How agri companies can facilitate finance to marginalised farmers

Marginalised farmers face financial vulnerability challenge exacerbated by constrained landholdings that impede income generation and often thrust farmers into cycles of indebtedness

how agri companies can facilitate finance for marginalised farmers

Marginal farmers constitute the bedrock of Indian agriculture, yet they grapple with formidable challenges that threaten their livelihoods. According to data from the Development Intelligence Unit, a staggering 86.2% of all farmers in India fall under the classification of small and marginal, tilling plots of land spanning less than 2 hectares. This demographic comprises approximately 126 million individuals, highlighting the sheer magnitude of their presence within the agricultural landscape.

Despite their prevalent role, the average landholding size for a marginal farmer stands at a meagre 0.6 hectares, a figure significantly lower than the national average of 1.5 hectares. This limited land area severely restricts their capacity to generate sustainable and sufficient incomes. Nevertheless, the contribution of these small plots to national food security remains pivotal, with small and marginal farmers collectively accounting for around 60% of India’s total food grain production. They contribute a significant percentage of fruits, vegetables, and pulses to the national diet, as per the Agricultural Census of India and various reports by the Indian Council of Agricultural Research (ICAR).

One major challenge marginalised farmers face is financial vulnerability exacerbated by constrained landholdings that impede income generation and often thrust farmers into cycles of indebtedness. Moreover, accessing formal credit proves daunting for many, owing to a lack of collateral and intricate procedural hurdles, as noted in a report by Eurasia Review. Compounding these financial woes is the limited access to essential resources such as high-quality seeds, fertilisers, and irrigation facilities, which stymie productivity and profitability.

Additionally, market dynamics pose a formidable hurdle, as small farmers frequently lack bargaining power and access to real-time market information, rendering them vulnerable to exploitation by middlemen. A report by the Intergovernmental Panel on Climate Change (IPCC) warns that erratic rainfall patterns and extreme weather events like droughts and floods are projected to increase in India. This disproportionately affects marginal farmers who lack resources for irrigation infrastructure and drought-resistant seeds, potentially leading to crop failures and increased vulnerability.

In this scenario, the role of agri companies in facilitating finance for marginalised farmers emerges as a potential game-changer. These companies, with their established networks and resources, hold the potential to bridge the financial gap and empower these crucial players in the agricultural landscape. The various approaches and initiatives adopted by agri companies include contract farming arrangements, microfinance partnerships, and value chain financing models.

It is important to take a closer look at the range of strategic initiatives that companies employ. Firstly, they engage in contract farming agreements, establishing pricing structures and sometimes providing upfront financial assistance for essential inputs such as seeds and fertilisers.

This not only eases the initial financial burden on farmers but also ensures a stable market for their produce. For example, contract farming initiatives by a leading Indian diversified conglomerate, have shown promising results for marginal farmers cultivating soybean.

A 2023 case study by the Confederation of Indian Industry (CII) reported a 25% increase in average income for participating farmers due to assured buyback agreements and technical assistance provided by it. Additionally, partnerships with Microfinance Institutions (MFIs) enable the creation of tailored loan products, addressing the specific needs of smallholder farmers for inputs, equipment, and land improvements.

Also, Agri companies actively participate in value chain financing models, extending credit to farmers based on the anticipated value of their future harvests. By reducing risks for lenders, this approach enhances farmers’ access to credit, bolstering financial resilience in rural communities. A 2022 study by the International Fund for Agricultural Development (IFAD) found that value-chain financing models can reduce loan defaults by up to 20% for farmers.

Moreover, by leveraging digital platforms, these companies facilitate direct connections between farmers and lenders, streamlining the loan application process and improving accessibility, especially for farmers in remote areas. A 2021 report by the World Bank states that digital loan applications through mobile platforms can be processed up to 70% faster compared to traditional paper-based methods. This efficiency improvement is crucial for farmers in remote areas with limited access to physical bank branches.

The agri companies can also play a significant role by partnering with FPOs (Farmer Producer Organisations). FPOs act as collectives, improving farmers’ bargaining power and creditworthiness.

In Madhya Pradesh, the National Agricultural Cooperative Marketing Federation of India (NAFED) partnered with several FPOs to provide joint financing for soybean cultivation. NAFED’s guarantee on behalf of the FPOs allowed member farmers to access higher loan amounts at lower interest rates. A 2023 report by NAFED showed a 15% increase in the average loan amount availed by FPO members compared to individual farmers in the region. Contract farming arrangements with agri-businesses can provide upfront financing for inputs, but concerns regarding fair pricing and potential exploitation of farmers necessitate transparent and well-defined contracts.

Through these and other such concerted efforts, agri companies contribute significantly to bridging the financial gap for marginalized farmers and fostering sustainable agricultural development as well as socioeconomic progress across India’s rural landscape.

Furthermore, as these initiatives continue to evolve and expand, they not only alleviate immediate financial burdens for marginalised farmers but also establish robust networks of support and knowledge-sharing. By promoting sustainable agricultural practices and providing access to modern technologies, agri companies play a pivotal role in enhancing productivity, improving livelihoods, and ultimately driving socioeconomic advancement in India’s rural areas.

Agri companies, through their concerted efforts, not only bridge the financial gap but also pave the way for a more inclusive and prosperous agricultural sector, benefiting both marginalised farmers and the broader community.

(Authored by: Sri Harsha Vadakattu, VP-Finance, Sid’s Farm)

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