Organization of agricultural credit in India

Agricultural credit is considered as one of the most basic inputs for conducting all agricultural
development programs. After independence, the Government adopted the institutional credit
approach through various agencies like co-operatives, commercial banks, regional rural banks etc.
to provide adequate credit to farmers, at a cheaper rate of interest. Moreover, with growing
modernization of agriculture during the post-green revolution period, the requirement of
agricultural credit has increased further in recent years
The government has been raising credit target for the farm sector every year, With the aim of
doubling farmers’ income by 2022. The agricultural credit flow has increased consistently over the
years, exceeding the target set for each fiscal.
Credit is a critical input in achieving higher farm output. Institutional credit will also help delink
farmers from non-institutional sources where they are compelled to borrow at usurious rates of
interest.
Since Green revolution, the investment requirements for cultivation has continuously increased,
as almost all inputs like seeds, pesticides, fertilizers, motor pump sets, tractors, pipe lines, etc., are
to be purchased and several other services such as tractors, sprayers, rotors, harvesters etc., are
to be hired from the market.
Types of agricultural credit
Considering the period and purpose of the credit requirement of the farmers of the country,
agricultural credit in India can be classified into three major types:

• Short term credit: The Indian farmers require credit to meet their short
term needs viz., purchasing seeds, fertilizers, paying wages to hired
workers etc. for a period of less than 15 months. Such loans are generally
repaid after harvest. The Indian farmers require credit to meet their short
term needs viz., purchasing seeds, fertilizers, paying wages to hired
workers etc. for a period of less than 15 months. Such loans are generally
repaid after harvest and are called short term credit. In fact, the
proportion of such loans has been quite high.
• Medium-term credit: This type of credit includes credit requirement of
farmers for a medium period ranging between 15 months and 5 years and
it is required for purchasing cattle, pumping sets, other agricultural
implements etc. Medium-term credits are normally larger in size than
short term credit.
• Long term credit: Farmers also require finance for a long period of more
than 5 years just for the purpose of buying additional land or for making
any permanent improvement on land like the sinking of wells,
reclamation of land, horticulture etc. Thus, the long term credit requires
sufficient time for the repayment of such loan.
Sources Agricultural Credit:

• Sources of agricultural credit can be broadly classified into institutional

and non-institutional sources.
o
▪Non-Institutional sources include moneylenders, traders and
commission agents, relatives and landlords, but
▪ Institutional sources include co-operatives, commercial
banks including the SBI Group, RBI and NABARD.
• The major institutional credit agencies in India are Commercial B anks
(CBs), Regional Rural Banks (RRBs) which are mainly sponsored by the
Scheduled Commercial Banks and state governments. There are also the
Cooperative Banks which are further divided into rural cooperatives and
urban cooperatives.
• Scheduled Commercial Banks are largest credit providers followed by
Cooperatives and Regional Rural Banks. It is observed that after the
nationalization of commercial banks of India in 1969, the commercial
banks as a whole have increased consistently its share in institutional
credit to agriculture sector.
Government steps for providing Agriculture Credit to Farmers:

• Kisan Credit Card (1998-99):

The Kissan Credit Card (KCC) scheme was launched in 1998 with the aim of providing short-term
formal credit to farmers. Owner cultivators, as well as tenant farmers, can avail loans to meet their
agricultural needs under this scheme at attractive rates of interest. RBI monitors it for SCBs and
NABARD monitors the scheme with respect to Cooperative Banks and RRBs. Now Cooperative
sector are under RBI. Budget 2018-19 extended this provision to Animal Husbandry and
Fisheries.

• Agriculture Market Infrastructure Fund (AMIF) – NABARD:

For development and upgradation of rural agriculture markets. It was announced in 2018 Budget
for developing and upgrading agricultural marketing infra in the 22,000 Gramin Agricultural
Markets (GrAMs) and 585 APMCs. At present, GrAMs are being developed by MGNREGA Funds.
Scheme is demand driven. It will be created with NABARD and will provide the state/ UT
governments subsidized loans for their proposal for developing marketing infrastructure in 585
APMCs and 10,000 villages.

