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This book examines the successful private, public and civil society models of agriculture value chains in India and addresses relevant challenges and opportunities to improve their efficiency and inclusiveness. It promotes the value-chain approach as a tool to improve access to finance for small holder farmers and discusses the possible structure of and regulatory framework for the ‘National Common Agricultural Market’— a term that featured in the Indian Finance Minister’s 2014–15 budget speech, and which is aimed towards standardizing and improving transparency in agricultural trade practices across states under a single licensing system.

The book deliberates on the potential of developing innovative financial instruments into the value chain framework by supporting tripartite agreements between producers, lead firms and financial institutions. Its fourteen chapters are divided into three parts—Agriculture Value Chain Financing: Theoretical Framework, Agriculture Value Chain Financing in Cases of Select Commodities; and Institutional Framework for Agriculture Value Chain Financing. Since the concept of value chain financing is being considered as a future policy agenda, the book is of great interest to corporations dealing with agricultural inputs and outputs; commercial, regional, rural and cooperative banks; policy makers; academicians and NGOs.

Inhaltsverzeichnis

Frontmatter

Agriculture Value Chain Financing: Theoretical Framework

Frontmatter

Financing Agricultural Value Chains: An Overview of Issues, Lessons Learnt, and Policy Implications

This chapter provides a brief overview of the key findings, lessons learnt, and policy implications from the presentations and discussions during the “National Seminar on Financing of Agriculture Value Chains: Challenges and Opportunities” organized jointly by the National Bank for Agriculture and Rural Development (NABARD) and the International Food Policy Research Institute (IFPRI) at the Bankers Institute of Rural Development, Lucknow, during November 29–30, 2015. The chapter sums up that both value chains and value chain financing are gaining ground in India and the value chain approach has considerable potential to (i) improve small farmers’ access to markets and financial resources, (ii) reduce transaction costs, (iii) mitigate supply and market risks, and (iv) build human and social capital. It has also been found that value chains have mostly been developed for commodities that have higher income potential and strong market demand, but these have remained localized. However, macroeconomic conditions and external environment in the form of policies, laws, standards, regulations, and institutional support services can have significant impact on the performance of value chains.
Gyanendra Mani, P. K. Joshi

Elements of Agriculture Value Chain Financing: A Review

In this paper, we conduct a systematic review of agricultural value chain financing with its different forms. In particular, we assess how the choice of the financing mode varies by the nature of the value chains itself. The choices are related to both internal as well as external financing. We present some real-world examples of value chain financing and try to identify the innovative elements in them. The study is done in the context of smallholder-based systems with low asset base and greater vulnerability to shocks.
P. K. Joshi, Devesh Roy, Vinay Sonkar

Different Models of Financing Small Farmers’ Agricultural Value Chains

The concept of agricultural value chain covers full range of activities and participants involved in moving agricultural products from farmers’ fields to consumers’ tables. (Farm gate to food plate). Value chain participation by farmers can be merely as suppliers, in which case they do not get any share of the further value added. If, however, the farmers are aggregated into large numbers, and enabled to own parts of the value chain, they can benefit from the downstream value addition as well. For this, they need to invest capital and the value chain has to be integrated. To create an effective agricultural value chain, financing of agricultural value chains is a very important need. Agricultural value chain finance is a structured way of financing agriculture that links stakeholders operating within the value chains and lending institutions, and reduces the risks that are commonly associated with traditional agricultural financing. This paper shows number of approaches that are emerging in financing the building of agricultural value chains and emphasizes on need for many more innovative approaches, particularly to support small farmers to become an integral part of profitable value chains.
K. V. Gouri, Vijay Mahajan

Agriculture Value Chain Financing in Case of Select Commodities

Frontmatter

Formal Versus Informal: Efficiency, Inclusiveness and Financing of Dairy Value Chains in Indian Punjab

