The junking of high-value currency notes can maximise profits for farmers, provided some add-on steps are taken.
Despite trading in almost all of Karnataka’s commodity mandis going online, the value of trades fell by a third in the week after high-value currency notes were invalidated, underscoring the extent of cash play in the markets and the need for a thrust to direct payments into farmers’ bank accounts.
Traded value declined by 35 per cent from Rs 633 crore in the week before demonetisation to Rs 414 crore in the week after, according to information provided by Rashtriya e-Market Services (ReMS), the company which operates a common electronic trading platform across 152 of the state’s 158 mandis.
The number of lots traded fell 34 per cent from 74,619 to 48,892, and traded volume declined 38 per cent from 137 lakh quintals to 85.1 lakh quintals between the two periods.
While there was no appreciable change in prices of major commodities, those of maize, chickpea (chana), pigeonpea (tur), groundnut and potatoes swung between 5 per cent and 15 per cent in some of the state’s major markets.
Settlements were mostly in cash before demonetisation. Following that event, farmers have opted for payments by cheque, direct bank transfers, deferred cash and demonetised currency notes, depending on value and their faith in the commission agents, mandi officials said.
“Everything is online but only one per cent of payments are made directly into bank accounts,’ said Devaraj B.S, a farmer in Tiptur near Bengaluru, a market specialising in copra, when contacted by phone a few weeks before demonetisation. Payments in cash allow commission agents to make disallowed deductions, Devaraj said. He also blamed lobbies for resisting the move.
Of Tiptur market’s Rs 700 crore turnover last financial year, only Rs 1.7 crore was paid directly into bank accounts, V. Rajanna, deputy director, agricultural marketing, Tumakuru district and secretary of the Tiptur mandi said. That is a quarter of one percent. Payments would be entirely online in about three months, he assured. Rajanna said traders were having an issue with funds as banks had not extended cash credit lines.
“Yes, that is partially true,” said Samir Shah, managing director and CEO of National Commodities and Derivatives Exchange (NCDEX), which has a majority stake in ReMS, a joint venture with the Karnataka government. “The main reluctance is that the trader does not want to let go of his pricing power over the farmer.”
Demonetisation is an opportunity to give direct bank transfers a push. Unlike the central government’s electronic National Agricultural Market (e-NAM) project, Karnataka’s reforms are thorough. More than computerising the old processes, it has overhauled the processes themselves. The difference between the two platforms may be compared to bank computerisation in the early 1990s and Internet banking now.
There are more than 7,500 mandis or spot commodity markets in the country. They have not delivered on their promise of helping farmers capture a large share of the value which consumers pay. Three things work against them in the traditional format. Competition is limited to local traders, making it easy for them to collude (That is overcome, when traders across a state or the country bid on an electronic exchange). Farmers do not know the prevailing prices, because the bidding is opaque. They do not bother about quality because they have little incentive as traders routinely make deductions for poor quality, often wrongly. Chits of paper substitute for formal bills.
In Karnataka, when a farmer arrives at the marketing yard, an entry slip with his name and mobile number is generated. The lot is weighed electronically. A sample goes for assaying. This facility is available in 40 mandis and for 20 of 42 traded commodities.
Parameters like moisture, defects and foreign matter content are noted and a certificate is given. Currently assaying is done by the National Collateral Management Corporation. (To ensure that the assayer does not understate quality, as a matter of caution, certificates are randomly audited by a third party with control samples). The information is posted on the trading platform and the bidding starts. An SMS of the highest quote is sent to the farmer who can elect to accept it within half an hour. Once the assent is given, a bill is generated, a version of which is sent by SMS, and payment is made in cash or directly into bank accounts, if they are registered for it.
With increased competition, farmers are supposed to get a higher share of the consumer price. “This is the litmus test of whether reforms have happened or not,” says Manoj Rajan, managing director and CEO of ReMS. He certifies that Karnataka’s reforms have passed the test. Year before last, pigeonpea prices per quintal in the Yadgir market—Rs 4,113 on average—trailed those in Kalaburagi—Rs 4,245. Both were offline then. Last year, after it went online, prices in Yadgir were Rs 5,200—Rs 300 higher than in Kalaburagi, which has resisted change.
Turmeric traders from Karnataka, Kerala and Tamil Nadu are shifting from Erode, a traditional market in Tamilnadu, to Chamrajnagar, Rajan says. Arrivals have increased fourfold from 23,811 quintals in 2013-14 to 100,511 quintals in 2014-15, despite no expansion in growing area. Prices between the two markets have narrowed to a sliver.
But farmers will have to learn to produce to specifications. Rajan says that groundnut with moisture content of 18-20 per cent fetched Rs 3,170 a quintal, but when the moisture was reduced to 4-6 per cent, the price rose to Rs 5,244, a gain of more than Rs 2,000, on a small loss of weight.
With direct transfers to bank accounts, farmers will be able to develop a credit profile. This will help them get bank finance and be less dependent on traders and commission agents for credit. This de-linkage is essential for farmers to be free to sell their produce. So long as they borrow from traders, they will be compelled to sell to them at lower than market prices.
The Green Revolution focussed on food security by raising agricultural output. A marketing revolution is needed if farmers’ incomes are to double by 2022. For that, the government and its various agencies will have to shift focus. Agricultural extension services and rural-facing non-governmental organisations (NGOs) want to maximise yield, while farmers want to maximise profit, says Shruti Jagirdar of J-PAL, the “poverty action lab” of Massachusetts Institute of Technology, which has been working with cotton farmers. Demonetisation might be a push in that direction, provided add-on steps are taken. But if the play of cash continues with new notes instead of old invalid notes, there will be little gain from the disruptive initiative.
Vivian Fernandes is editor of www.smartindianagriculture.in