• Interest subvention scheme:

The Interest Subvention Scheme is being implemented by NABARD and RBI.

The interest subvention scheme for farmers aims at providing short term credit to farmers at the
subsidized interest rate. The policy came into force with effect from Kharif 2006-07. The scheme
is being implemented for the year 2018-19 and 2019-20.

• NABARD Fund of Rupees 700 crore VCF for Rural Agriculture Startups:

The fund has been launched by Nabventures, a subsidiary of NABARD, and has a proposed
corpus of Rs 500 crore with an option to retain over-subscription of Rs 200 crore, called as the
greenshoe option (over allotment option).

Agricultural Marketing- Meaning

The term agricultural marketing is composed of two words- agriculture and
marketing. Agriculture, generally means growing and/or raising of crops and livestock
while marketing encompasses a series of activities involved in moving the goods from
the point of production to point of consumption. Agricultural marketing essentially
involves the buying and selling of agricultural produce.
According to the Indian Council of Agricultural Research, Agricultural marketing
involves three important functions:

• Assembling or concentration of goods.

• Preparation for consumption (processing).
• Distribution of agricultural products.

According to the National Commission on Agriculture, Agricultural marketing is a

process which starts with a decision to produce a saleable farm commodity, and it
involves all aspects of market structure or system, both functional and institutional,
based on technical and economic considerations and includes pre-harvest and post-
harvest operations of –

1. Assembling,
 2. Grading,
3. Storage,
4. Transportation, and
5. Distribution.

Agricultural marketing plays an important role not only in stimulating production and
consumption, but also in accelerating the pace of economic development. Its dynamic
functions are of primary importance in promoting economic development. For this
reason, it has been described as the most important multiplier of agricultural
development.
An efficient marketing system is essential to maintain and accelerate the pace of
increasing production through technological development, but for success in this
programme, the farmers must receive remunerative prices for their produce.
Otherwise, they would not be interested in increasing their production.

Characteristics of Agricultural Products and

Production

The subject of agricultural marketing has been treated as separate discipline because agricultural
commodities possess special characteristics than manufactured commodities.
The special characteristics of agricultural commodities are given below:

1. Perishability of the product: Most farm products are perishable in nature; but the
period of their perishability varies from a few hours to a few months. Their
perishability makes it almost impossible for producers to fix the reserve price for
their farm grown products. The more perishable products require speedy handling
and often-special refrigeration, which raises the cost of marketing.
2. Seasonality of production Farm products are produced in a particular season of
the year. They can not be produced throughout the year. It leads to intra-year
seasonality in the prices. In the harvest season, prices of farm products fall. But
the supply of manufactured products can be adjusted or made uniform throughout
the year.
3. Bulkiness of products The characteristics of bulkiness of most farm products
makes their transportation and storage difficult and expensive. This fact also
restricts the location of production to somewhere near the place of consumption
or processing. The price spread in bulky products is higher beca use of the higher
costs of transportation, handling and storage.
4. Variation in quality of products There is a large variation in the quality of
agricultural products, which makes their grading and standardization somewhat
difficult. There is no such problem in manufactured goods because they can be
produced of uniform quality.
5. Irregular supply of agricultural products The supply of agricultural products is
uncertain and irregular because of the dependence of agricultural production on
natural conditions. With the varying supply, the demand remaining almost
constant, the prices of agricultural products fluctuate substantially more than that
of manufactured products.
6. Small size of holding and scattered production Farm products are produced
throughout the length and breadth of the country and most of the producers are of
 small size. This makes the estimation of supply difficult and also creates problem in
marketing
7. Product pricing Apart from the problem in estimation of total supply in a small -
farm agriculture, an individual farmer faces a typical marketing situation. As his
share in total supply is very small, he can not influence the market supply. Further,
owing to the inelastic nature of demand of most of the farm products, the market
price for his product is determined independent of his supply. It is in this context
that an individual farmer is supposed to be operating in a buyer’s market. Contrary
to this, most of the manufacturing firms, owing to their larger share in the market,
can control, to some extent, the supply and thus influence the price of the product
they sell.
8. Processing Most of the farm products need some kind of processing before
consumption by the ultimate consumers. The processing function, though adds
value, increases the price spread of agricultural commodities. Processing firms
enjoy the advantages of monopsony, oligopsony or duopsony in the market. This
situation sometimes creates disincentives for the producers.

