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The middlemen conundrum: Understanding the challenges faced by farmers
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Friday, 18 August, 2023, 15 : 00 PM [IST]
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Abhishek Agarwal
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Since ancient times, agriculture has been a primary pillar of India’s economy. More than 70% of rural households rely on agriculture and its allied sectors in some form or the other. As a result, the segment contributed 18.3% to the GDP in 2022-23, as per estimates of the Ministry of Statistics & Programme Implementation.
Considering the criticality of agriculture in the Indian economy, one would expect farming to be a remunerative activity. Unfortunately, this is not the case, given the pervasive role of middlemen in the country’s agricultural trade. Popularly called arhtiyas (or commission agents), middlemen act as intermediaries between farmers and those seeking to buy their produce, controlling the auction and delivery of harvested crops to buyers. In the process, they provide essential services such as transport, storage and finance.
Exploitative Practices
While this sounds good, it is not so at the ground level due to the exploitative practices that hurt the interests of farmers. One of the biggest barriers for farmers is the low prices paid by middlemen who control their produce in the supply chain. Taking undue advantage of the inadequate knowledge of farmers regarding the current market prices and practices, the agents offer them extremely low prices. Lacking bargaining power and the desperation to sell their perishable produce, farmers are forced to accept the middlemen’s unfair terms and manipulated prices.
In many cases, the unfair practices begin even before farmers sell their produce. Since poor farmers have no access to formal credit mechanisms, they are forced to rely on middlemen for loans to meet immediate financial needs. But these loans are only offered at usurious interest rates. The series of unfair practices then end up entrapping farmers in a never-ending debt cycle. The unorganised nature of this market only makes matters worse for farmers.
The presence of middlemen across the agricultural supply chains creates immense inefficiencies since they control the entire distribution channel. Farmers are charged high transport costs and sales commissions, eroding their earnings even more. Besides, improper storage facilities and inadequate infrastructure end in spoilage of the produce, leading to major post-harvest losses.
Potential Solutions
Companies that have direct linkages on fair terms, reduce the number of middlemen and touchpoints, and give access to farmers on marketing pricing can address the above issues and mitigate the farming community’s problems.
Take the case of dry fruits such as almonds. When soaked in water, instead of merely leaving a golden tinge, the almonds bleed an artificial brown colour, indicating adulteration, which typically occurs at the intermediate stage.
But companies with full-stack business models are now eliminating adulteration by setting up farm-gate processing units. Being closer to the source of the produce, these companies provide fair remuneration to farmers. Simultaneously, they undertake strict quality control checks to avoid any threat of adulteration. Moreover, by selling directly to these companies, farmers receive higher returns for their produce, in turn boosting their annual incomes. As a result, farmers are incentivised to grow better quality produce.
The Role of Ethical Companies
Build Trust and Reliability: Companies should strive to establish themselves as trusted partners in the supply chain. This can be achieved by maintaining transparent and fair dealings with farmers, suppliers, and consumers.
Promote Ethical Sourcing and Sustainability: Companies should prioritize ethical sourcing practices and directly procure a significant portion of their raw materials from farmers and producers. This approach demonstrates a commitment to sustainability and responsible business practices.
Ensure Quality Assurance: Companies should invest in processing units closer to the source of origin to ensure strict quality checks and adherence to required standards. This guarantees the delivery of high-quality products to consumers.
Institutional Measures
Meanwhile, the Central Government has initiated policy measures to address some issues mentioned earlier. Accordingly, the Centre has created a PAN-India electronic trading platform, eNAM (National Agriculture Market), which links current APMC (Agricultural Produce Market Committees), also known as mandis, to set up a unified nationwide market for agricultural commodities. eNAM promotes uniformity in the marketing of agricultural produce by streamlining procedures across integrated markets to eliminate information asymmetry between buyers and sellers while ensuring real-time price discovery as per actual demand and supply. Through the portal, farmers can directly contact buyers, bypassing middlemen to ascertain transparent pricing.
Furthermore, the emergence of farmer-producer organisations (FPOs) and cooperative societies is empowering farmers to sell their produce collectively without any intervention from middlemen, ensuring more remunerative prices.
Additionally, institutional initiatives such as the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme that offers direct income support to farmers and agricultural credit programmes, such as Kisan Credit Cards, have helped in alleviating the financial burden of farmers.
There is no doubt that the series of ongoing initiatives can help empower India’s farmers, creating a more equitable agricultural ecosystem and fostering more sustainable, fair, transparent livelihoods for rural communities across the country.
(The author is co-founder at Farmley)
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