Understanding Indian Agriculture: small plots, systemic challenges, & solutions

By Lexi Doolittle

What does it mean to be a marginal Indian farmer? To have a hectare or two of land, growing the regional crop, eking out all possible value from that crop with little formal support or business education? What are the actual barriers and gaps between these farmers and their ability to more productively engage with the market? And once those barriers and gaps are identified, how can they be overcome efficiently, effectively and with the most positive social impact? S3IDF regularly engages with these questions, and with this article we wanted to bring more of these challenges to light, offer our own solutions, and help further the discussion of how all relevant stakeholders can become a part of a movement towards a more inclusive economy.

What are Small Farm Livelihoods?

In an effort to be most correct and targeted in our internal and external language we refer to our agriculture work as small farm livelihood strengthening. In the context of India, where we do the vast majority of our small farm livelihood work, this means that we help small and marginal farmers and landless laborers (those who work in agriculture but don’t have their own plot of land) to increase their incomes and gain access to other services like schooling, water, and business financing, that will help them and their families lead better lives. In rural India in particular small and marginal farmers are those that are working less than 2 hectares of land, a plot size that is becoming increasingly unviable for sustaining a livelihood, but represents about 85% of the workable Indian farmland (according to latest Indian census).

What’s The Problem?

While the size of the plot is challenging for farmers, it’s just one facet of a much more complicated problem. And honestly, it’s the least malleable facet, so for the moment let’s table the idea that we could somehow change the farmer plot size, and instead focus on their other challenges. These farmers in particular, due in large part to their relative size, historical inequalities and resulting income levels, lack the basic business support provided to more profitable farmers, which could enable a cycle of sustainable growth. These basic business tools could be as simple as numeracy, or the ability to account for cash flows, the ability to open a checking or savings account, a credit history, collateral that could be used against a small-business loan, or even knowledge of loan or savings products designed to support their growth.

That covers their basic business accounting-type problems, but those aren’t their only limiting factors. What complicates their barriers to growth even more, and stems from their plot size, is their access limits to technology and reliable labor. Sure, you can sell unprocessed produce for a small profit in a local market, but if you want to make more money an obvious next step would be to process your produce a bit more, or sell it in a larger, perhaps more distant market, maybe even brand your produce with your name, or as organic if applicable to build a following. These alternatives are simply unavailable, or unknown, to small farmers. Processing machines are expensive, and often too large to be appropriate for a single small farm, and even if you and your neighbors pool all your money and somehow access financing and decide to go in on one together, you’ll need to find a machine that can travel between your farms, probably necessitating a vehicle purchase, or maybe it will be stored somewhere for collective use as well as in the off-season, but it’ll need to be a central storage location protected against rusting or theft.

The issue of machine purchase is exemplary of the type of problems small farmers face, which aren’t exactly simple on the surface level, but become infinitely more complicated as soon as you dig a little deeper. And we haven’t even really discussed landless laborers, often taken advantage of due to their lack of autonomy and dependence on farmers who are facing their own productive challenges.

Do You See Where I’m Going with This?

I’ve outlined a number of individual challenges, and perhaps if you have a certain turn of mind (or are familiar with the sector), you realize that the one obvious potential solution is collectivization of small farmers. If so, you’re right, in principle. Collectivization of farmers would address a number of the challenges they specifically face such as machine-size mismatches, labor shortages, and perhaps even market access. But successful collectivization requires far more than merely ‘collecting’, because collecting farmers doesn’t solve the business acumen gaps, or the financial access gaps, or even the machinery purchasing, storage, and transport gaps.

The collectivization must be accompanied by an outside force willing and able to strengthen the collected farmers. And we’ve finally come to the point in this story at which S3IDF, and our local NGO partners enter.

The Indian government recognizes the value of collectivization for farmers, and provides legal protections to Farmer Producer Organizations (FPOs) such as farmer Producer Companies (FPCs) that allow for farmers to collectivize and grow unimpeded. The Ministry of Agriculture, via the Small Farmers’ Agri-Business Consortium (SFAC) has even created a funding scheme that provides a credit guarantee to FPCs at up to 1 crore levels (roughly 150,000 USD), channeled through a lending institution and subject to their approval. But there is a gap between the collection of farmers into an FPC, and the ability of the FPC to apply for a 150,000 USD loan from a bank.

We Know the Problems — Now What’s the Solution?

The gap between forming an FPC, and strengthening it to the point at which a bank deems it worthy of a 150,000 USD loan is S3IDF’s workspace. We collaborate with local NGOs that know the farmers and have gained their trust, and provide to the NGO and the FPC the business education, financial and technical services they are critically missing in their growth process.

We help FPCs build a credit history by connecting them to cooperatives willing to lend to them at small amounts with a partial loan guarantee by S3IDF. After this loan is repaid we may connect them with a local branch of a national bank, and using their demonstrated repayment history, help them secure an even larger loan. This larger loan sets them on a track towards increasing credit lines without collateral requirements that may be guaranteed by the SFAC scheme, or may not need to be. While this financing is critically difficult for farmers to access alone, the money isn’t enough. The loans must also be accompanied by business incubation services, and technology access facilitation. So we and our local NGO partners work with the FPC members to help assess their specific business and technology needs, to develop a viable business plan on paper that they can then carry out, and we identify the technology and infrastructure improvements they require to increase their member incomes.

This may take the form of S3DIF using our own skills and networks to research post-harvesting technology that can be hooked up to a motorcycle and driven around the countryside, or perhaps we help them decide to invest in a durable structure for FPC headquarters in which an immobile machine can be housed. This HQ would likely also need a reliable water source, sanitation facilities, perhaps crop storage for sale in a more profitable season and other infrastructure investments. This is one example of the type of business and technological improvements S3IDF and our partners can provide to a single FPC, but the real trick is knowing that most FPCs will require a variety of services and capacity building in order to strengthen, and the strengthening entities (S3IDF and our partners) must be able to provide direct or indirect connections to all of those services.

Going Forward:

S3IDF’s work is not straightforward, because the challenges faced by those we serve are not straightforward. But it’s critical to take a moment every now and then and allow yourself the few minutes it takes to dive into the details, become immersed in the minutia, and explore the nuance of both the problem and solution side of the equation. It will be through more discussion, and subsequent greater understanding, of the real and complicated nature of the agriculture sector that various stakeholders relevant to the space will be able to propel its transformation towards economic inclusivity and sustainable growth.