Response to NAC Working Group Recommendations on ‘Enhancing farm income for smallholder through market integration’

The NAC has created a Working Group of its members in July 2012, on the subject of ‘Enhancing Farm Income for Small Holders through Market Integration’ which has put its draft recommendations in the public domain on 14th January 2013, seeking feedback (the draft recommendations can be accessed at http://nac.nic.in/farm_income_draft.htm). The following is the text of the collective feedback of several organisations associated with ASHA.

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To:

1. Secretary,

National Advisory Council,

2, Motilal Nehru Place,

Akbar Road, New Delhi 110011

 

2. Convenor of Working Group on Enhancing Farm Income

for Smallholders through Market Integration,

National Advisory Council,

2, Motilal Nehru Place,

Akbar Road, New Delhi 110011

 

Dear Madam,

Sub: NAC Working Group on Enhancing Farm Income for Smallholders through Market Integration – feedback on draft recommendations of the Working Group

Greetings!

We welcome the fact that the Working Group for ‘enhancing farm income for small holders through market integration’ has come up with its draft recommendations for policy, legal framework and implementation guidelines to create a favorable ecosystem for smallholders and their market requirements and aspirations.

The following is the feedback from various groups that are working with smallholders and their marketing efforts, associated with an informal national network called ASHA (Alliance for Sustainable & Holistic Agriculture).

1.     We welcome the fact that recommendations to create and enable Farmers’ Producer Organisations, to find better footing to address the current asymmetries that create a disadvantage for agri producers in general and smallholders in particular, and negotiate better with the market, have been put forward by the NAC Working Group.

The main thrust of the recommendations, focusing on creating smallholders’ collectives, building institutional capacities, infusing resources including financial capital, making changes in the regulatory frameworks that govern such institutions and their marketing activity etc., are welcome. We suggest that the working group lay down more guidelines and emphasis on the implementational aspects of the recommendations, since many good recommendations and mechanisms fail in the actualisation phase for various reasons.  This requires accountability mechanisms to be built into the state institutions created for the purpose.

2.     The feedback that we provide below collectively is focused on some details:

i.               Defining the scope of FPOs (Annex 1 has a suggested list of criteria): It is important to not limit FPOs mainly as cooperatives and producer companies, negating the existence and efficient functioning of many other semi-formal and informal organisations of producers (SHGs, commodity groups etc.). The latter can be accredited by a state level apex body, to be brought under the scope of FPOs (even as some charitable institutions transform themselves into institutions that are compliant with laws pertaining to commercial and profit-making activity, this is also to ensure that non-registered, functioning entities do not lose out on opportunities that are present). It would also be useful to expressly mention different forms of cooperative institutions like MACS in Andhra Pradesh, for example. Further, the reasoning provided for not considering PACS as FPOs is valid and appreciated.

ii.              It is not clear why specific examples of Responsible Soy or Better Cotton were brought up to illustrate the increased need to address climate change and emerging environmental issues; the examples cited (multi-stakeholder voluntary initiatives around ‘responsible farming’) are not devoid of controversies and we believe that the point around responsible production and consumption can be made without citing the said initiatives, or by illustrating with numerous other examples. Organic farming initiatives with fair trade principles underlying the trade aspects are an example. Either a wide range of initiatives be mentioned, or no example be mentioned at all, rather than controversial ones being highlighted by the NAC WG.

iii.            We believe that those FPOs which are into creating ecologically sustainable supply chains (organic production, local marketing through farmer-consumer platforms (direct sales within a certain radius from production and verifiable through specific records to be maintained), etc., should receive special incentives  and support. Such FPOs promoting ecological/organic methods should get the savings from not using government subsidies to agro-chemicals today. Special incentives and provisions to be created for FPOs propagating organic/NPM etc. and these organisations might need special market yards and storage spaces to be created, for their market integration.

Recommendation – A: Institution building initiatives for smallholders

iv.             Specifying all kinds of FPOs: As mentioned earlier, when FPOs (Farmer Producer Organisations) are being referred to, it becomes important to cover all the various institutional forms that these FPOs have taken as of now and not always federated (but remaining as unregistered but functioning primary groups too).

