July , 2018
E-trading: Facilitating better connectivity between the farmer, trader and consumer
12:36 pm

Nikhil Raghavan

For decades, generations of farmer communities have been at the receiving end of adverse conditions in every aspect of their trade – shortage of funds, inclement weather, unscrupulous financiers and middlemen, and bad debts, among others. Traditionally, agriculture has always been the backbone of the Indian economy till consumerism, industrialisation, and globalisation slowed down farming activity.

Still, in vast tracts of land in the hinterland of the country, agriculturists and farmers stood their ground, while younger generations of their families moved on to greener pastures, thanks to a booming economy and access to education and information, the latter, thanks to the internet. But, in recent times, there seems to be a gradual shift back to farming, albeit in a more modern avatar of organic farming and such. Nevertheless, the traditional stronghold of rural farming and farmers never gave up their dreams and hung on to hope.

The Government of India, sensing that mere globalisation and industrialisation alone will not make a well-balanced economy, has been initiating innovative schemes and implementing unique measures to help the agricultural community. Today, due to several measures, we have surplus of many items of agricultural produce. But therein lies the rub. How does a small or marginal farmer connect to bigger markets and buyers without being squeezed by the unscrupulous middleman?

“More than 80% of the agriculturists in India are small and marginal holding farmers. The quantities produced by them and the logistics involved does not make it a viable proposition for them to sell their produce directly to consumers or retailers. Farmers do not have monies even for cultivation. They borrow money at high interest rates from the arthiyas or commission agents (the middlemen who are an integral part of the agri-commodities supply chain) for cultivation and then, sell their produce to them, primarily to reduce their loan amount. “Consequently, the commission agents become indispensable,” says Meera Nair, an Executive Coach and a Business Consultant with senior management experience in Agribusiness and Financial services spanning over 20 years. With an MBA from Mumbai University in India and a Master’s Degree in Agricultural Economics with a specialisation in Agribusiness from Michigan State University in the US, Meera was hired by NABARD to examine the possibility to set up an e-trading platform for agricultural commodities and to revitalise agricultural marketing in Tamil Nadu. Meera has worked for the National Commodities and Derivatives Exchange (NCDEX) at the start-up stage. She designed commodity derivatives, developed business, handled retail and institutional investors and brought in corporate accounts for trading on the exchange.

NABARD was given the mandate to come out with a proposal for the introduction of e-trading platform for agri-commodities in Tamil Nadu.

Excerpts from interview with Meera Nair:

Q. What are the different kinds of risks faced by the farmers?

A. Farmers face production risk, marketing risk, and financial risk. Production risk can be overcome by using better production practices, crop diversification, crop protection methods (like chemical methods, use of bio pesticides, etc). In India, we have largely focused on the production risks for many years now. The government has made giant strides in this area and today we are a country of agricultural surplus. However, we are yet to overcome the marketing risk faced by the farmers.

Q. How can we overcome the marketing risks faced by farmers?

A. By using grading and assaying methods to get a higher price. By reaching the produce to the correct market. By improving the storage techniques with better warehouse facilities, cold storage facilities, etc. By getting a higher price by deferring sale of the produce. By innovative logistics for selling small quantities. By reducing the dependence on a single market. By getting into contracts with private sector for selling the produce. By proper decision making with respect to selection of crops prior to planting (use of IOT, for instance).

Q. What are the associated financial risks?

A. Financial risks are predominantly associated with both production and marketing. Higher interest cost of loans for production, higher input costs, lower prices of commo-dities which makes it difficult for farmers to repay their loans. There are other financial obligations for the farmers. There are financial risks arising from loss of crop due to vagaries of monsoon.

Q. How do farmers sell their produce currently?

A. Farmers sell it to the arthiyas, commission agents or middle men and in some cases to the traders directly. They also sell it at markets/mandis that are close to their farms.

Q. What is the process of selling in Agricultural Produce Market Committee (APMC) and cooperative markets?

A. In the APMCs and cooperatives, agricultural commodities are sold through open or closed tender auctions. Here, formation of cartels by commission agents / traders are seen very often. The bids given are very low and there is little or no transparency in the process. Consequently, farmers lose out heavily on their prices and also do not receive timely payments after sale of their produce.

Q. Which are the online platforms currently available for e-trading in India ?

A. Unified Market Platform (Initiative of Rashtriya e-Market Services Ltd., a joint venture between NCDEX e markets and Karnataka Government) and e-NAM (National Agricultural Market), an initiative by Government of India.

