Background

Graphic: Challenges for Rural FarmersWithin the post-harvest value chain, rural farmers in India specifically face the following challenges:

  1. Lack of available credit from financial institutions
  2. Limited transport, preservation, and storage options
  3. Prohibitive transport costs
  4. Limited market information
  5. Compromised bargaining power in local markets

Without credit and warehousing facilities, farmers are often forced to sell their crops immediately after harvest in “distress sales” in order to earn enough money to pay off debts incurred between harvest seasons. Without accurate market information, farmers are at a disadvantage, often accepting below-market sales prices for their harvest and relying on the assistance of middlemen traders who often take a portion of the earnings. The combination of these factors results in overall market inefficiencies that also contribute to lower and unstable household incomes for rural farmers.

Credit Agreements

Men Processing Harvest

Specifically, in many areas of India, a long chain of intermediaries currently exists between the rural farmer and the end consumer. Rural farmers often enter into restrictive agreements with middlemen traders in order to obtain credit for the purchase of agricultural inputs and repayment of debts. These credit agreements often contain clauses obligating the farmer to sell all or part of their harvest to the middlemen to pay back the credit. Then the middlemen tend to pay the rural farmers less than market value, while they earn a higher return by holding onto the produce until the local market supply has decreased and sales prices have increased.

As a result of these types of arrangements, rural farmers in India often only earn, on average, 35%-40% of the final sales price, and shortages occur in the local markets [1]. While profit for the farmer has declined, production costs—such as agricultural inputs and labor—have greatly increased over the last 10 years. With less profit, rural farmers in India are unable to invest in new resources, adopt new technologies or take risks to improve their agricultural production. Household food security can also suffer as a result of less purchasing power.

Indian Groundnuts

The Indian government, in an attempt to help regulate the supply of food on the market, has developed programs, such as the Public Distribution System (PDS), to purchase food directly from farmers. The government, through PDS, purchases produce from farmers through a minimum support price (MSP) and then distributes this food to communities living below the poverty line [2] . While this system can help to eliminate the middlemen, rural farmers still do not receive optimal prices for their harvest since they are forced to sell when the government is ready to purchase, often at lower market prices.

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