Sector Update: Milling Success for Farmers

By Harvinder Kaur

Historically, millet was widely grown as fodder for birds and animals. It was also once considered a poor man’s staple food. Today, millets are quickly gaining traction in the mainstream and becoming a global favourite due to their ability to survive in dry and arid climatic conditions and provide high nutritional value. At the urging of the Indian government, 2023 was declared as the “International Year of Millets” by the Food and Agriculture Organization. Although millet cultivation presents significant opportunities for farmers and consumers, smallholder farmers often require assistance obtaining the resources they need to capitalize on this movement and increase their incomes from cultivating this superfood.

The Importance of Post-Harvest Processing

S3IDF engages with small and marginal farmers in India, who play a crucial role in driving the country’s economic growth. Due to their marginalized status within Indian society, these farmers often lack access to the finance and technology required to increase their incomes and strengthen their livelihoods. Individually, they do not have a sizeable marketable surplus to benefit from economies of scale, which is why collectivisation through farmer-friendly structures like Farmer Producer Companies (FPCs) is so critical. The Salughatte Farmers Producer Company is one such organization with whom S3IDF has been engaging for the past 3 years.

Board members of Salughatte Farmers Producer Company

Project Summary

The Salughatte FPC was formed in 2016 in the Tumkur district of Karnataka, to improve the livelihoods of farmers. Before 2016, the farmers sold their millet crop to a wholesale trader through an agent who doubled as an informal moneylender, providing them with a line of credit they could use to cover some of the upfront costs of sowing the crop. The same lender then controlled the selling price of millet for the farmer to the wholesaler, giving the farmers very little bargaining power in the process.

After the FPC formed, the farmers were able to instead sell their millet crop to the producer company at competitive market prices, with the knowledge that the leadership group would reinvest the profits back into the FPC to continue to improve its business operations and increase profits for its farmer and labourer members.

The market for millets is rapidly expanding with growing demand from urban residents. However, smallholder farmers whose livelihoods revolve around cultivating this smart food face fierce competition. Technology plays a significant role in determining the price of the millet crop, and farmers who lack access to processing technology are at a disadvantage despite growing a quality product; processed and polished grains yield a significantly higher market return than their unrefined counterpart. It is imperative for farmers to process their crops for added value, and access the financial products and services necessary to procure the critical technology that will allow them to do so, such as millet grinders and roasters that make their crops shelf-stable.

As the demand for millets continued expanded and became more competitive for farmers, the FPC’s members recognized the significant opportunity of processing their millet to increase their profit margins (which can be razor-thin when selling raw, unprocessed products).

S3IDF partnered with the NGO MOTHER to help the Salughatte FPC develop a viable business model, and provide them with access to needed equipment and finance to strengthen their farmers’ livelihoods. To achieve this, S3IDF coordinated visits for the FPC to learn about and assess various market-available machines, as well as to learn more about the machines’ operations and maintenance. On one of these visits, the Salughatte FPC found a mill that fit their needs; however, they still lacked the financing necessary to purchase the equipment.

Board members of Salughatte FPC conversing with a local mill vendor

Getting the FPC Credit-Ready

The FPC was faced with various governance, credit-worthiness, and collateral challenges, that prevented them from independently securing the necessary financing to purchase the equipment. S3IDF worked with the Salughatte FPC to build their capacity and credibility to help them become credit-ready. In particular, S3IDF provided the FPC with hands-on support and training on financial bookkeeping and helped them improve their organizational governance.

S3IDF further went with the FPC leadership to Canara Bank, with the ultimate objective of helping the FPC secure a loan that could be used to buy the mill. In addition to facilitating the relationship, S3IDF needed to supply a partial loan guarantee of Rs. 3 lakhs (~ USD 4,000) to Canara Bank for the credit release to the FPC. After a year of relationship building, Canara Bank finally sanctioned an interest-free loan to the Salughatte FPC, the first-ever loan of its kind from Canara Bank to an FPC. This loan was then used by the FPC to initiate the process of purchasing the millet processing mill in March 2019. The mill’s addition to the FPC will increase the value of the millets through efficient processing, and the FPC has already received orders from big market players for the purchase of processed millets.

To learn more about how and why S3IDF employs loan guarantees, click here.