Despite a growing dairy industry in India, farmers’ lack of access to organized markets and institutional credit remains one of the major hindrances in improving the scale and productivity of dairying. Using a unique set of household-level data from the Indian state of Punjab, this paper assesses performance and financing of dairy value chains at their upstream. The study finds that 62% of the sample farmers representing 69% of the total milk sales are connected with formal value chains driven by cooperatives, multinational companies and private domestic processors. The resource-rich dairy farmers prefer partnerships with private dairy processors or vice versa. The small dairy farmers are more dependent on informal buyers, i.e. local traders and consumer households, for the sale of their produce. There is no significant difference in milk yield across herd sizes and value chains, but the farmers associated with cooperative value chain earn more profit. The findings also indicate the practice of scale-based price discrimination in the formal segment, especially by the multinationals. Further, more than half of the dairy farmers finance their dairying activities borrowing from the formal as well as informal sources. But the chain-based financing is restricted to the value chains driven by the local traders and private domestic processors. The financing by commercial banks is limited to 9% of the borrowers and is often biased in favour of resource-rich dairy farmers. A value chain approach, due to its product market orientation, can serve as an entry point for financial institutions to reduce transaction costs and lending risks associated with small loans. The innovative financial products, such as ‘dairy credit card’ and ‘contract as collateral’ would enable them to adopt yield-enhancing technology and inputs and also to scale up their dairy activity.
Pratap S. Birthal, Ramesh Chand, P. K. Joshi, Raka Saxena, Pallavi Rajkhowa, Md. Tajuddin Khan, Mohd. Arshad Khan, Khyali R. Chaudhary

Smallholder Participation in Supermarket-Driven Agri-Food Supply Chain: A Case Study of Reliance Fresh

Using primary survey data collected from farmers growing cauliflower and spinach in the outskirt of Jaipur city, the paper examines the question of smallholder participation in the supermarket-driven agri-food system in a context dominated by smallholders. Our empirical results add to the thin but emerging evidence in the international literature that in an agrarian setting marked by preponderance of smallholders, size of land holding is not necessarily a barrier to participation in the supermarket-driven marketing channel. Even within the context of smallholders dominance, exclusion from supermarket channel still occurs based on access to non-land assets. The result further shows that while transaction costs of selling harvest to the supermarkets may be lesser than those incurred in the traditional market channel, such advantage may be nullified if the farmer fails to meet the quality and standards demanded by the supermarket chain. Policy measures to bring asset-poor farmers within the ambit of supermarket-driven marketing system should include better provision of rural education, rural infrastructure and extension facilities by the government. Institutional innovation such as producer group should be encouraged to give farmers better bargaining power and reduce transaction costs to ensure a more inclusive supermarket-driven agri-food system.
Rajib Sutradhar

Innovations in Agricultural Marketing in India: A Case Study of Supermarket in Punjab

Linking small farmers with modern markets such as supermarkets has been identified as one of the several pathways ways to make their farming viable. In this context, the study explores emerging farm–firm linkages in fresh food supermarkets with a case study of Reliance Fresh in Punjab. Specifically, it analyses the impact on the farmers’ income, efficiency and their tendency to diversify to new high-value crops with a sample of 50 farmers each supplying to the supermarket and traditional markets. The supermarket procures vegetables through informal, verbal and non-written contracts from the small and marginal farmers. The supermarkets farmers benefitted on account of higher yield and higher price for the remaining produce sold in the local markets. They were also more efficient in the production of vegetables as compared to their counterparts. The preliminary evidences suggest that these alternative markets can play an active role in agricultural diversification in state like Punjab, which is facing severe agrarian crises. The study suggests that modern markets such as food supermarkets can only be effective if these procure through assured mechanism such as contract farming, besides extending the technical know-how, credit facilities, etc., to the farmers.
Naresh Singla

Tomato Value Chain in Karnataka

In the recent days, the value chain of perishables (especially tomato) has gained higher prominence in India. Both the advantages of supply and demand side have increased the importance of value chain. The study relied upon both primary and secondary data. The primary data was collected from various stakeholders for the period 2014–15. The outcome of this task resulted in identifying three marketing channels: traditional APMC channel, supermarket channel and processors-based channel. Among these channels, the quantity handled by the traditional channel is relatively higher than the other two channels. However, it is not surprising that farmers’ gains are relatively higher in the supermarket channel as compared to other channels. Tomato paste, Ketchup and Sauce were the major secondary processed products from the raw tomatoes. The marketing costs were comparatively higher (17%) in the case of tomato paste as compared to sauce and ketchup. The major constraints faced by the market intermediaries were the lack of market infrastructure, congested and unhygienic market place and high market fees while under utilization of their plants and non-availability of the required quality of produce suitable for processing were the major constraints of processors. Overall, the study revealed that there is a scope for higher value-added activities in the study region.
K. B. Ramappa, A. V. Manjunatha