Problems in agricultural marketing in India

The Indian system of agricultural marketing suffers from a number of defects. As a consequence,
the Indian farmer is deprived of a fair price for his produce. The main defects of the agricultural
marketing system are discussed here.
Improper Warehouses: There is an absence of proper warehousing facilities in the villages.
Therefore, the farmer is compelled to store his products in pits, mud-vessels, “Kutcha”
storehouses, etc. These unscientific methods of storing lead to considerable wastage.
Approximately 1.5% of the produce gets rotten and becomes unfit for human consumption. Due
to this reason supply in the village market increases substantially and the farmers are not able to
get a fair price for their produce. The setting up of Central Warehousing Corporation and State
Warehousing Corporation has improved the situation to some extent
Lack of Grading and Standardization: Different varieties of agricultural produce are not graded
properly. The practice usually prevalent is the one known as “dara” sales wherein heap of all
qualities of produce are sold in one common lot Thus the farmer producing better qualities is not
assured of a better price. Hence there is no incentive to use better seeds and produce better
varieties.
Inadequate Transport Facilities: Transport facilities are highly inadequate in India. Only a small
number of villages are joined by railways and pucca roads to mandies. Produce has to be carried
on slow moving transport vehicles like bullock carts. Obviously such means of transport cannot be
used to carry produce too far-off places and the farmer has to dump his produce in nearby
markets even if the price obtained in these markets is considerably low. This is even truer with
perishable commodities.
Presence of a Large Number of Middlemen: The chain of middlemen in the agricultural market is
so large that the share of farmers is reduced substantially.
Malpractices in Unregulated Markets: Even now the number of unregulated markets in the
country is substantially large. Arhatiyas and brokers, taking advantage of the ignorance, and
illiteracy of the farmers, use unfair means to cheat them. The farmers are required to pay arhat
(pledging charge) to the arhatiyas, “tulaii” (weight charge) for weighing the produce, “palledari” to
unload the bullock-carts and for doing other miscellaneous types of allied works, “garda” for
impurities in the produce, and a number of other undefined and unspecified charges.
Inadequate Market Information: It is often not possible for the farmers to obtain information on
exact market prices in different markets. So, they accept whatever price the traders offer to them.
With a view to tackle this problem the government is using the radio and television media to
broadcast market prices regularly. The news papers also keep the farmers posted with the latest
changes in prices.
Inadequate Credit Facilities: Indian farmer, being poor, tries to sell off the produce immediately
after the crop is harvested though prices at that time are very low.

Objectives of market regulation:

1. To prevent the exploitation of farmers by overcoming the handicaps in the

marketing of their products; Eliminating Middlemen,Freedom from Moneylenders
2. To make the marketing system most effective and efficient so that farm ers may get
better prices for their produce, and the goods are made available to the customers
at reasonable prices;
3. To provide incentive prices to the farmers for inducing them to increase the
production both in quantitative and qualitative terms; and Avo id Distress Sale
4. To promote and orderly marketing of agricultural produce by improving the
infrastructural facilities.Storage Facility, Adequate Transport Facility
5. Provide adequate institutional finance

Present State of Agricultural Marketing in

India:
In India different systems of agricultural marketing are prevalent as mentioned below:

(i) Sale in Villages:

The first method open to the farmers in India is to sell away their surplus produce to the village
moneylenders and traders at a very low price, The moneylender and traders may buy
independently or work as an agent of a bigger merchant of the nearby mandi.
In India more than 50 per cent of the agricultural produce is sold in these village markets in the
absence of organised markets.

