A New Culture for Agriculture

For a country with extraordinary emphasis on agriculture, it’s ironical that agriculture sector has not been treated nor considered like a normal business domain as any other industrial domain, which is manned by entrepreneurs called farmers. This lack of entrepreneurial culture that is required to run this sector, has been the one of key factors for the decline in the quality of lives of the key stake holders in this industry. Since, this is not overtly visible as a direct factor, its often ignored forgetting the overwhelming undercurrent of hopelessness it creates and the vicarious effects that causes the domino effects in the key sectors of economy and society.

This is no advocacy of any sort of corporatism in agriculture, in fact on the contrary it is the advocacy of greater efficiency in the farm management by the individual farmers. It is a very populist stand to project the farmer as a poor impoverished individual with a subsistence as his aim, but it’s one of the key reasons for the decline of the sector in India. Despite of reflecting the current staus of affairs, this assessment is a very depressing and backward looking projection which fails to create any beneficial effect. There is a urgent need to influx a new enthusiasm in this sector for any kind of change to occur in the positive direction. In more specific terms, there is an urgent necessity to influx a new culture, an entrepreneurial culture - which will enthuse the stakeholders especially the farmers, to go in search of paths of greater hope.  

Business surplus and not subsistence should be the aim of the Entrepreneur and the acceptance of continuous innovation is the requirement of the hour. This may seem like a theoretical ramble but the transformation of culture is a pertinent need - the spirit of the time, which has to be imbibed. The importance of this augurs emphasis more in the agricultural domain as the industry itself is private sector driven i.e. most of the agri production is from the farms owned privately by farmers. Thus the mention of the entrepreneurial spirit is not an analogy but a direct reference to the farm entrepreneur called the farmer. The essence of any private driven industry is based on the entrepreneur’s ever increasing quest for value creation and it’s this individual ‘will’ which cumulatively drives the industry. Unfortunately due to historical and structural reasons this spirit in not all pervading in the agricultural domain. The lack of this spirit is one of the reasons for slow (or no) adoption of new technologies and failure to incorporate any new innovative changes which has had a cascading effect after the green revolution.

The Capital Drive...

If the analysis of the agri production is done on the other industrial production parallels, amongst the 4 factors of production i.e. land, labour, capital and entrepreneurial skills the last two factor attract vivid attention, due to their conspicuous under development. Considering the fact that these 2 factors have a critical influence on the land & labour mgmt, it makes their importance increase further and their absence even more intriguing. Despite of the recognition of the critical importance of capital in the life of the agri-entrepreneur, the lack of specific structures, which are available to a normal entrepreneur all through the course of his business cycle, has not only hindered progress but also regressed the growth.  Since the discussion on entrepreneurial skill development will require an expansive view, this article is going to specifically concentrate of the capital in agricultural production or the lack of it.

Agricultural credit is definitely not a new concept to India and certainly not a novel concept for the grass root level farming communities as well. However what is glaring is the insufficiency and the lack of greater penetration of such a vital facility. All most every structure that been introduced for agricultural credit (from the agri- credit coops to the kisan credit cards) have failed to be effective in dissuading the farming community from approaching the local money lenders. In effect what has happened is that the credit has become ineffective in prepping the agri- production and also has blocked off any sort of the governmental intervention in case of emergency. Almost every failing credit structure has spoken out loudly about the lack of repayment or non profitability as the reason for the collapse.

 If this is the basic nature of this target market, then is the agricultural community in its entirety, undeserving of any credit? This diligent question has been resoundingly answered by the micro credit organizations or Micro Finance Institutions (MFIs), which have created value in the bottom of the pyramid in a very surprising way. They have in fact beaten all their sister sectors and surpassed even the most sophisticated domains of the financial sector. Working on a simple logic the MFIs have created wonders and have in effect become the official arm of the banking sector in dispersing the priority sector lending mandated by RBI. The flexibility of their structures, convenience (retail positioning), community based pressure approach for repayments and the social objectives have made them an effective mechanism to be studied for agricultural credit needs.

Any direct government interventions (even via regular banking structures) have proven to be very rigid and ultimately benefiting only the privileged section of the farming community. The vicious circle of asset based credit worthiness assessment and regular non-servicing of the loans by the farmers due to the vagaries of the business, has to be broken. This can be done only when there are vividly recognizable structures which create a regular trend among the framers to seek credit for deploying it in an economic activity and also a mechanism through which government can intervene (ex- loan waiver) in more effective terms i.e. by helping the most disadvantaged groups.  Government intervention or superfluous loan waivers can only be a exception to the rule than being the trend itself. It is ultimately the direct interaction of the farming entrepreneur and the financial institutions that can transform the system.

The trend which is proposed above, seems easy but in practice it gets complicated to such an extent that it ultimately ceases to exist. However, considering the flexibility in the MFI structures  even a minimum level of government's facilitation can have profound effect. A simple hyphening mechanism that links the MFI to the farming entrepreneurs at the right place, can be a good place to start with. Creation of credit facilitation benches that are recognized by government at the grass root agricultural extension offices (such as Raitha Samparka Kendras in Karnataka), is a credible idea that can be implemented at the least cost to the government.

Creation of the credit facilitation benches which recognizes credible MFIs that can deal with the farming community is vital to be created at the grass root level as these are also extension offices or  in business terms - retail points, which facilitate inputs distribution (such as seeds, mechanization etc). Thus instead of the handing over the credit to the farmers there can be direct cash transfer (in form of credit to the farmer) at the point of purchase from  MFIs to the retail centre. This can avoid the improper utilization of the credit for uneconomical purposes (which has been one of the main reason for rural indebtedness). This is the vital working capital loan that the farming entrepreneur needs at the critical point to production. The rest of the mechanism of collection or servicing of the loan should be dealt by the MFIs themselves with out unwanted intervention from the governmental agencies (other than the general regulation).

Any overt public claims for the introduction or success of this mechanism from the political class of the government should be averted as the mechanisms of the MFIs don’t augur well with the populist loan distribution melas, which is what the political class will drive up to, to satisfy the populist demands. The interest rates and collection mechanism (which have come under question off late) should be regulated by institutions like NABARD or RBI as they have the requisite machinery to understand, as well as control the high cost and the complexity involved with the small loan servicing.  

Some of the models developed for linking MFIs with the agri credit, have often suggested that the MFIs have to go in for the buy-back mechanism at the minimum support price and thus keep the system afloat. These models suggest that the ultimate profit should be by the sale of the agri produce at a higher price by the MFIs. However, considering the complexities of the contract farming in general, it is unwise to suggest the involvement of non-specialist organizations like MFIs in the buy- back arrangements. The marketing aspect of the agricultural produce is a very specialist domain and has to be dealt by different strategies and agencies.

If the support structures are in place and the environment augurs an entrepreneurial culture, it will be foolish to deal with the farming community as though they are gullible novices. There is an entrepreneurial drive in the agricultural community of India which has been proven from time to time. Whenever there has been an innovative structural support in place (ex- Dairy coops), the farming community has always delivered value. With a little nudge the unassuming dhoti clad farmer will prove to be a greater entrepreneur than the best that the country has seen before. It’s time to see beyond the normal and give the call for the revolution to begin……….