save farmers from financial cost of “stress sale” but it would also escape the blame for price crash that regularly hits the market. Farmers could be encouraged take over the facility within few years.
The proposals for developing such stores at various levels have long been on the table and periodically renewed by farmers, but of no use so far, although the viability of such stores is increasing by the day.
These proposals suggest that stores with crop treatment facility could be established in a few selected districts for the two crops—rice and wheat or wheat and cotton, given the agriculture cycle.
These centres would provide farmers the much-needed holding and crop treatment capacity for which they could pay on commercial rates and keep the crop as long as they think it feasible. This would solve three big problems of farmers i.e. take them out of control of middleman, increase their income and, if banks are linked to these centres, the credit crunch.
According to the proposal, the government could launch a management company-- as it has done in case of agriculture research-- to run the stores and treatment and grading facility. The company could run the facility for two to three years, prove the commercial viability and hand it over to farmers who have been storing their crops. Later on, farmers could also easily take over these stores and could spread the facility to other districts, if proved feasible.
Farmers claim that one such facility of 25,000 tons grain, with all other facilities, should not cost more than Rs30--40 million. They maintain that there was no need to build modern silos as the temperature controlling cost runs very high and render the entire project non-feasible; it is not essential either. They think that simple buildings would be enough for stores if they don’t include strong treatment facility.
Both-- rice and cotton, which are winter crops, need treatment before storage. If the moisture level of rice is brought down to 15 per cent through drying and cotton is purified of oil cake, storing them in these simple buildings should not be a problem. Wheat, being a summer crop, is hardly a problem. The government could also install graders to ensure crop quality in the stores.
The stores could then be linked to banks which could pledge the stocks and advance loans to farmers treating them as collateral.The government and the private sector will have ready stocks of quality crops, which could be exported or traded locally..
These storages could bring a paradigm shift in trading of these three major crops contributing over 50 per cent of agriculture GDP. Once the commercial viability of first two or three such stores are proven, the government might not need to invest money on others as banks would be attracted to invest in them.
The rent for storing their commodity could be enough to run the facility round the year. It would give farmers a margin for maneuvering for at least six months, till the next crop.
These proposals, if implemented seriously could stabilise supply of agriculture commodities round the year and bring some kind of sanity to their prices as well. Not all rice millers have dryers. They could be offered service on commercial basis.
Banks could also be linked to these stocks for supplying credit to farmers and save them from other procedural problems. These stores might not be a panacea for all problems of farmers, but they could at least bring stability in the market.