(ii) Sale in Markets:

The second method of disposing surplus of the Indian farmers is to sell their produce in the
weekly village markets popularly known as ‘hat’ or in annual fair

(iii) Sale in Mandis:

The third form of agricultural marketing in India is to sell the surplus produce though mandis
located in various small and large towns. There are nearly 1700 mandis which are spread all over
the country. As these mandis are located in a distant place, thus the farmers will have to carry
their produce to the mandi and sell those produce to the wholesalers with the help of brokers or
‘dalals’.
These wholesalers of mahajans again sell those farm produce to the mills and factories and to the
retailers who in turn sell these goods to the consumers directly in the retail markets.
(iv) Co-Operative Marketing:
The fourth form of marketing is the co-operative marketing where marketing societies are formed
by farmers to sell the output collectively to take the advantage of collective bargaining for
obtaining a better price.

(v) Regulated Markets:

Organised marketing of agricultural commodities has been promoted throughout the country
through a network of regulated markets, whose basic objective is to ensure reasonable prices to
both farmers and consumers by creating a conducive market environment for fair play of supply
and demand.
Regulated market are those markets in which business is done in accordance with the rules and
regulations framed by the statutory market organization representing different sections involved
in the marketing.The marketing costs in such markets are standardized and, marketing practices
are regulated.

Agriculture Marketing and Warehousing

The real challenge to India’s food security is poor grain management rather than a shortage of
grain production.”
The agricultural sector carries immense importance for the Indian economy. It plays a significant
role in the overall socio-economic fabric of India. Agriculture also enjoys vitality for ensuring food
security to all and has the potential to influence the growth of secondary and tertiary sectors of
the economy through its forward and backward linkages. But for that to happen, post-harvest
activities like storage, transport & marketing are as important as giving the right inputs and
harvesting. Since ancient times huge importance is given to these post-harvest activities. For
example, in the Indus valley, civilization grains were stored in large granaries. Harappan seals
contain information on agricultural production, transport, marketing, and distribution
The Constitution of India identified agriculture as a state subject – i.e. within the purview of the
various State Governments of India’s federal system. To protect farmer’s rights, States enacted
Agriculture Produce Markets Regulation Acts. The legal framework that evolved restricted
purchase of agriculture produce to registered traders. The objective was to ensure fair and
transparent trade in agricultural products.
Storage and warehousing:
Storage:
Storage is an important marketing function, which involves holding and preserving goods from the
time they are needed for consumption.

•
o The storage of goods, therefore, from the time of production to
the time of consumption, ensures a continuous flow of goods in
the market.
o Storage protects the quality of perishable and semi-perishable
products from deterioration;
o Some of the goods e.g., woolen garments, have a seasonal demand.
o To cope with demand, production on a continuous basis and
storage become necessary.
 o It helps in the stabilization of prices by adjusting demand and
supply.
o Storage is necessary for some period for performance of othe r
marketing functions.
o Storage provides employment and income through price
advantages.

Warehouses:
Warehouses are scientific storage structures especially constructed for the protection of the
quantity and quality of stored products.
Importance:

• Scientific storage

The product is protected against quantitative and qualitative losses by the use of such methods of
preservation as are necessary.

• Financing

Warehouses meet the financial needs of the person who stores the product. Nationalized banks
advance credit on the security of the warehouse receipt issued for the stored products to the
extent of 75 to 80% of their value.

• Price Stabilization

Warehouses help in price stabilization of agricultural commodities by checking the tendency to

making post-harvest sales among the farmers.

• Market Intelligence

Warehouses also offer the facility of market information to persons who hold their produce in
them.
Warehousing In India

• Central warehousing corporation (CWC):

Central Warehouse corporation was established as a statutory body in New Delhi on 2nd March
1957. The Central Warehousing Corporation provides safe and reliable storage facilities for about
120 agricultural and industrial commodities.

