AGRI 5:

Agricultural finance:
Agricultural finance generally means studying, examining and analysing the financial aspects
pertaining to farm business, which is the core sector of India. The financial aspects include
money matters relating to production of agricultural products and their disposal.
Agricultural finance and marketing needs of the farmers can be examined from two
different angles:
(i) On the basis of time and
(ii) On the basis of purpose.
On the Basis of Time:
The needs of the farmers can be classified into three categories on the basis of time:
(i) Short term.
(ii) Medium term, and
(iii) Long term.
Short-term loans are required for the purchase of seeds, fertilizers, pesticides, feeds on
fodder of livestock, marketing of agricultural produce, payment of wages of hired labour are
classified according to the use and kind of application as insecticides, fungicides, herbicides
and other pesticides.
Insecticides account for the major share of pesticides consumption in India that includes
both preventive treatments, which are applied before infestation levels are known, a
implementation treatments which are based on monitored infestation levels and expected
crop damages. The use of pesticides in Indian agriculture was negligible in early 1950s with
only 100 tones of pesticides being consumed at the beginning of the first adoption of the
new agriculture strategy in mid-1960.
The use of pesticides increased considerably as the new varieties are more prone to attack
by pests am insects. The pesticides application in 1970-71 stood at about 24.3 thousand
tones. Consumption of pesticides (technical grade material) stood at 41 thousand tones for
unproductive purposes. Period of such loans are up to 15 months. Agencies for granting
such loans a the moneylenders and cooperative societies.
Medium-term loans are obtained for the purchase of cattle, small agricultural implements,
repair and construction of wells etc. The period of such loans extends from 15 months to 5
years. These loans are generally provided by money-lenders, relatives of farmers,
cooperative societies and commercial banks.
Long-term loans are required for effecting] permanent improvement on land, digging tube
wells,’ purchase of larger agriculture implements and’ machinery like tractors, harvesters
etc. and repayment; of old debts. The period of such loans extends beyond; 5 years. Such
loans are normally taken from Primary Cooperative Agricultural and Rural Development
Banks (PCARDBS).
On the Basis of Purpose:
Agricultural credit needs of the farmers can be classified on the basis of purpose into the
following categories:
(i) Productive:
(ii) Consumption needs and;
(iii) Unproductive.
(i) Under productive needs we can include all credit requirements which directly affect
agricultural productivity. Farmers need loans for the purchase of seeds, fertilizers, manures,
agricultural implements, livestock, digging and repair of wells and tube wells, payment of
wage, effecting permanent improvements on land, marketing of agricultural produce, etc.
Repayment of these loans is generally not difficult because the very process of production
generally creates the withdrawal for repayments.
(ii) Farmers often require loans for consumption as well. Institutional credit agencies do not
provide loan for consumption purpose. Therefore farmers stretch their hand towards the
moneylenders.
(iii) Loans are taken for unproductive purposes such as litigation, marriages, social
ceremonies on birth and death of a family member, religious functions, festivals etc.
Farmers take loans from Mahajans since institutional credit agencies do not give such loans.
Sources of credit for Indian farmers:
This can be divided into two categories:
(i) Non-institutional sources.
(ii) Institutional sources
(i) Non-Institutional sources are the following:
(a) Moneylenders
(b) Relatives
(c) Traders
(d) Commission agents
(e) Landlords
(ii) Institutional sources:
(a) Cooperative credit societies
(b) Commercial Banks
(c) Regional Rural Banks (RRBs)
(a) Cooperative credit societies
(i) Primary Agricultural Cooperative Societies (PACSs) provide short- and medium-term
loans.
(ii) PCARDBs provide long term loan for agriculture.
(b) Commercial banks, including RRBs, provide both short- and medium-term loans for
agriculture and allied activities.
Cooperative Credit Societies:
The rural co-operative credit institutions in India have been organised into short-term and
long-term structures. The short-term co-operative structure is based on three-tier
structures, except the states in the northeast region. At the lowest tier are the Primary
Agricultural Credit Societies (PACSs). These are organised at the village level. At the second
tier and District Central Cooperative Banks (DCCBs) organised at the district level. At the
third and uppermost tier are the State Co-operative Banks (STCBs) organised at the state
level state Co-operative Banks (state level).
