New agriculture infrastructure fund is a major step forward
Mains: General Studies-III: Technology, Economic Development, Bio diversity, Environment, Security and Disaster Management
- The launch of the Rs 1 lakh crore Agriculture Infrastructure Fund (AIF).
- As part of the reform measures in the agricultural sector, the government has previously issued ordinances aiming to bring in some degree of liberalization in the agri-market sector.
- These included amendments in the Essential Commodities Act, allowing farmers to sell their produce outside the APMC mandis and encouraging farming contractsbetween farmers, processors, exporters and retailers.
- Though these changes in the legal framework are welcome they were insufficient to truly exploit the potential of agri-markets in India and there have been calls for the creation of sufficient and quality post-harvest physical infrastructure.
- The Agriculture Infrastructure Fund will be managed by the National Bank for Agriculture and Rural Development (NABARD) in association with the Ministry of Agriculture and Farmers’ Welfare.
- Under the scheme, financing will be to develop cold chain storage, processing facilities and other post-harvest management infrastructure at the farm gate and aggregation points.
- The fund would mainly focus on the Farmer Producer Organisations (FPOs) and primary agriculture cooperative societies, but loans from the fund can also be availed by agriculture entrepreneurs and start-ups.
- The fund will be used to provide loans, at concessional ratesthrough primary agriculture credit societies (PACs).
- The government would bear the burden of interest on such loans through interest subvention subsidy.
- The Fund will provide an impetus to the creation of post-harvest management infrastructure and assets such as cold storage, collection centres, processing units, etc.
- The availability of more and better storage facilities can help farmers avoid distress selling immediately after the harvest. This can lead to better price discoveryfor the farmers.
- The availability of cold storage facilities can also help reduce wastageand also ensure the uniform availability of seasonal produce throughout the year for the consumers.
- The processing units will enable farmers to get greater value for their produce through increased processing and value addition.
- By facilitating formal credit to farm and farm processing-based activities, the fund is also expected to create numerous job opportunities in rural areasaddressing the crucial employment issue.
- The mere creation of storage facilities will not be enough to benefit farmers and there are systemic challenges to ensure the effectiveness of this governmental intervention.
Cash needs of small and marginal farmers:
- Small farmers cannot hold stocks for long as they may have urgent cash needs to meet family expenditures.
- This would lead to a situation where despite the availability of storage facilities, the small and marginal farmers who account for the largest share of farmers in the Indian scenario will not be in a position to make use of the facilities.
- This would lead to a situation where the newly created facilities would not be able to remain economically viable due to low demand for such facilities.
Working capital needs of the FPOs:
- The implementation of a negotiable warehouse receipt system would entail the need for large working capital for the FPOs.
- However, currently, most FPOs get a large share of their loans for working capital from microfinance institutions at very high rates.At such rates, stocking may not be economically viable for the FPOs.
Condition of Agri-futures markets in India:
- A vibrant Agri-market system would not only be spatially integrated (one nation, one market)but also be temporally integrated (spot and futures markets convergence).
- Only such an Agri-market system can ensure the Indian farmers the best price for their produce and also help them hedge market risks.
- Thesize of the Agri-futures markets of India is much smaller compared to say China or the US.
- The value of traded contracts on agri-futures in the National Commodity and Derivatives Exchange (NCDEX), the largest agri-commodities derivatives exchange in India, has been decreasing over the years. In terms of volume too, the numbers of futures contracts have also fallen.
- There is little support for the idea of futures markets in the agricultural sector in India. These markets are often blamed for any abnormal price rise or fall in agricultural products. A rise in agri-prices would often result in the banning of agri-futures.
- NABARD should devise a compulsory module that trains FPOs in the domain of Agri-futures.
- Government agencies like the Food Corporation of India (FCI), National Agricultural Cooperative Marketing Federation of India (NAFED) and State Trading Corporation (STC) should increase their participation in Agri-futures.
- There is a need to create a comprehensive package that will help the stakeholders realise better prices and also hedge market risks.
- NABARD can play a leading role in the effective implementation of such a package system.