In November 2009, Aga Khan Rural Support Programme-India (AKRSPI) began a pilot project to address challenges faced by rural farmers in the post-harvest value chain in Gujarat state of western India. Though AKRSPI observed that yield and crop quality were improving for the farmers they worked with, overall sales prices remained low.
In late 2009, AKRSPI entered into an agreement with the National Spot Exchange Limited (NSEL), a company that provides a transparent and secure electronic spot-trading platform for a number of different commodities in addition to providing trading, delivery, grading, storage and finance services. NSEL’s mission is to help improve producer prices without increasing consumer prices by reducing the number of intermediaries involved in the commodity marketing process.
Benefits to farmers participating in NSEL include immediate payment for crops, warehousing, transport infrastructure and communication of current market prices. In the traditional Indian rural market, farmers often do not receive immediate payment after sale since buyers often utilize market credit. With a spot exchange contract, the buyer is required to pay for their purchase at the time of sale, ultimately benefiting the seller.
Benefits to buyers include the ability to receive aggregated shipments of quality products as well as transparency in terms of pricing.
While NSEL provided the electronic exchange platform for conducting groundnut trade between farmers and buyers as well as the warehousing facilities, IFMR Trust, a subsidiary of ICICI Bank Ltd., provided warehouse receipt financing for commodity stored with NSEL. AKRSPI educated rural farmers on this new way of trading and mobilized local communities for participation in the pilot project.
Thirty-nine rural farmers participated in the pilot project, entering into sales agreements with NSEL for groundnut worth 1.61 million rupees (approximately $35,000).