• State Warehousing Corporations (SWCs):

Separate warehousing corporations were also set up in different States of the Indian Union. The
areas of operation of the State Warehousing Corporations are centers of district importance. The
total share capital of the State Warehousing Corporations is contributed equally by the concerned
State Govt. and the Central Warehousing Corporation.
 • Food Corporation of India (FCI):

Apart from CWC and SWCs, the Food Corporation of India has also created storage facilities. The
Food Corporation of India is the single largest agency which has a capacity of 26.62 million tones.
Present Reforms in Agriculture Marketing:
Historic Reforms in Agriculture Marketing in September 2020, three Bills were passed by
Parliament of India (Lower and Upper Houses):
Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020:

• Intra and Inter State Trade of farmer’s produce was now allowed beyond
the physical premises of existing markets: Trade in/at:
o Farm gate,
o Factory premises,
o Warehouses,
o Silos and
o Cold storages.
• Online trading of farmer’s produce was allowed and farmer organ izations
and private sector were enabled to set up their electronic trading
platforms.
• State Governments would not levy market fees, cess or levies outside the
physical market area.

Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill,
2020:

• Farming agreements between farmers and buyers have been made

possible, for production or rearing any farm produce.
• The price of the produce will be clearly mentioned in the contract.
• A clearly specified dispute resolution protecting the rights of both
farmers and buyers.

The Essential Commodities (Amendment) Bill, 2020

•
o The Central Government may only invoke the provisions of the
Essential Commodities Act, 1955 in an extraordinary situation
(war, famine, extraordinary price rises and natural calamities)
o Imposition of stock limits must only be based on price rises -if
there is a 100% increase in retail price of horticultural produce and
a 50% increase in the retail price of non-perishable produce.
Importantly, these bills do not dismantle the existing structure of State APMCs; rather, they
provide competition to this system by opening up alternative marketing structures, direct buying,
and contract farming. These bills do not replace the prevailing system of public procurement at
MSP.
Issues and Problems
The fragmentation and political significance of agricultural supply chains in has a direct impact on
their functioning. Though the supply chain system has set in, a number of problems still exist in
system implementation.

• Infrastructure: Infrastructure in India requires significant investment.

Grain storage, Cold storage chain, proper Road and Transportation
facilities are yet to be implemented in certain states esp. North Eastern
Region.
• Government Purchase and supply system: Bureaucracy and corruption
are well known problems in India.
• Middleman, Bargaining Power and Transparency
• Price volatility: All of the above factors mentioned, and diverse weather
in country is contributing to price volatility. When future prices are
difficult to estimate, farmers cannot plan to grow the most efficient or
profitable crop.
• Financing, education, and Training.

Solutions:

• Package and storing.

• There is a great necessity to increase the shelf life of products by drying,
curing and packaging.
• Information management and planning.
• Export enablement.
• Enabling of large private players.

Steps Taken for Improvement of Agricultural

Marketing in India:
In the meantime, the Government has taken following important steps for the improvement of
agricultural marketing in India:

• Agricultural Marketing Infrastructure (AMI)

• National Agriculture Market
• E-NAM (National Agriculture Market)
 • Farmer Producer Organizations
• Food Corporation of India (FCI):
• Agricultural Produce Marketing Committee
(APMC)

Contract farming

Contract farming refers to a system in which bulk purchasers, including agro-processing,

exporting and trading units, enter into contracts with farmer(s) to purchase a specified quantity of
any agricultural commodity at a pre-agreed price.

• Typically, the farmer agrees to provide agreed quantities of a specific

agricultural product. These should meet the quality standards of the
purchaser and be supplied at the time determined by the purchaser. In
turn, the buyer commits to purchase the product and, in some cases, to
support production through, for example, the supply of farm inputs, land
preparation and the provision of technical advice.