We welcome the fact that the scope of FPOs, in a broad and inclusive approach, has been left to further consultations. Needless to say, it is important to keep FPOs free of political interference and create mechanisms of only minimal bureaucratic interference even as we strive to put in place support systems that allow for farmer-owned and controlled institutions, free of corruption, with transparent and democratic functioning.

v.              The apex organisation to address the need for promotional role (A3) may be thought of both as a state level apex body as well as a national level apex body, so that one organisation is not overloaded as a single-window source for various roles of technical support, capacity building, research and knowledge management as well as to create linkages to investments, technology and markets. Where autonomous professional bodies already exist in the form of livelihoods promotion platforms (GO-NGOs, livelihood missions etc.), the same might be used for addressing the objectives.

Recommendation– B: Create conducive policy regime for the FPOs to access start up and investment capital

vi.             We welcome the recommendations around Matching Grants to FPOs (B1), changing Priority Sector Lending norms by RBI to drop collateral requirements upto 25 lakh rupees in the case of FPOs (B2), shifting to cash flow based lending through mechanisms like the CGTMSE (B3), Venture Capital support without collateral and other improvements both through SFAC and other institutional mechanisms (B4), rate of interest to FPOs being on par with crop loan interest rates (B5), eligibility of loans for all FPOs from various institutions which right now cater to only cooperative institutions (B6), allowing external commercial borrowing (B8) etc.

vii.           Lending to FPOs should be treated as direct lending under Priority Sector (not ‘indirect’ as in the current RBI guidelines).

viii.          We would like to specifically reinforce the recommendations around corpus-building of FPOs through grants and accessing working capital through social (equity) funds.

ix.             Norms for seed funding of new and especially small-scale FPO setups should be further relaxed. Since individuals and organisations who are setting up an FPO in a rural area are committing time, energy and resources, they should be supported for at least 3 years initially.

x.              Specifically with regard to WareHouse Receipt scheme (B7) and Storage space:

1.     The government should construct warehouses in all tehsil head quarters with priority access to FPOs (right now, traders use these more than primary producers), in addition to making godowns under Grameen Bhandaran Yojana also eligible for accreditation under negotiable WHR scheme; the WHR scheme needs to be reviewed for making it more enabling for the use of FPOs, as the WG recommendations pointed out. Warehouses created by FPOs should be allowed to have local knowledge related to grain storage used. A need for separate spaces for organic produce for all FPOs dealing with organic production is clearly felt and construction of separate warehouses should be supported for this purpose.

2.      Storage space management system should be made online and allocation of storage should be prioritised for SMF-FPOs.

3.     Cold storages should be established where ever pulses or perishable commodities are produced. Priority access to SMF FPOs be made part of the system.

vii. Tax Exemption (B9):

1.     It is important to specify that all FPOs be made eligible for tax exemptions on par with cooperatives (and not only Producer Companies as has been done in the current instance of the WG recommendations).

2.     Amount of income exempted also is not adequate. Only Govt company is exempted for whole of the amount but in other cases it is not so. One proposal is to consider at least all net profit generated by processing (with or without aid of power) of small holder farmer produce for income tax exemption.

3.     Sales Tax exemption will be a great incentive for SMFs.

4.     There is a APMC market cess 1% which also needs to be waived (not just when trade is outside the yard). Effectively, if all taxes are exempted, especially on smallholder FPOs, it will lead to a reduction of about 7% on sales amount (Cess 1%, Sales Tax 5%, IT tax 30% on net profit).

5.     Service taxes @ 12.36% are still being applied to FPOs, though services related to agriculture are in the negative list of services for taxes (66D) – stricter enforcement of this is required.

The tax exemptions and concessions should be compared with provisions for SEZs right now and equivalent exemptions and holidays should be provided for FPOs.

Recommendation – C: Address marketing related issues to incentivize direct market interventions by the FPOs

1.     State procurement at MSP (C5) is a very important market mechanism. It is important that several anamolies that exist in the procurement policies and mechanisms be rectified immediately. This includes problems with MSP-fixing, lack of procurement for many commodities, not enough procurement centres being opened in an accessible fashion, problems with coverage of many categories of farmers including tenant farmers etc. From ASHA, we had proposed a price compensation mechanism to be put in place and we attach a note on this as an Annexure to this letter, to ensure that costs and decent living wages of producers are covered.

