Small farmers need stronger agro credit societies

The Telegraph, May 20, 2015

By Neha Tomar and Rijit Sengupta

Over the last couple of months, farmers across various Indian states have had to deal with abject impoverishment on account of crop losses due to inclement weather. Crops worth millions of rupees have been lost across many states, livelihoods destroyed and families impoverished.

One of the states that does not seem to have been much affected from this is Bihar. Over the last few years, Bihar has performed considerably well in the agriculture sector – notably in foodcrop production. The recent vagaries of climate gave a miss to Bihar, further boosting its status as a key emerging agricultural heavyweight in the country. It also seems to be one of the states that has the potential of benefiting small farmers. An institution that has this potential is the Primary Agriculture Credit Societies (PACS) – an institution of the farmers, by the farmers, for the farmers.

PACS are responsible for procurement of grains from farmers at minimum support price (MSP) and for providing credit and fertilizers to them. In spite of being an institution with a formidable network (over 8,000 units) across the state, these PACS seem to have performed below their potential on account of certain systemic and governance weaknesses.

For a farmer to be able to sell to PACS, s/he is required to produce a patta (land ownership papers). This is a document that most small farmers in Bihar do not have. Further, rejection of crops is common using crude methods (hand checking of quality) employed by PACS officials to check the quality of the crop. Such uncertainties have reduced the interest of farmers in Bihar to deal with PACS. They are happy dealing with the private traders who offer a little less money – but the interaction is hassle-free and fast. Therefore, small farmers often escape the PACS route and sell their produce at a little lower price to “village assemblers”. These assemblers work for private traders/money-lenders and visit the farmers frequently during the harvesting season.

In a study undertaken by CUTS in two districts of Bihar (Saran and Vaishali), it has been revealed that only a handful of farmers prefer to deal with PACS, most of them are happy to sell their produce to the private traders/money-lenders.

It is a pity that in spite of being a well thought-out organisation, PACS have been unable to meet their prime objective of procuring crops directly from farmers in Bihar. It would be ideal if the PACS were strengthened to ensure that they pick up grains from such (small) farmers in the state, who are unable to get a market for their produce easily.

PACS in Bihar should model themselves as a first point of contact for small farmers – to assure them of buying their produce and settling their dues immediately. The department of agriculture, Bihar, has recognised the importance of strengthening PACS and has initiated a process in that direction.

This article tries to establish pointers for strengthening the PACS, and in the process raise two key challenges they face – funding/resources and internal capacity.

In case of financial resources, PACS depend on the Central Cooperative Banks, a body that is dormant itself. The panchayat level jurisdiction leaves the PACS with limited venues for fund raising. Furthermore, the structure and organisation of PACS is such that it is by default likely to suffer losses. While the PACS are required to pay the farmers at the time of procurement, they receive their dues once the produce reaches the Food Corporation of India (FCI) godowns in the state. Subsequently, payments are released for the PACS. Consequently, the PACS receive the payment for procurement only after a lag of (a minimum) one month.

Similarly, in case of capacity building, the department of cooperative (Bihar), their parent body, has done little to empower these PACS. No guidelines or rules exist to assist the PACS in meeting their objectives. There is no training provided on using advanced technology or cost saving mechanisms in carrying out their functions. For instance, lack of storage is one of the most crucial problems faced by these PACS. Produce procured is often stored in open fields, resulting in wastage. Lastly, the PACS are free from diligent review and are unaccountable for targets achieved. They submit an annual report to the department of cooperatives, which no one seem to look at.

It is argued that in the quest to revamp the PACS, considerable attention will need to be accorded to studying and strengthening the relationship between the PACS, the department of cooperatives (Bihar) and the Central Cooperative Banks. The PACS is a valued organisation, which, if steered in the right direction and supported consistently, could be a most effective conduit for addressing economic woes of small farmers in Bihar.

Rijit Sengupta is director of CUTS International, a Jaipur-based public policy think-tank working in the areas of economic and regulatory policy. Neha Tomar is a research associate at CUTS

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