This is the first of a two-part series on farmers’ experiences at the input and output levels of the supply chain. This is relevant, given the recent news reports which showed that India’s exports of key agricultural commodities rose by 16% in the first half of 2022. While this spells good news for the agricultural export industry, we must ask who has benefitted most from this development and whether these benefits have actually trickled down to the farmers who grew the products.
The first part, which looks at the pre-harvest stage, highlights how farmers have little control over what they grow to how much money they receive for it.
2022 was the year that farmers’ income was supposed to double. Not only were we unable to achieve this, but some states saw farmer incomes fall. Despite massive protests over the past three years and heated policy debates, little has changed for farmers on ground. A large part of this is because farmers are rarely the ones taking decisions. Growing up in a farmer household, I have seen firsthand how little control farmers have over trade – and this begins from the very first point in the supply chain.
Agriculture in India has become totally dependent on inputs, especially after the Green Revolution which led to the increased use of chemical fertilisers and hybrid seeds. While this increased production, farmers became dependent on input shops for seeds and fertilisers.
To tackle challenges around poor seed quality and scarcity of fertilisers, it is important to understand how the input supply chain works. How do farmers decide the fertiliser, pesticides, and seeds they want to use? While working for a farmer producer organisation (FPO), I obtained a closer understanding of the business dynamics of these input shops – and how they leave farmers out of the decision-making process.
Credit dependence
In Vidarbha, where I grew up, input shops are available at the block place or market village. Over the years, farmers have built an informal relationship with the shopkeepers, based on which they buy inputs on credit during the sowing season. As most farmers can’t afford to pay the full cost of the inputs, they prefer buying from shopkeepers with whom they have an informal relationship.
Shopkeepers often take advantage of this vulnerability and sell unnecessary products such as tonics or extra inputs. They also charge interest on the credit amount. Farmers don’t refuse them so they can maintain their relationship with the shopkeeper. In some cases, shopkeepers also run agricultural commodity trading businesses, effectively making the input seller also the output buyer. While buying the produce, the suppliers-cum-traders deduct their credit amount with interest from the payment.
Also read: Farmer Suicides: What Field Data Shows and Union Government Data Shrouds
Lack of information
There is also a general lack of adequate awareness when it comes to choosing seeds and pesticides. Shopkeepers push new products and varieties to farmers, and farmers select the seed variety based on their or peer farmers’ previous experiences.
As the government grants subsidies for fertilisers and monitors supply, the profit margin on fertilisers is very low. For instance, the gross margin for urea is Rs 12-20 per bag. The input shopkeeper deliberately creates artificial scarcity by hoarding the stocks to increase demand and sells the fertilisers at higher prices. They also capitalise on the situation by selling fertilisers only to their regular customers, so they can push other products with higher margins along with them.
Marketing strategies
Farmers should ideally obtain the seeds most suited to the area’s soil and climate to get maximum yield. Seed varieties are developed by the Indian Council of Agricultural Research (ICAR) at the national level or local agriculture universities. After inventing the breeding seed of various crops, companies plant them under mandated environmental conditions. Then, certification agencies inspect the yield and certify them as seed. After this, companies supply it to input shops under their brand name.
To increase the demand, companies set up demo plots and distribute seed packets to farmers free of cost. When a seed variety demonstrates high yield in the area, farmers start adopting them. Eventually, farmers begin to differentiate seeds based on the branding name. For example, the ‘335’ variety of soybean is sold by four companies, but if Oswal’s 335 variety is famous in the area, the farmers will only demand Oswal 335. Thus, the demand depends heavily on the companies’ marketing strategy more than the variety.
The decision of selecting the seed is crucial and, if not done properly, can lead to large-scale losses. In some parts of Yavatmal, farmers still use the JS335 soybean variety, invented in 1994, even though it does not perform well. As a result, in 2020, when uncertain rain hit the post-harvest season, most farmers lost their produce. Meanwhile, farmers using the JS9305 variety launched in 2009 got a profitable yield that year. This was the same year when soybean touched Rs 12,000 per quintal.
I met some farmers after the incident who planned to sow new varieties in the upcoming season. Some farmers had seen the results of KDS 726 (Phule Sangam) Variety, developed by MPKV Rahuri in 2019. Others had decided based on previous yields and seed companies’ marketing strategies. But companies were selling old varieties – not because new varieties were not available or invented but because of their own vested interests. ICAR, during 2014-22 released 1,956 varieties of cereals, pulses, oilseed, forage crop, fibre crop, sugar crop, and others. Out of these 1,956 varieties, 1,622 are climate-resilient varieties. But with private companies and input shops calling the shots, how many climate-resilient seeds are going to make it to the farm?
The market for pesticides is dominated by players like BAYER and Syngenta. Similar to seeds, the sale of pesticides also depends on companies’ marketing strategies and input shop vendors. The farmer goes to the shop, reports the plant’s disease, and the input shop vendor suggests the pesticide to be used, selling products profitable to themselves. Farmers themselves are unaware of the content of pesticides and the precautionary measures. In 2017, in Yavatmal, around 70 to 80 farmers died, more than 800 farmers were hospitalised, and many lost their vision due to infection from pesticides sold by the input shop vendors.
Thus, the decision of choosing a product – be it fertiliser, seed, or pesticide – is highly influenced by input shopkeepers and private companies. Farmers themselves are unaware of new varieties and cost-effective products.
Also read: Rising Farmer Suicides Leaves Families Adrift as Vidarbha Grapples With Multiple Crises
Are FPOs the way forward?
FPOs and co-operatives have tried entering the business by establishing and running input shops. In my experience, most of them have not made profits. Many farmers often choose input shops because of the credit facility and the varieties of products available in one place. While some FPOs gave inputs on credit, farmers did not repay the money because evading cooperatives is easier than evading individuals.
The tight margins on fertiliser also make it hard for businesses to survive. The notion of procuring inputs at a lower price and selling at a higher price, especially in the case of fertiliser, is not possible as the prices of fertiliser are already low and input vendors do not have a huge margin as generally believed. Profit of input businesses comes from selling other high-margin products along with fertilisers and pushing the farmers to buy them.
FPOs and co-operatives can be an answer to establishing a trusted input chain at the grassroots level. For that, co-operatives need initial support and they need to start with selling seeds and establishing trust. Entering the seed business has the potential to establish a co-operative as a brand through demos on the farm and publicity for the seed variety. For choosing the correct seed variety, FPOs can seek technical help from professionals in the initial year.
FPOs have to focus on the production of the seed and marketing of it, once they get the seed along with the on-farm marketing by the farmer shareholder. It will be easy for them for information on advanced and climate-resilient varieties. After that, FPOs can establish their input shop and provide a bundle of services to farmers and eventually make profits – benefitting themselves as well as farmers.
Hitesh Bhoyar pursued a degree in social work from TISS Mumbai and worked with a grassroots NGO in Maharasthra. He has also worked with a farmer producer organisation in the agri-tech startup space. Currently, he’s an Asia resident at Dalberg.
