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Post harvest financing, the urgent need of the hour

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The phenomenon of farmers’ suicides has continued unabated for over two decades, although some neo-liberal economic policies have been in operation. The unprecedented human tragedy is linked to the weather gods. What is actually required is to insure farmers from the adversities and provide adequate warehousing facilities and post harvest financing to the farmers. 

India is one of the largest producers of over 80% of agricultural products, including many cash crops such as coffee and cotton. However, largely due to storage, logistics and financing infrastructure inadequacies, harvest and post-harvest losses of India’s major agricultural produce is estimated at Rs 92,651 crore ($13 billion), according to data published by the Ministry of Food Processing Industries in August, 2016. If these losses were prevented, over 5 crore people could be fed, for a year, at the rate of Rs 50 per day!

In fact, one third of the total production of fruits and vegetables, in India is wasted and surprisingly, this is equivalent to the entire production of fruits and vegetables in Europe.

While post-harvest losses vary depending on the crops, agri-practices, climatic conditions, etc., storage is usually the number one reason in most cases. Most harvested grains, fruits and vegetables are stored in the traditional storage structures, which are made of locally available materials (grass, wood, mud, etc.) without any scientific design, and cannot protect crops against pests and decay. As a result, a bulk of the stored commodities is lost to insect infestation, rotting and mold growth. It is reported that only 10-11% of fruits and vegetables cultivated in India use cold storage due to the expense involved as well as a lack of suitable facilities.

Finance is another great setback that farmers face. To avert storage woes, due to the lack of finance and liquidity, farmers are compelled to sell their produce immediately, sometimes within days of harvest, at any prevailing rate. Usually, due to supply glut that exists in the market immediately after the harvest season, farmers do not realise the best price for their produce.

Transferring goods from the cultivation centres to processing facilities or the markets is another impediment. Due to inadequate transportation infrastructure, the commodities are often damaged through bruising and bad road conditions, spillage due to repeated loading and unloading and contamination, heat and humidity in the absence of cold chain transport facilities.

 Fortunately, technology intervention through improved storage structures and better logistics can play a critical role in reducing postharvest losses and increasing farmers’ revenues. Use of properly sealed hermetic storage structures and cold chain transport facilities, if necessary, can result in a considerable reduction in post-harvest losses, maintain the freshness of fruit and vegetable and seed viability and retain the quality for longer storage times, according to reports published by the National Center for Biotechnology Information.

Using scientific storage facilities appears to be the panacea. On the one hand, it prevents storage losses and at the same time, it facilitates funding of other post-harvest activities. Warehousing receipts, from certified warehouses, can be used as collateral for funding from banks and other lending institutions. Thanks to the enactment of the Warehousing (Development and Regulation) Act of 2007, which came into force from 2010, banking institutions are advancing over Rs 40,000 crore against warehousing receipts at present, compared to merely Rs 5,000 crore, a decade ago.

These loans against warehousing receipts enable farmers to access the funds they require, to meet their consumption needs and working capital requirements, such as purchasing inputs for the next season and transporting their goods. At the same time, they can monitor market prices and sell their produce, wholly or partly, when the prices reach suitable levels.

Even the issue of transportation is ameliorated by securitising warehouse receipts, as the funds available enable the farmers to finance and manage logistic chains better. Eventually, the cost of better transport systems is more than compensated for by the considerable reduction in losses during transportation.

The Central Government’s aim of doubling farm income can only be a reality if adequate warehousing facilities and post harvest financing is made available to the farmers.  Necessary steps in that direction is of critical importance and the government’s role in facilitating both is extremely important.

 

About the author: Sudip Bandyopadhyay

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