Value Chain Analysis of Dry Fish in North-East Region of India

This study on ‘Value Chain Analysis of Dry Fish in North-East Region of India’ has been conducted in 2015 with specific objectives—(i) to map the value chain of dry fish in North-East region of the country, (ii) to analyse cost and margins of actors in value chain of dry fish, (iii) analyse impact of value chain of dry fish on income of small-scale processors, (iv) examine the status, institutional credit and socioeconomic factors that influence value chain actors’ decision to use institutional credit and (v) to suggest appropriate upgrading and development strategies to enhance the value chain performance. For capturing primary data, two major fish landing centres such as Digha, West Bengal and Veraval, Gujarat and 12 dry fish trading centres from the Northeastern states such as Assam, Manipur and Tripura have been selected. The sample comprises altogether 555 respondents including 136 processors, 75 wholesalers, 123 retailers, 156 labourers and 65 consumers. In this article, core processes of dry fish value chain, core and supporting value chain activities, value chain map showing the flow as well as inter-relationships and linkages among the chain actors of the dry fish products, sub-value chains, status of infrastructural facilities along the value chain, cost and margins of different chain actors, value chain performance and present status of institutional financing along the dry fish value chain and measures for upgradation of dry fish value chain are highlighted.
A. D. Upadhyay, D. K. Pandey, Bahni Dhar

Broiler Value Chain Model for Empowerment of Poor Tribal Women: A Case Study in Jharkhand

This is a case study on a unique cooperative institution promoted as a livelihood model exclusively for tribal women, essentially small and marginal farmers, whose menfolk are by and large working in other far away states like Punjab, Maharashtra, Kerala and Tamil Nadu employed mostly in construction sites, road works, etc. The project has been conceived by an NGO, PRADAN in Jharkhand after seeing its immense success in Madhya Pradesh. To take advantage of economies of scale in the procurement of inputs and in marketing, the women are organized into members of Self Help Groups (SHGs) and in clusters and further into members of cooperative society and rearing of broiler poultry undertaken. The tribal women are given sufficient training to rear about 300–500 day-old chicks as broiler poultry which is reared in a shed by the side of their dwelling itself and the cooperative society providing all support to the women from supplying the day-old chicks, inputs like feed, medicines, vaccination by purchasing everything in bulk and getting economies of scale. Feed components are purchased in bulk and mixed in feed mill owned by the cooperative society. Local educated youth are trained to undertake handholding support to the entrepreneur women. The cooperative society also organizes the bulk sale of the birds as and when they are ready for sale by contacting traders in nearby cities and accept the best rates and the traders come and lift the birds after making payment upfront. The cooperative society is run by a governing body consisting of the member women and the profits are distributed among the members by way of dividend after retention as reserves.
M. V. Ashok

Strengthening Value Chain of Compound Cattle Feed

Huge population of livestock in India offers market potential for the development of animal feed industry. To identify the main areas of intervention for strengthening the value chain in compound cattle feed, a detailed analysis has been done based on the primary data collected from various actors in the value chain (cattle feed manufacturers, input and service suppliers, dealers, retailers and end consumers) located in the states of Punjab and Haryana, representing dynamic dairy production environment and in Odisha and West Bengal, where dairy production is in a transient phase of development. The midstream value chain analysis indicated that manufacturing units had about 18–22% profits margin before tax. The major limitations faced from the upstream value chain were high volatility in prices of feed ingredients, erratic power supply, unskilled workforce, lack of quality testing facilities and control measures and inadequate financial services by the banks (especially, public sector banks) for quick and hassle-free working capital provisioning. The downstream analysis examining the efficacy of the compound cattle feed showed that the productivity enhancement in buffaloes was very small, while in crossbreds the results were encouraging. The study suggests interventions in four major areas, viz. quality assurance and feed safety, maintaining profitability, capacity and skill development, and value chain financing for strengthening the cattle feed value chain in the country.
Smita Sirohi, B. S. Chandel, Bitan Mondal, Sammu Kumar, S. Chowdhury, D. K. Mahawar

Potato Value Chain Analysis in Selected States: Tamil Nadu, Uttar Pradesh and Bihar

