Financing Agriculture Value Chains in India (eBook)

Gyanendra Mani is currently the general manager and officer In-charge of the National Bank for Agriculture and Rural Development (NABARD), Arunachal Pradesh Regional Office (RO). He has a Ph.D. in Agricultural Economics from the G B Pant University of Agriculture & Technology, Pantnagar, Uttarakhand. He has conducted about 40 studies on behalf of the NABARD and published around 40 articles/research papers in Indian and International journals. He has handled several consultancy projects on behalf of the NABARD including ‘Evaluation of SGSY Scheme’ for the Ministry of Rural Development, Government of India (GOI). He also conceived the idea of and launched the ‘THE MICROFINANCE REVIEW’ Journal on behalf of the Bankers Institute of Rural Development (BIRD), Lucknow and was its managing editor from 2009 to 2015. As faculty of BIRD, he conducted two exposure visits of senior bankers to Israel and Netherlands. He is also a National Resource Person for the ‘Design of Training’ programme being conducted by the Department of Personnel and Training (DoPT), Government of India. P.K. Joshi is the director of the International Food Policy Research Institute (IFPRI) South Asia. Dr. Joshi has received several awards, including: the National Academy of Agricultural Sciences’ Dr. M.S. Randhawa Memorial Award of (2009–11); and the Indian Society of Agricultural Economics’ Prof R C Agarwal Lifetime Achievement Award and DK Desai Award. Dr. Joshi has also served as the chairman of the SAARC Agricultural Centre’s governing board in Dhaka, Bangladesh (2006–08); chairman of the United Nations Centre for Alleviation of Poverty through Sustainable Agriculture (UN-CAPSA) governing board in Bogor, Indonesia (2007); and a member of the intergovernmental panel on the World Bank’s International Assessment of Agricultural Science and Technology for Development (2007–08). He was a member of the International Steering Committee for the Climate Change, Agriculture and Food Security Challenge Program, led by the Earth System Science Partnership (ESSP) Science Community and the Consultative Group on International Agricultural Research (CGIAR) (2009–11). He is also president of the Agricultural Economics Research Association (India).  M.V. Ashok is currently the chief general manager heading the Department of Economic Analysis & Research at the National Bank for Agriculture and Rural Development (NABARD) Head Office, Mumbai. He is a postgraduate in Agriculture from the Indian Agricultural Research Institute (IARI), New Delhi with additional qualifications in financing micro-enterprises from the UK, as well as financing agri-business management from the USA. His development banking experience spans 34 years with different banks like Canara Bank, Reserve Bank of India (RBI) and he has been with the NABARD since 1983. He has extensive contact with the rural finance sector in several countries including Thailand, Kenya, China, Germany, England and the USA.

Foreword 6
Acknowledgements 8
Contents 10
Editors and Contributors 12
Agriculture Value Chain Financing: Theoretical Framework 15
1 Financing Agricultural Value Chains: An Overview of Issues, Lessons Learnt, and Policy Implications 16
1 Introduction 16
2 Conceptual Framework 17
3 Agricultural Value Chains in India: Efficiency, Inclusiveness, and Sustainability 19
3.1 Types of Value Chain 20
3.2 Efficiency 21
3.3 Inclusiveness 21
3.4 Competitiveness 22
3.5 Financing 22
3.6 Infrastructural Support 23
3.7 Warehouse Receipt Financing 23
4 Key Lessons 24
5 Policy Implications 25
Acknowledgements 26
References 26
2 Elements of Agriculture Value Chain Financing: A Review 28
1 Introduction 28
2 Value Chain Financing: A Review 30
3 Type of Value Chain Finance 31
3.1 Self-finance Value Chain Finance 31
3.2 Direct Informal ‘Within Chain’ Value Chain Finance 32
3.3 Indirect Formal Financial Services ‘From Outside the Chain’ Value Chain Finance 32
4 Value Chain Models and Financial Instruments 33
4.1 Product Financing 33
4.1.1 Aggregator Credit 33