Benefits of Contract Farming

• Contract farming enhances market linkages and reduces dependence on

middlemen.
• Integrate farmers with bulk purchasers including exporters, agro -
industries etc. Since the factories will be next to clusters of farms,
wastages will be very largely eliminated.
• Better price realization through mitigation of market and price risks to
the farmers. It facilitates better access to technology, crop
diversification, extension services, financing and crop insurance.
• Farmers no need to transport their produce to the mandis, as sponsors
usually collect the produce from the farm gate.
• This reduces farmers’ cost and, thereby, translates into increased
incomes. Ensures smooth agro raw material supply to the agro
industries. Food-processing will get a boost as an employment
generator.
• Encourage the new generation to takeup farming instead of migra ting to
cities. Rural women, instead of being employed as farm labourers will
work in sorting and grading of fruits and vegetables.
 • It also gives farmers an alternative in cases where the procurement
mechanism is ineffective.

Challenges in contract Farming

• Contract farming can be detrimental by encouraging large monoculture

farming.
• Dependency of farmers on companies for seeds and equipment also
needs to be looked at.
• Contracting firms can exploit the monopsony situation to their advantage
by offering lower prices to farmers.
• High incidence of conflicts in some places between the farmer and the
procuring entity on quality/quantity of produce as well as a high risk of
post-harvest losses.
• Being a State subject, Operationalizing agriculture reforms needs Stat e
cooperation. Most often, these reforms fall victim to Centre-States
political differences
• Contract farming arrangements are often criticized for being biased in
favor of firms or large farmers, while exploiting the poor bargaining
power of small farmers.
• Problems faced by growers like undue quality cut on produce by firms,
delayed deliveries at the factory, delayed payments, low price and pest
attack on the contract crop which raised the cost of production.
• Contracting agreements are often verbal or informal in nature, and even
written contracts often do not provide the legal protection in India that
may be observed in other countries . Lack of enforceability of contractual
provisions can result in breach of contracts by either party.

How is it regulated in India?

• Regulated under the Indian Contract Act, 1872.

• The Model APMC (Agricultural Produce Market Committee) Act,
2003 provides specific provisions for contract farming, like compulsory
registration of contract farming sponsors and dispute settlement.
• Ministry of Agriculture came out with a draft Model Contract Farming
Act, 2018. The draft Model Act seeks to create a regulatory and policy
framework for contract farming. Based on this draft Model Act,
legislatures of states can enact a law on contract farming.

Model Contract Farming Act, 2018

 • Model Contract Farming Act, 2018 lays emphasis on protecting the
interests of farmers.
• The Model Contract Farming Act, 2018 allows farmers and farmer
producer organisations (FPOs) to directly link with companies, thus
enhancing market linkage and removing dependence on middlemen.
• The Act will have an indirect effect on small and marginal farmers for a
better say in determining the prices of their produce.
• The Act insulates land ownership rights of the farmers from any potential
infringement from the sponsors or the buyers.
• The fear of losing their land has always inhibited farmers from embracing
any new policy.

Present Reforms in Agriculture Marketing:

Historic Reforms in Agriculture Marketing in September 2020, three Bills were passed by
Parliament of India (Lower and Upper Houses):
Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020:

• Intra and Inter State Trade of farmer’s produce was now allowed beyond
the physical premises of existing markets: Trade in/at:
o Farm gate,
o Factory premises,
o Warehouses,
o Silos and
o Cold storages.
• Online trading of farmer’s produce was allowed and farmer organizations
and private sector were enabled to set up their electronic trading
platforms.
• State Governments would not levy market fees, cess or levies outside the
physical market area.

Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill,
2020:

• Farming agreements between farmers and buyers have been made

possible, for production or rearing any farm produce.
• The price of the produce will be clearly mentioned in the contract.
• A clearly specified dispute resolution protecting the rights of both
farmers and buyers.
The Essential Commodities (Amendment) Bill, 2020

• The Central Government may only invoke the provisions of the Essential
Commodities Act, 1955 in an extraordinary situation (war, famine,
extraordinary price rises and natural calamities)
• Imposition of stock limits must only be based on price rises -if there is a
100% increase in retail price of horticultural produce and a 50% increase
in the retail price of non-perishable produce.

Importantly, these bills do not dismantle the existing structure of State APMCs; rather, they
provide competition to this system by opening up alternative marketing structures, direct buying,
and contract farming. These bills do not replace the prevailing system of public procurement at
MSP.
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