|
|
|
You can get e-magazine links on WhatsApp. Click here
|
|
|
|
|
|
How to protect farmers against market price fluctuations
|
|
Tuesday, 31 October, 2023, 15 : 00 PM [IST]
|
|
Vivek Lalan
|
Farmers have long grappled with a persistent adversary - market price fluctuations - in the intricate tapestry of India's agricultural landscape. These fluctuations can wreak havoc on the livelihoods of millions of Indian farmers, leaving them vulnerable to financial uncertainty. In this article, we delve into the risk’s farmers face, take a closer look at the cause & effect that led to price variations, and the innovative solutions and instruments that can serve as a shield against this perennial challenge.
Understanding the Risk
Agriculture contributes about 18.3% to India's GDP & more than 60 million livelihoods depend on it. To truly comprehend the challenges that farmers in India face, we must first understand the agricultural ecosystem & its unique complexities. Revenue of farmers is a composition of two factors - Overall produce and the price they are fetching for this produce. Weather remains one of the biggest uncontrollable inputs in agriculture. Even after having a wonderful combination of Seeds, Crop protection and mechanisation, weather dictates the success of farmers.
Even after a fabulous season, farmers’ success is not guaranteed. It all boils down to the prices they are fetching for their bumper produce. MSP gives a floor price to farmers as a fall back but it is available only for a few crops and less than 25% farmers actually are able to sell on MSP.
Almost 70% of the farmers' success depends on weather, temperature, rain, humidity, timely access to inputs, labour, and even market prices.
For farmers to grow profitably & sustainably, it's essential to de-risk farming operations and bring predictability & consistency to the farm operations. And to do so, we need to understand the price risk puzzle.
The Price Risk Puzzle
Market Price is determined by many factors, including but not limited to crop damages, disruption in the supply chain, post-harvest losses, restrictions on exports, dependencies on imports, reduced spending, inflation, policies, demand for the produce.
To top it all, the unpredictable nature of exchange rates, the changing energy costs that power farming operations, accessibility & availability of fertilizers, challenges in accessing capital, and linkage to markets & buyers impact a farmer's profitability.
According to reports, less than 25% of the farmers in India have been able to avail benefits of MSP for commodity crops, and more than 50% of these farmers end up selling below MSP across 7,200+ agricultural market yards (or mandi) in India. These farmers must get a fair product value and fetch a premium for better yield quality. While MSP provides some stability for certain commodities, vegetable growers are vulnerable as MSP does not apply to vegetable crops.
To address this challenge effectively, we must decipher this puzzle and seek innovative solutions that provide farmers with the stability and security they urgently need.
The solution to the puzzle
The most efficient way for farmers to deal with market volatility is to opt for risk-cover solutions that help them mitigate risks. While many risk-cover solutions are available in the market, less than 25% of the farmers are aware of the benefits of risk-cover solutions as farmers are wary about the process, don't have proper documentation, and believe that they won't be compensated for their losses promptly. To solve these challenges the farmers face, newer risk-cover solutions need to be introduced that automate disbursals based on index triggers and require minimal to no paperwork.
How do these index-based risk cover solutions work?
With such diversified cropping and harvesting patterns in India, limited infrastructure and technology use, it will always be hard to track the revenue at a farmer level. It is very important to introduce an index based parametric cover which gives protection to farmers against inadvertent fall in prices of commodities.
Risk cover gets triggered when the index, which reflects the price movements of specific crops or commodities, registers a significant change. These solutions will ensure shorter disbursal windows and lower premiums. The idea is to compensate farmers if the prices fall below their input cost, hence making agriculture a business of loss for them. Furthermore, these solutions should eliminate the need for complex paperwork and ensure transparency and fairness in the compensation process.
Providing compensation based on benchmarked data will cushion farmers against unexpected price drops, offering them support that can help offset losses incurred during unfavourable market conditions.
The farmers need more assistance, closer access to markets, better cold storage infrastructure, access to crop protection products, mechanization, technology, and even pest & disease prediction models. A multi-pronged approach is required to build farmer resilience by integrating machine learning, offering innovative risk cover solutions, digitization, and leveraging technology to deliver data-driven contextual insights to the farmers making agriculture predictable, sustainable and profitable for all.
(The author is head of insurance at nurture.farm)
|
|
|
|
|
|
|
|
|
|