4.1.2 Input Supplier Credit 34
4.1.3 Marketing Company Credit 34
4.2 Lead Firm Financing 34
4.2.1 Some Examples of Contract Farming by Firms in India 35
4.3 Receivable Financing 36
4.3.1 Trade Receivable Financing 36
5 Risk Mitigation Products 37
5.1 Crop/Weather Insurance 37
5.2 Forward Contract 38
6 Innovations 38
6.1 Microfinance and Revolving Loan Initiatives 38
6.1.1 The Traditional Targeting Approach to Rural Lending 38
6.1.2 Innovations in the Form of Kisan Credit Card Scheme (KCC) 39
6.1.3 Using Firm Farm Linkages for Value Chain Financing 40
6.2 Technological Innovations 42
7 Conclusions 42
References 43
3 Different Models of Financing Small Farmers’ Agricultural Value Chains 46
1 Introduction 46
1.1 The Concept of Agri-value Chain 47
1.2 Defining Agri-value Chain Finance 48
2 Benefits of Agri-value Chain Financing 51
2.1 Supports Sustainable Agriculture Development 51
2.2 Increases Financial Inclusion 52
2.3 Enables Value Addition and Exports 52
2.4 Helps in Poverty Reduction 53
3 Value Chain Models 53
3.1 Producer-Driven Models 54
3.2 Buyer-Driven Models 55
3.3 Facilitated Value Chains 56
3.4 Integrated Value Chains 57
4 Financing Mechanism and Instruments 57
4.1 Product Financing 57
5 Examples of Access to Finance for Small Farmers 60
5.1 Credit Guarantee Fund—SFAC 60
5.2 Producers Organization Development Fund—NABARD 60
5.3 Commodity Exchange Platforms and Warehouse Receipts—NBHC 61
6 Case Studies of Small Farmers’ Agri-value Chain Finance 62
6.1 Warehouse Financing for Small Farmers 62
6.2 Cascade Financing Loans Across the Value Chain 64
7 Conclusions 65
References 66
Agriculture Value Chain Financing in Case of Select Commodities 67
4 Formal Versus Informal: Efficiency, Inclusiveness and Financing of Dairy Value Chains in Indian Punjab 68
1 Introduction 68
2 Dairy Sector Status and Policies 71
3 Data 72
4 Production Structure and Marketed Surplus 74
5 Farmers’ Choice of Value Chains 75
6 Productivity, Price and Profitability 78
7 Econometric Estimates of Farm Performance Under Different Value Chains 81
8 Mechanisms of Financing Value Chains 89
9 Concluding Remarks 96
References 97
5 Smallholder Participation in Supermarket-Driven Agri-Food Supply Chain: A Case Study of Reliance Fresh 99
1 Introduction 99
2 Diffusion of Supermarkets in India 101
3 Agrarian Context of Rajasthan 103
4 Emergence of Supermarkets in Rajasthan 103
5 Description of Survey Area and Survey Design 105
6 Analytical Framework 106
7 Descriptive Statistics 106
8 Farmers’ Perceptions of Different Marketing Channels 109
9 Determinants of Participation in Supermarket Channel 111
10 Conclusion and Policy Implication 114
References 115
6 Innovations in Agricultural Marketing in India: A Case Study of Supermarket in Punjab 119
1 Introduction 119
2 Reliance Fresh and Its Operation Process 120
3 Who Supply to the Selected Supermarket and Who Do not? 121
4 Do Farmers Benefit from Their Association with Supermarket? 122
5 Dynamics in Prices of Cauliflower and Cabbage 124
6 Technical Advice 124
7 Technical Efficiency and Scale Efficiency 124
8 Farmers’ Opinion on the Role of Supermarket in Vegetable Marketing 126
9 Supermarkets and Crop Diversification 128
10 Conclusions and Policy Implications 130
Appendix 131
References 133
7 Tomato Value Chain in Karnataka 134
1 Introduction 134
2 Analytical Framework 135
3 Mapping Tomato Value Chain 137
3.1 Channel I: Traditional Market Channel 137
3.2 Channel II: Organized Retailers/ Supermarket Channel 139
3.3 Channel III: Processed Tomato Products Channel 139
4 Actors in Tomato Value Chain 140
5 Costs and Returns Along Tomato Value Chains 141
6 Constraints at Different Stages of Tomato Value Chain 144
6.1 Growers’ Constraints in Production and Marketing of Tomato 144
6.2 Constraints Faced by Different Market Functionaries 145
7 Financial Requirements of Value Chain Actors 147
8 Summary and Policy Recommendations 147
References 149
8 Value Chain Analysis of Dry Fish in North-East Region of India 151
1 Introduction 151
2 Selection of Value Chain Actors 152
