Farm loan waivers are not a sustainable solution: Amitabh Kant

In the last one year, headlines have been inundated with news on farmer distress. It is conceivably one of the biggest hurdles facing the Narendra Modi government in an election year. But the CEO of Niti Aayog Amitabh Kant thinks he might just have a solution based on the successful Amul cooperative model. He discussed the model in detail in an interview with Fortune India. Edited excerpts:

You have suggested an Anand/Amul model to solve some of the Agrarian problems. What exactly do you mean by that?

The revolutionary Anand model established itself over the principles of cooperatives, democratic decision making, innovation and value creation.

The Anand model assured regularity of procurement to the farmers, led to price discovery (optimal market based), based on quality aspects, provided for forward and backward linkages, established a successful marketing arm - Gujarat Co-operative Milk Marketing Federation Ltd. (GCMMF) and strengthened the brand. It also provided for Innovation in products and marketing campaigns. The model worked on a three-tier arrangement for specialised functions by dedicated institutions, minimising value loss, maximising value creation and higher value capture for beneficiaries.

There exists a huge potential on the above mentioned points in the commodities such as pulses, coarse cereals, vegetables and perishables wherein the value chain can make use of cooperatives and farmer producer organisations to solve the agrarian challenges.

Various steps being undertaken are in the same direction such as – village level procurement centres: Government collection centres and warehousing facilities at village/block level. The Grameen Agricultural Markets (GrAMs) which were announced in the budget can be established through a PPP to bring market closer to farm gates.

There is an opportunity to develop cluster based FPOs so as to link production to processing, establish block level resource centres to create value chains which will provide integrated solutions to the farmer and opportunities for employment to the rural youth.

The need is to accurately understand and assess the custom based requirements for forward and backward integration for a commodity and apply the principles of cooperatives to create a successful enterprise. Further challenges such as solving the grading and pricing challenge, timely availability of good quality agricultural inputs and agri-extension services may get a positive boost with such models.

The creation of a common agricultural marketplace across the country will require these successful interventions to correct the existing imperfections across agricultural market supply chains. World packaged food market opportunities and forecast 2014-20, mention that China and India are expected to show significant market growth for packaged food products. The export possibilities are also on the rise. These may be fertile grounds for such interventions to tap the existing opportunities.

How does your model account of resolve that fact that one of the biggest problems is small landholdings (most of the suicides seem to happen among the landowners with the smallest land parcels)?

Farmer producer organisations were proposed as a way forward to get some form of land consolidation – and an integration of smallholders within an agricultural value chain – which is critical to tackle the problem rural agrarian crisis. Farmers have already begun to come together and form Farmers Producer Organisations (FPOs), most of which are Farmer Producer Companies (FPCs). For example, in April 2013, the government of India issued a national policy and process guidelines document on formation of FPOs. This set of guidelines encouraged state governments to provide incentives, including credits for and support of the formation and ongoing operation of FPOs in various states. By September 2013, over 500 FPOs had been formed and are now successfully operating throughout the country. Those FPOs which are set up as FPCs enable their members to access financial and other inputs and services, including appropriate technologies for farming.

The FPCs also organize collection, processing, storage and marketing of their members’ produce in high-value markets at an optimal price. These actions by the FPCs have thus reduced transaction costs and allowed the FPCs to enter into a partnership with private and public sector companies for purposes of supplying farm produce on more equal terms.

As exemplified in Madhya Pradesh (MP) in India, the typical business mix of an FPC would include – aggregation and sale of agricultural produce grown under contract farming; Production and sale of certified and foundation level seeds grown under seed production contracts with public and private organisations; Supply of agriculture inputs and implements, including financial and logistics services (like modern storage, transport, etc.). Price discovery through spot exchange mechanisms and Agriculture extension services.

A preliminary assessment of FPCs suggests that the benefits to a member of an FPC are numerous, and in the form of – timely and increased availability of good quality fertilisers, seeds and other agriculture inputs at a reasonable rate; Better price realisation for produce, with efficient extension services leading to higher farm productivity and a reduction in costs of cultivation. Provision of cash dividends and other services, including finance, use of warehouses, access to agricultural implements, a crop grading facility, etc. Accrued financial and non-financial benefits to individual FPC shareholders, which are estimated to be₹8,000 to ₹10,000 per person per annum for a mature well-functioning FPC.

Soil quality and water reserves are two critical backbone issues. How does your model address those?

Sustainable democratic institutions drive the way towards sustainable resource management. The soil quality and water reserves require a multi-pronged approach which may include integrated watershed management, Conservation and revival of soil by deploying correct farming practices, Soil testing and using information for correct inputs and also information pertaining to correct water use patterns and irrigation techniques.

The institutions which are able to manage themselves and undertake democratic decision making have the capability to undertake progressive changes for natural resource management as this will be a positive trade off in an optimal scenario.

What kind of branding mechanism and ‘to market’ mechanism do you envisage in your model?

A brand requires not only a good quality product but tremendous consistency and diligent man hours for brand campaign and promotion. The AMUL model indicates that a basic commodity like milk if correctly processed and marketed to the right segment may lead to substantial income gains for the milk producers.

Working in this direction and tapping opportunities such as technology, large market demand, existing supply clusters, can lead to creation of promising value chains which will be equally beneficial for the farmers.

The current state of urbanisation has led to enterprising possibilities for niche areas such as organic dairies, online groceries, urban periodic markets, cluster-based processing etc.

There is no one correct way of marketing these, this requires a tailor-made approach depending on the possibilities and requirements. However, marketing is a much-needed activity in the whole gamut of things needed for uplifting the sector.

What impact does your model have on the issue of farm loan waivers?

Providing price assurance and remunerative pricing through such targeted interventions are in fact the key to boost the farmer’s income. Farm loan waivers are not a sustainable solution over the long term. The farm loans serve as a disincentive to those who repay loans on time, the most serious effect on our economy is of fiscal slippage and most benefits go to better off farmers. We need structural reforms, infusion of technology, electronic real time monitoring and backward forward linkages of cold storages, warehousing and value-addition along with allied activities of fisheries, dairy and horticulture.