Silver Lining of COVID19!
COVID-19 crisis has brought economy on halt, reduced price of oil to -$40 per barrel (yes, that is negative, not a colon!), thrown global economy in disarray, and disrupted every human life. Are there lessons to be learned due to this pandemic? Yes. Farmers need to be educated about better agricultural practices, about different technologies available and using the digital facility for their advantage. What can the government do now that would not only benefit farmers during the current crisis but also change the landscape of farming?
Penetration of mobile network and E-Nam: There have been reports from all around the country about how the deep penetration of mobile networks has been responsible for reducing the loss of agricultural wastage due to travel restrictions. JIO’s aggressive business model resulted in increasing 4G penetration, even to the remotest regions of the country. This has created opportunities for farmers to deal directly with the buyers. Grape farmers in Bengaluru are selling directly to customers and other farmers are picking up on it. Farmers are using mobile phones to share pictures of their produce to buyers and are getting them sold without the interference of middlemen and Farmer Produce Market. What if the government uses this time to bring everyone on the E-Nam platform by promoting the app to farmers and buyers (private/public)?
The development of E-Nam would pave the way for so many things. The farmers can become adept at using technology and online platforms to sell. The government will be able to keep data about the product’s quantity, quality, location, and set plans accordingly for future procurement. In an effort to increase engagement, the government, can send quality testing engineers into these locations to validate the information and grade the produce that the farmer wants to sell. This will create avenues for grading of greens, which is still in its infancy in India. This data would be useful in deciding the method of procurement, transportation method, and the required manpower. Transactions can take place through the Jan Dhan account. The government will be able to make sure that farmers are not under-priced and keep a record for GST returns as well. Such an ecosystem will prevent the hoarding of products by a few buyers and control the price dynamics of commodities. This data can also be used to give insurance at less cost, provide loan at less interest rate, provide agricultural knowledge to farmers, keep agricultural data to better map out agricultural land data of the country. A nation-wide database would make the sector more organized.
Government E-Marketplace: Given the COVID-19 pandemic, the Government of India has taken the help of the GEM platform to procure medical goods. There has been a surge in start-ups registering their products on the platform in different verticles. It is important that the dynamics around GEM does not subside post the pandemic, and several institutions like NITI Aayog, Agnii and Start-Up India can take on the responsibility. Given the inputs obtained from the farm, the state departments of Horticulture can use the platform to source the necessary hardware products. This will not bolster the manufacturing sector of the country but will promote Indian products to be used by Indian farmers. A perfect outline for the “Make in India” initiative.
AgriTrading is another field that can be explored. In the USA, a third of the farmers are into agricultural trading, 10% in South Africa, and at around 5% in Europe. Crop insurance and options are a few of the next best ways to protect the farmers from price fluctuations. While crop insurance can protect against loss in harvest, options protects them from reaped harvest.
The use of future in Agri-trading has two benefits.
1) Risk management: It can provide farmers with options to determine a certain harvest price for their agricultural production. This saves them from losses if the prices fall by hedging. Hedging safeguards from the price volatility of agricultural commodities as the risk is transferred to the speculators. Speculators would accept this risk to make a profit from the trade.
As reported by Mint, Samriddhi Mahila Crop Production Co. Ltd, a woman’s FPO in Bundi district of Rajasthan, used the futures market to sell 100 quintals of Soybean at prices higher (at Rs 3300 per quintal) than the wholesale market (Rs 3000 per quintal). The business was done two months post-harvest. They made a profit of Rs 30,000 using the future option. In March 2017, trading platform, NCDEX, had reported that more than 25,000 small and marginal farmers from 13 FPOs have hedged their crops successfully using future options on their trading platform.
2) Price discovery is another use of the future for farmers. Since the future market helps in predicting spot prices for their agricultural products, farmers can estimate the price and their net profit/loss from their production. Farmers become the beneficiaries as they don’t lose money by using sell forward option, and the buyers can hedge their losses by using buy forward option. Options can stabilize food inflation and food subsidy. Best prices for the products can be paid by processors and merchandisers and consumers can get lower prices for food. The government can use call options to reduce the requirement for stocking goods to stabilize the market prices. A well-defined set of rules and regulations by the government will discourage potential speculators from hoarding.
Though the volatility in price will not be reduced by the use of options, but they can help in fallout. Do you think it is too radical for a country like India? Or you think this is what the Indian government meant when they said they radically change agricultural marketing?
Through this article, Aisvarya Jain prompts at different options that are available under the roof which the agricultural ecosystem can take up during the COVID19 lockdown. She is pursuing her MBA from the Indian Institute of Foreign Trade and has been providing smart inputs to Tan90, during her stint as an intern. Tan90 works on portable cold storages.