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Agriculture Infrastructure Fund & Agri-Futures

Agriculture Infrastructure Fund & Agri-Futures

UPSC CSE Mains Syllabus: GS-3-  Major crops cropping patterns in various parts of the country, different types of irrigation and
irrigation systems storage, transport and marketing of agricultural produce and issues and related
constraints; e-technology in the aid of farmers.

Agriculture Infrastructure Fund & Agri-Futures

Agriculture Infrastructure Fund (AIF):

  •  Government had launched the Rs 1 lakh crore Agriculture Infrastructure Fund (AIF) to be used over the next four years.
  •  This fund will be used to build post-harvest storage and processing facilities, largely anchored at the Farmer Producer Organisations (FPOs).
  •  This can also be availed by individual entrepreneurs.
  •  The fund will also be used to provide loans, at concessional rates, to FPOs and other entrepreneurs through primary agriculture credit societies (PACs).
  •  NABARD will steer this initiative in association with the Ministry of Agriculture and Farmers Welfare.
  •  The implication of this for the Central government budgetis not going to be more than Rs 5,000 crore over four years in terms of interest subvention subsidy.
  •  The creation of the AIF presumes that there is already large demand for storage facilities and other post-harvest infrastructure.

Impacts of AIF:

  • The fund is a major step towards getting agri-markets right.
  • The government had earlier issued three ordinances related to the legal framework of agri-markets with a view to bringing about some degree of liberalisation.
  • These ordinances relate to amendments in the
  • Essential Commodities Act
  • allowing farmers to sell their produce outside the APMC mandis
  • encouraging farming contracts between farmers, processors, exporters and retailers.
  • Changes in the legal framework are a necessary condition.
  • Creating post-harvest physical infrastructure is as important as the changes in the legal framework. The AIF will help fill this gap.
  • Its positive impact will be evident in due course, depending upon how fast, and how earnestly, the states, FPOs, and individual entrepreneurs implement the reforms initiated by the Centre.

Some concerns:

  • There is no doubt that more and better storage facilities can help farmers avoid distress selling immediately after the harvest, when prices are generally at their lowest.
  • 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.
  • But FPOs will need large working capital to give advances to farmers against their produce as collateral.
  • Unless NABARD ensures that FPOs get their working capital at interest rates of 4 to 7 per cent — like farmers get for crop loans — the mere creation of storage facilities will not be enough to benefit farmers.
  • Currently, most FPOs get a large chunk of their loans for working capital from microfinance institutions at rates ranging from 18-22 per cent per annum.
  • At such rates, stocking is not economically viable unless the off-season prices are substantially higher than the prices at harvest time.

The future of the agri-futures markets:

  • A vibrant futures market is a standard way of hedging risks in a market economy. Several countries — be it Chinaor the US — have agri-futures markets that are multiple times the size of those in India.
  • The value of traded contracts on agri-futures in the NCDEX).
  • In terms of volume, the number of contracts traded was much higher in China and US.
  • In the past, government policy on futures has been too restrictive and unpredictable.
  • A rise in agri-prices would often result in the banning of agri-futures.
  • Most Indian policymakers look at agri-future markets as dens of speculators.
  • These markets are blamed for any abnormal price rise or fall.

Way forward:

  • As NABARD forms 10,000 FPOs and creates basic storage facilities through the AIF, it 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 in commodity markets — the Food Corporation of India (FCI), National Agricultural Cooperative Marketing Federation of India (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” of sorts for the healthy growth of agri-markets.
  • Finally, government policy has to be more stable and market friendly.

The bottom line is that India needs to not only spatially integrate its agri-markets (one nation, one market) but also integrate them temporally — spot and futures markets have to converge. Only then will Indian farmers realise the best price for their produce and hedge market risks.

SOURCE:”Indian Express”


Explain the benefits of the Agriculture Infrastructure Fund. What are the concerns in the agri-futures market in India? Suggest a way forward to resolve them.