Identifying value-adding opportunities and organizing them along the value chain framework are conceived as one of the strategies to achieve efficiency. This study examined the various stakeholders in potato production and marketing in three states, namely Tamil Nadu, Uttar Pradesh and Bihar. The data were collected from 270 potato farmers and from 120 market intermediaries (local traders, commission agents, wholesalers, retailers, processors and exporters). The study delineated the current practices of production and marketing of potato and measured production and marketing efficiencies. The credit gaps, potentials for value addition and the investment needed for an effective value chain were also assessed. The farmers’ organizations, processors, exporters and retail chain stores need to push the chain based on the demand from consumers. Commercialization of potato seed production and distribution, development of alternative market channels to achieve more value addition by providing finance and developing niche markets and also encouraging professionalism in sorting, grading, storage, processing, etc., creation of cold storage facilities at production centres and development of integrated value chains linking farm gate and consumption points and the capacity building for chain actors to bring professionalism and entrepreneurship are the specific recommendations emerged from the study.
R. Venkatram, N. Ajjan, S. D. Sivakumar, H. P. Singh, S. P. Singh

Institutional Framework for Agriculture Value Chain Financing

Frontmatter

Elements of a National Agricultural Market in India

This paper addresses several research questions relating to the National Agricultural Market. How far do indicators suggest a basis for NAM? Does the current state of market exhibit lack of effective integration and in which commodities? What are the elements of the NAM on the back end? To what extent are the attributes of the existing marketing infrastructure such as backend support suited for the NAM? What changes in the back end (infrastructure and institutions) would be needed to make NAM effective? The existing lack of spatial integration makes a case for an institution like NAM. The analysis shows that barring some low-value cereals, markets for most commodities lack integration. However, subsequent analysis shows that the preparedness for a platform like NAM is quite low on the back end. The back end would require serious large-scale investment for the functioning of NAM comprising warehousing, cold storages, refrigerated vans, laboratories, grading facilities and certification mechanisms, among others. The existing marketing structure under APMC can be incorporated into NAM but significant modifications will be required. For effectiveness and sustainability of NAM, the government has to provide several public goods in the back end such as roads, banking and communication facilities, etc.
Devesh Roy, P. K. Joshi, Raj Chandra

Optimal Institutional Architecture of Farmer Producer Organizations for Sustainable Value Creation for Small and Marginal Farmers

This article argues that the assumptions for an industrial model of value addition on size, scope, technology, management, ownership, market landscape and governance structure are different to agriculture models for sustainability of small and marginal farmers. It has been based on a pan-India survey of over 250 producer organizations and case studies of 20 producer organizations across India during 2011–2014. In addition, the findings and suggestions of this paper are informed by an action research on developing a sustainable producer organization for over 8 years (2008–2017). Product-specific value chain as in industrial production system has its own dynamics and complexities. This approach makes a producer company a product company over a period of time and loses the focus of the producer. With greater value addition, it becomes financier centric owing to the technology-capital-ownership lock-up effect. Unlike in industrial products, high-value addition in agricultural produce can lead to value destruction in terms of the nutritional value of whole grain pulses versus polished pulses. Further, instead of selling in distant markets with high transaction costs, an FPO, selling surplus produce in the local market ensures better net price to the small farmers.
Amar K. J. R. Nayak

Impact of Market Reforms on Integration of Food Markets in India

Using the maximum likelihood method of co-integration, this chapter examines the impact of the market reforms on spatial integration of wheat markets in India. Reviewing briefly the provisions of the Model APMC Act and the status of reforms in Indian states, we have investigated whether the reforms have improved spatial integration (efficiency) of the markets by strengthening the relationship among the wheat prices quoted at various market centres in four selected states. The regional wheat markets, which were integrated relatively weakly during the pre-reform period, become integrated to a greater extent during the post-reform period. By and large, the extent of market integration has been associated positively with the magnitude of reforms in the marketing system, suggesting that further reforms and minimization of government interventions in the agricultural commodity markets would further improve spatial efficiency in the markets. The finding of an improvement in the degree of integration of the wheat markets after the reforms and the tendency of the wheat prices to move towards a common stochastic trend lend support to the proposal of declaring each state a ‘single market’ and the idea of setting up a ‘common national market’ for agricultural commodities.
Madhusudan Ghosh
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