Q. What is e-trading?

A. The process of buying/selling of agricultural commodities through electronic trading platforms/portals at the market yards or APMCs is called e-trading. When these e-portals are linked (either within the state or across the country) traders from different parts of the state /country participate in the e trading process.

Q. How is e-trading currently done in different parts of the country?

A. In the APMCs where e-trading has started, the process of computerisation, and as a result automation, was done at various points. There has been no uniformity in the way in which this is currently being done. Commodity arrivals were recorded at the gate electronically in some mandis and a unique lot of IDs were also created. In some cases, these were not being done.

Although the electronic bidding systems were put in place, e-bidding was adopted only for commodities with high arrivals in the mandis. Other commodities continued to be traded manually. The quality details of the commodities are  displayed online, bidding happens online and the proceeds from the sale also gets transmitted online.

Though e-trading has started in different parts of the country the extent of using the e portal for the process of trading agri-commodity differs.

a. In some cases, only the process of auctioning within the mandi is done through this e trading portal, i.e., bids are quoted by the traders using an e portal.

b. In some other cases, the process of bidding and the final payment process have been linked. Traders quote the price for the commodity after visual inspection or after scientific assaying has been done by the seller.

The price quotes are tabulated automatically, and the highest bidder gets to buy the commodity. This is commu-nicated to the seller as text messages displayed on big screens or announced through loud speakers. The seller has the opportunity to accept or reject the quote/bid. If it is accepted the seller gets the money through RTGS/Cheque/cash. The buyer gets to take the commodity after obtaining the exit permit (these exit permits are also generated automatically in some mandis).

Q. How will the process of e-trading help the farmers?

A. E-trading is expected to increase the transparency in the trading process. Since the bidding process is done online, transparency would increase and also chances of cartelisation by the commission agents and traders would decrease. There would be increase in the dissemination of information /prices regarding the commodities. Price discovery would take place and the ability of farmers to get a better price would increase. If the payment system is integrated, farmers would be able to get their sale proceeds immediately. 

Q. Apprehensions of a small holding farmer about e-trading:

A. A small holding farmer produces agri commodities in small quantities. Since he does not have the wherewithal for cultivation, he mostly borrows from the arthiyas at high rates of interest. Hence, he sells his produce to the arthiyas and reduces his loan. He sells his produce in the markets nearby since the logistics becomes an issue. For such farmers e-trading is not very attractive due to the logistics of taking the produce to distant APMCs.

If payment process is completely linked then the payments get transferred to the bank A/Cs; but, many of these farmers want cash payments. In the older methods of trading, though the farmer would sell his produce, he would not get his cash immediately. There would be considerable delay.

Hence educating them about the benefits of linking the payment process while e-trading, which results in immediate transfer of money to the bank account, would be essential. The process of sorting, grading and assaying of their commodity helps them realise a better price. However, they do not have the ability to get this done and they have also not understood the benefits of realising a higher price after grading and assaying.

Q. How can small holding farmers be brought to trade on the e-trading portals/platforms?

A. Farmer producer organisations (FPOs) have been doing very good work in many parts of the country. These organi-sations are formed by a group of farmers who produce agricultural commodities and register themselves under the Indian companies act. The FPOs can trade on behalf of their shareholder farmers on the e-trading platforms and the proceeds/profits made through the sale can be distributed to the farmers accordingly.

Q. What is the way forward?

A. Since arthiyas are an integral part of the value chain, we can definitely expect resistance from them. Traders are also bound to resist since there would be an increase in transparency while trading through the e platform. It would be essential for the mandi officials and the agricultural officers at the block and state level to educate the farmers and all agri-value chain participants about the benefits of e-trading through workshops and promotional campaigns.

E-trading will have to be implemented in a phased manner. The process of bidding, grading/assaying and the payment procedure will need to be linked with the e trading portal within a mandi. Integration of e-trading platforms within the mandis in a state will be the next step followed by the integration of mandis among several states.

For effective price discovery, the number of trading parti-cipants will have to increase, and the profile of the participants would have to include farmers, arthiyas, traders, wholesalers and retailers.

If e-trading gets implemented well the entire agri-value chain will stand to benefit. Increased transparency in the trading process, decrease in transaction costs due to decrease in the number of intermediaries, higher prices for the commodities sold by the farmers and increase in the farmers share in the consumer’s price, will transform the agri-trading landscape.

— Views expressed in this interview are those of Meera Nair


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