2.     ASHA believes that FDI in retail, or even domestic big retail has no solutions for the market requirements of our producers (a position paper attached). While compulsory procurement from SMF is being recommended, given the unequal nature of the players in the FDI / retail market and the FPOs one is talking about, more guidelines have to be put into place to protect the interests of producers.

3.     The idea of branding and certification related to “small farm produce” is welcome.

4.     There is a need to create a platform with online support for trade which connects government procurement agencies, wholesalers, organized retailers, exporters and others who can have access to FPO details like type of produce, quantity, produce etc.

OTHER IMPORTANT RECOMMENDATIONS:

1. Many privileges/concessions/incentives/support mechanisms proposed can become ineffective in implementation, unless the local authorities are sensitised/trained. There should be a clear intervention on this front.
2. Professional Support (D3): For professional support to be extended to the FPOs (it is reasonable to assume that most FPOs will need to hire some kind of professional services to an extent, including for financial accounting etc.) at least for the promotional period of 3-5 years, the WG has rightly identified the need for several HRD initiatives to meet the requirement of professional management of FPOs.

It would be useful to prioritise the skilling of educated rural youth, especially ones proffered for training by the FPOs themselves, from amongst the member families.

Further, there is no institute focusing or specialising in institution-building in the context of smallholders or rainfed smallholders. There would be a need for specialised courses for this, with field work with any FPOs thrown in as part of the course. Such courses can be introduced in all agriculture, polytechnic and management universities and colleges in addition to degree colleges. It is estimated that at least one lakh managers might be needed for 10 crore SMFs (@ one manager per 1000 farmers). The competitive pool might require at least 3 lakh managers, from which to select and mentor candidates for all the FPOs. There would be a need to provide specific targets to educational institutions to create this pool of human resources.

3. Creation of rural agriculture infrastructure through FPOs (D4): We welcome this proposal. There is also a need for funds for research for easy to use and simple mechanical contraptions for harvesting and post-harvest operations including processing.  Processing and value addition units should be supported both at the input and output end. This is especially so for FPOs engaged in ecological farming. This could also include seed markets at a localised level, run by FPOs for themselves, as already recommended under D7 and D8.
4. Insurance (D6): Much needs to be improved on the insurance front, including in the post-harvest phase. There is a great need to include tenant farmers first into FPOs and into insurance coverage also. We urge the NAC to put out recommendations that would prioritise this. Smallholder FPOs should be eligible for fully subsidised insurance coverage (premium paid fully by the state).
5. FPOs’ compliance with FSSAI rules, guidelines and registration norms: FSSAI could be relaxed for a specified number of years for FPOs as the norms are too stringent for the beginners. All food processing organisations are expected to set up laboratories for testing every batch of processed items and FPOs may not be able to comply with such requirements. It may be prudent to set up labs at the tehsil and district headquarters, made accessible to all FPOs.
6. Further, suitable post-harvest technologies at a small scale, to work within the constraints faced by rural India (lack of electricity supply in a regular fashion, for instance; lack of servicing support when machines need repair and maintenance), and demonstration/training in setting up small food processing units is nearly non-existent to this day in our rural hinterlands. Appropriate provisions in this direction would be critical for adding value to SMF produce and improving incomes.
7. Licensing requirements in the case of various regulatory regimes especially for inputs are mentioned by the WG recommendations. However, all such licensing requirements to be waived for FPOs. Regulatory changes should include changes in the Seeds Bill to expressly allow ecological seed banks by FPOs and to keep them out of the purview of stringent licensing requirements etc.
8. Expanding on the need to set up ecologically sustainable supply chains, the scope of finance to any FPO desirous of opening an outlet for its produce within a certain radius should be extended to the shop as well. Similarly, extend scope of farm produce to also include non-food products like jute, bamboo etc., and to cover agriculture related crafts such a tools and implements made for farming. This will help allied activities to prosper and farm-oriented craftspeople would be able to withstand other technological onslaughts with such support.
9. State governments should be asked to earmark ‘haats’ where FPOs can set up stalls at subsidised and reasonable rents for marketing their produce.