To cater to long-term loans long-term credit cooperatives have been set up.
Commercial Banks:
In fact up to 1970 the government policy was to depend entirely on the cooperative banks
as a major source of institutional credit in rural areas. Government felt that Cooperative
Bank alone cannot meet the growing demand. Therefore Govt, policy changed and a
number of institutions were developed to give rural credit. In 1969, 14 major banks were
nationalised.
In 1980, six more banks were nationalised. In 2004, the number of total branches had shot
up to 67062, of this 32,200 in rural areas. Despite the achievement of the commercial banks
in the field of rural creditmentioned above, their performance and operations have invited a
lot of criticism.
Regional Rural Banks:
The Working Group on Rural Banks (1975) recommended the establishment of Regional
Rural Bank (RRBs) to supplement the efforts of the commercial banks and the cooperatives
in extending credit to weaker sections of the rural community, small and marginal farmers,
landless labourers, artisan and other rural residents of small means.
The intention in having these new banks was that there should, in the Indian context, be an
institutional device which combined the local feel and familiarity with the rural problems
which the cooperatives possessed and the degree of business organisation and modernised
outlook which the commercial banks had, with a view to reaching the rural poor more
extensively.
Consequent upon the recommendations of the Working Group, 5 RRBs were initially set up
in 1975. Their number later rose to 196. In 2003-04, RRBs provided Rs. 7,581 crores as credit
to the agricultural sector. This was 8.7% of total institutional credit to agriculture in that
year.
National Bank for Agriculture and Rural Development (NABARD):
The most important development in the field of rural credit has been the setting up of the
National Bank for Agriculture and Rural Development (NABARD) in July 1982. It took over
from Reserve Bank of India all the functions that the latter performed in the field of rural
credit. NABARD is now the open bank for rural credit. The National Bank for Agriculture and
Rural Development (NABARD) is the apex institution at the national level for agriculture
credit and provides assistance to the agencies mentioned above. The Reserve Bank of India
plays a crucial role in this sphere by giving overall direction to rural credit and financial
support to NABARD for its operations.
At the time of Independence the most important source of agricultural credit were the
moneylenders. In 1951 (the year when planning was initiated in the country) moneylenders
accounted for as much as 71.6 per cent of rural credit. This was because there was no other
source or from where the farmers could borrow money.
Hence the moneylenders exploited the poor farmers. Thus, they used to charge exorbitant
interest for their loans. The moneylenders used to manipulate their accounts and force the
farmers to sell their produce to them at low price. The government has therefore
undertaken various steps to regulate the activities of the moneylenders.
The most important move was to free the agriculturists from the clutches of the money
lenders and the expansion of institutional credit to agriculture.
Functions of NABARD (1982):
The main functions of NABARD are as follows:
(1) It works as an open body to look after the credit requirement of the rural sector.
(2) It has authority to oversee the functioning of ‘the cooperative sector through its
Agricultural Credit Department.
(3) It provides short-term credit (up to 18 months) to State Cooperative Banks for seasonal
agricultural operation (crop loans), marketing of crops, purchase and distribution of
fertilizers and working capital requirements of cooperative sugar factories.
(4) It provides medium-term credit (18 months to 7 years) to State Co-operative Banks and
RRBs for agricultural purposes purchase of shares of processing societies and conversion of
short- term crop loans into medium term loans in areas affected by natural calamities.
(5) It provides medium and long-term credit (not exceeding 25 years) for investment in
agriculture under schematic lending to State Cooperative Banks, Land Development Banks,
RRBs and commercial banks.
(6) It provides long-term assistance in the form of loans to state governments (not
exceeding 20 years) for contribution to share capital of cooperative credit institutions.
(7) It has been entrusted with the responsibility of inspecting District and State Cooperative
Banks and RRBs. The inspection of State Land Development Banks and other Federation
Cooperative are undertaken on a voluntary basis.
(8) It maintains a research and development fund to be used to promote research in
agriculture and rural development so that projects and programmes can be formulated and
designed to suit the requirement of different areas.