3 Mapping of Dry Fish Value Chain Activities 154
3.1 Fish Processing 154
3.2 Marketing of Dry Fish 155
3.3 Distribution 156
4 Dry Fish Value Chain Map 156
5 Infrastructural Facilities Along the Dry Fish Value Chains 158
6 Cost and Margins in Dry Fish Value Chain 159
6.1 Cost and Margins of Dry Fish Processors 159
6.2 Cost and Margins of Processors in Matka Shidal 160
6.3 Cost and Margins of Processors of Smoked Fish 161
6.4 Cost and Margins of Wholesalers 161
6.5 Cost and Margins of Retailers 162
7 Value Chain Performance of Dry Fish 164
8 Financing Dry Fish Value Chain 164
9 Conclusions and Policy Implications 167
References 169
9 Broiler Value Chain Model for Empowerment of Poor Tribal Women: A Case Study in Jharkhand 171
1 Introduction 171
2 Value Chain Model 172
3 Financial and Institutional Support to Value Chain 174
3.1 Poultry Cooperative Federation 174
3.2 Central Government 175
3.3 State Government 175
3.4 National Bank for Agriculture and Rural Development (NABARD) 175
3.5 Commercial Banks 175
4 Conclusions 175
Bibliography 176
10 Strengthening Value Chain of Compound Cattle Feed 178
1 Introduction 178
2 Selection of Value Chain Actors 179
2.1 Selection of Feed Manufacturing Units 179
2.2 Selection of Other Actors in Value Chain 180
2.3 Selection of Dairy Farmers 180
3 Value Chain of Compound Cattle Feed 181
4 Interaction of Actors and Stakeholders 182
4.1 Dynamic Dairy Production System 182
4.2 Transient Dairy Production System 185
5 Production Costs and Margins 186
6 End-use Analysis: Adoption and Efficacy of Compound Cattle Feed 187
7 Strengthening Value Chain: Desired Interventions 190
8 Conclusions 191
References 191
11 Potato Value Chain Analysis in Selected States: Tamil Nadu, Uttar Pradesh and Bihar 193
1 Introduction 193
2 Data and Analytical Framework 194
3 Major Findings 195
3.1 Current Practices of Production and Marketing of Potato 196
3.2 Potato Production: Cost and Returns and Efficiency 197
3.3 Producer’s Share in Consumer Rupee 203
3.4 Value Addition by Processor 205
3.5 Value Addition by Cold Storage Units 205
3.6 Value Addition—Export and Its Competitiveness 206
3.7 Credit Gaps 207
3.8 Credit Requirement of Market Intermediaries 207
3.9 Financial Products for Further Development of Potato Value Chain 209
4 Potential for Value Addition and Investment Needed 212
5 Information Exchange/Sharing for Value Addition 213
6 Conclusions 213
References 214
Institutional Framework for Agriculture Value Chain Financing 215
12 Elements of a National Agricultural Market in India 216
1 Introduction 216
2 Elements of a Functional Marketing Platform 218
3 Agricultural Markets in India: Common or Single? NAM from Market Integration Perspective 220
4 Spatial Integration in Indian Agricultural Markets 222
5 Data and Market Selection 223
5.1 Time Series Analysis of Market Integration 226
5.2 Market Integration: Johansen’s Cointegration Approach 228
5.3 Johansen Cointegration Test: Pairwise Cointegration Test Between the Local and Central Markets 229
6 State of Wholesale Markets in India 231
6.1 Market Density 233
6.2 Market Density Mapping 234
7 Basic Indicators of Backend Infrastructure 236
8 Conclusions 240
References 241
13 Optimal Institutional Architecture of Farmer Producer Organizations for Sustainable Value Creation for Small and Marginal Farmers 244
1 Introduction 244
2 Industrial Model of Value Chain in Agriculture 246
3 Characteristic of Agriculture and Small Farmers in India 247
4 Value Chain, Technology, Capital and Ownership Lock-Ups 248
5 Value Addition as Value Destruction of Agricultural Produce 248
6 Income for Small Farmers or Gross Turnover of FPO 249
7 Value Chain or Value Network for Agricultural Produce 249
8 Optimal Institutional Architecture of FPOs 252
9 Conclusions 254
References 254
14 Impact of Market Reforms on Integration of Food Markets in India 256
1 Introduction 256
2 The Model APMC Act and the Reforms 258
3 Analytical Approach 261
3.1 Co-integration 261
3.2 Data 263
4 Impact of Agricultural Policy Reforms 264
5 Summary and Conclusions 266
References 267