Agri-Infrastructure Reforms – UPSC GS3

Purpose of Agriculture Infrastructure Fund

• Creating post-harvest physical infrastructure is as important as the changes in the legal framework (like the recent ordinances).
• The recently announced Rs 1 lakh crore Agriculture Infrastructure Fund (AIF) will be used over the next four years.
• This fund will be used to build post-harvest storage and processing facilities.
• NABARD will steer this initiative in association with the Ministry of Agriculture and Farmers Welfare, largely anchored at FPOs.
• The creation of the AIF presumes that there is already large demand for storage facilities and other post harvest infrastructure.

Reforms in 2 areas which could help farmers get better price realisation

1. Negotiable warehouse receipt

• More and better storage facilities can help farmers avoid distress selling immediately after the harvest.
• But small farmers cannot hold stocks for long as they have urgent cash needs to meet family expenditures.
• Therefore, the value of the storage facilities at the FPO level could be enhanced by a negotiable warehouse receipt system.
• FPOs can give an advance to farmers, say 75-80 per cent of the value of their produce at the current market price.
• How NABARD can play an important role
  • Since NABARD is also responsible for the creation of 10,000 more FPOs, it can create a package that will help these outfits realize better prices
  • FPOs will need large working capital to give advances to farmers against their produce as collateral.
  • NABARD can ensure that FPOs get their working capital at interest rates of 4 to 7 per cent.
  • Currently, most FPOs get capital from microfinance institutions at rates ranging from 18-22 per cent per annum which is not economically viable unless the off-season prices are substantially higher than the prices at harvest time.

2. Improving Agri-futures markets

• A vibrant futures market is a standard way of reducing risks in a market economy.
• Several countries — be it China or the US — have agri-futures markets that are multiple times the size of those in India.

Way forward

• NABARD should devise a compulsory module that trains FPOs to use the negotiable warehouse receipt system and navigate the realm of agri-futures to hedge their market risks.
• Government agencies dealing in commodity markets — the FCI, NAFED, State Trading Corporation (STC) — should increase their participation in agri-futures.
• That is how China deepened its agri-futures markets.
• The banks that give loans to FPOs and traders should also participate in commodity futures as “re-insurers” for the healthy growth of agri-markets.
• Government policy has to be more stable and market friendly.
• In the past, it has been too restrictive and unpredictable.

Conclusion

• Creating post-harvest physical infrastructure is as important as the changes in the legal framework. In light of this, highlight the importance of recently announced Agriculture Infrastructure Fund and suggest the measures to increase the price realization of agri-products by farmers.