Agricultural marketing in india:

Agricultural marketing is mainly the buying and selling of agricultural products. In earlier
days when the village economy was more or less self-sufficient the marketing of agricultural
products presented no difficulty as the farmer sold his produce to the consumer on a cash
or barter basis.
The four Government Measures to Improve Agriculture Marketing
 The initial step was to regulate the market and plan a clean, transparent and simple
marketing strategy. This regulation helped both the farmers and the consumer. But it
still needs to realize the full potential of rural markets.
 The second measure was the procurement process like transportation facilities,
warehouse, cold storage, godowns, and the processing unit. However, the current
infrastructure is inadequate to adhere to the growing demand and therefore needs
to be improved.
 The third aspect is to decide on the fair price for the product. In the past, it has been
a set back due to the unequal coverage of farmer members and the absence of a
suitable link between marketing, processing cooperatives, and inefficient financial
management. Example of a successful cooperative is the Gujarat milk cooperative
which transformed the social and economic landscape of Gujarat.
 The last one is policies such as.
1. Guarantee of Minimum Support Prices (MSP) for agricultural products
2. Storage of surplus stocks of wheat and rice by Food Corporation of India (FCI)
3. Distribution of food staples and sugar through PDS
All these measures were penned down to guard the income of the farmers and procuring
agriculture products in the subsidized rate to the underprivileged. However, in spite of
government interference in agriculture marketing, private traders still dominate the
agricultural markets.
Co-operative Marketing
The establishment of co-operative marketing societies was another step which has been
taken to overcome the problems arising out of the present system of marketing agricultural
produce. The objectives of economic development and social justice can be furthered by
channelising agricultural produce through cooperative institutions.
Co-operative marketing organizations are associations of producers for the collective
marketing of their produce and for securing for the members the advantages that result
from large-scale business which an individual cultivator cannot secure because of his small
marketable surplus. In a co-operative marketing society, the control of the organization is in
the hands of the farmers, and each member has one vote irrespective of the number of
shares purchased by him. The profit earned by the society is distributed among the
members on the basis of the quantity of the produce marketed by him.

Regulated Markets Regulated market is wholesale market where buying and selling is
regulated and controlled by the state government through the market committee.
It aims at the elimination of unhealthy and unscrupulous practices reducing marketing
charges and providing facilities to producers and sellers in the market. The poor standards
of primary and secondary markets where producer convert their produce into cash. The
prevalence of various malpractice's such as short-weights, excessive market charges,
unauthorized deduction, adulteration of produce and the absence of machinery to settle
disputes between sellers and buyers were recognized as the main hindrances in agricultural
marketing. These defects and malpratices can be recover by the establishment of regulated
marketing there country may be regulated either by local bodies or under state legislation
was suggested first in 1928 by the Royal commission on Agriculture. The movement of
regulation of market gained momentum only after 1930. The Bombay Agricultural produce
market act of 1939 was passed in respect all agriculture produce Viz., cereals, fibres and
fruits etc. Regulated markets usually handle tobacco, cotton, groundnut, grains, coconuts,
arecanuts, potatoes and turmeric etc.

Swaminathan Report: National Commission on Farmers

The National Commission on Farmers, chaired by Prof. M. S. Swaminathan, submitted five
reports through the period December 2004 - October 2006. Following from the first four,
the final report focused on causes of famer distresses and the rise in farmer suicides, and
recommends addressing them through a holistic national policy for farmers. The findings
and recommendations encompass issues of access to resources and social security
entitlements. This summary is a quick reference point highlighting the key findings and
policy recommendations under land reforms, irrigation, credit and insurance, food security,
employment, productivity of agriculture and farmer competitiveness.
Background
The National Commission on Farmers (NCF) was constituted on November 18, 2004 under
the chairmanship of Professor M.S. Swaminathan.  The Terms of Reference reflected the
priorities listed in the Common Minimum Programme.  The NCF submitted four reports in
December 2004, August 2005, December 2005 and April 2006 respectively.  The fifth and
final report was submitted on October 4, 2006.  The reports contain suggestions to achieve
the goal of "faster and more inclusive growth" as envisaged in the Approach to 11 th Five
Year Plan.
Terms of Reference
The NCF is mandated to make suggestions on issues such as:
 a medium-term strategy for food and nutrition security in the country in order to
move towards the goal of universal food security over time;
 enhancing productivity, profitability, and sustainability of the major farming systems
of the country;
 policy reforms to substantially increase flow of rural credit to all farmers;
 special programmes for dryland farming for farmers in the arid and semi-arid
regions, as well as for farmers in hilly and coastal areas;
 enhancing the quality and cost competitiveness of farm commodities so as to make
them globally competitive;
 protecting farmers from imports when international prices fall sharply;
 empowering elected local bodies to effectively conserve and improve the ecological
foundations for sustainable agriculture

Minimum Support Price (MSP) is a form of market intervention by the Government of India
to insure agricultural producers against any sharp fall in farm prices. The minimum support
prices are announced by the Government of India at the beginning of the sowing season for
certain crops on the basis of the recommendations of the Commission for Agricultural Costs
and Prices (CACP). MSP is price fixed by Government of India to protect the producer -
farmers - against excessive fall in price during bumper production years. The minimum
support prices are a guarantee price for their produce from the Government. The major
objectives are to support the farmers from distress sales and to procure food grains for
public distribution. In case the market price for the commodity falls below the announced
minimum price due to bumper production and glut in the market, government agencies
purchase the entire quantity offered by the farmers at the announced minimum price.
Determination of MSP
In formulating the recommendations in respect of the level of minimum support prices and
other non-price measures, the Commission takes into account, apart from a comprehensive
view of the entire structure of the economy of a particular commodity or group of
commodities, the following factors:-
 Cost of production
 Changes in input prices
 Input-output price parity
 Trends in market prices
 Demand and supply
 Inter-crop price parity
 Effect on industrial cost structure
 Effect on cost of living
 Effect on general price level
 International price situation
 Parity between prices paid and prices received by the farmers.
 Effect on issue prices and implications for subsidy

Procurement prices
Procurement price of a commodity refers to the price at which government procures the
commodity from producers/manufactures for maintaining the buffer stock or the public
distribution system. These prices are announced by the Government of India on the
recommendations of the Commission for Agricultural Costs and Prices before the harvest
season of the crop. At these announced prices, govt. procures the foodgrains (wheat, paddy
and coarse grains) in the needed quantity either for maintaining the buffer stock or for the
distribution through fair price shops. Procurement prices are fixed generally at a level, which
is somewhat higher than the level of minimum support prices but lower than the prevailing
market prices.
Food Corporation of India (FCI) is a Public Sector Undertaking, under the Department of
Food & Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution.
 FCI is a statutory body set up in 1965 under the Food Corporations Act 1964. It was
established against the backdrop of major shortage of grains, especially wheat.

o Simultaneously, Commission for Agricultural Costs and Prices (CACP) was

created in 1965 to recommend remunerative prices to farmers.
 It has primary duty to undertake purchase, store, move/transport, distribute and sell
food grains and other foodstuffs.
What is Commission for Agricultural Costs & Prices (CACP)?
 The CACP is an attached office of the Ministry of Agriculture and Farmers
Welfare. The Commission for Agricultural Costs & Prices (CACP since 1985, earlier
named as Agricultural Prices Commission) came into existence in January 1965.
 It is mandated to recommend minimum support prices (MSPs) to incentivize the
cultivators to adopt modern technology, and raise productivity and overall grain
production in line with the emerging demand patterns in the country.
 MSP for major agricultural products are fixed by the government, each year, after
taking into account the recommendations of the Commission.

o As of now, CACP recommends MSPs of 23 commodities, which comprise 7

cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi), 5 pulses
(gram, tur, moong, urad, lentil), 7 oilseeds (groundnut, rapeseed-mustard,
soyabean, seasmum, sunflower, safflower, nigerseed), and 4 commercial
crops (copra, sugarcane, cotton and raw jute).
What are the Objectives of FCI?

 To provide remunerative prices to farmers.

 To help in transforming the crisis management oriented food security into a stable
security system to ensure availability, accessibility and affordability of food grains to
all people at all times so that no one, nowhere and at no time should go hungry.
 Ensuring food security of the nation by maintaining satisfactory level of operational
buffer stocks of food grains.
 Distribution of food grains throughout the country for Public Distribution System.
 Effective Price Support Operations for safeguarding the interest of farmers.