Fostering farmer's organisations with business rigour

May 16, 2013

In this concept paper L.P. Semwal, Chairman of Shri Jagdamba Samiti, and Edwin Willemsen, Fresh Food Technology, talk about a new approach is to create a profitable partnership between investors and farmer groups, by setting up joint agro-processing enterprises, based on solid feasibility studies and business plans.

Although India is rapidly transforming itself into an open, more efficient and rapidly developing market-driven economy, in rural areas such transition has been lacking or progressing painfully slow for most farmers. Marginalized and small farmers in particular are unable to escape the powerful grip and dependence on middlemen, informal lenders and other intermediaries. Although there have been several attempts to assist farmers in escaping from their poverty trap, the results have been disappointing.

Loan and grant schemes, if at all they reach the individual farmers, do not have the desired effect as these schemes do not tackle the core problems of dependence of the farmers, which brought them in poverty in the first place. As a result, most loan and grant schemes are in effect only patching solutions rather than a structural solution.

Other attempts have been focused on strengthening the farmer’s position by organizing them in self-help groups, in cooperatives or other forms. These interventions have been more successful in breaking the farmer’s dependency on intermediaries, but their success and failure are mainly determined by their leadership and/or continued government intervention.

Only exceptional examples exist where these farmer groups have been able to move up the value addition chain, become fully self-sustainable without (too much) political interference.

At present in India, about 4% of its total employees are working in cooperatives, but comes at a annual cost of 780.000.000.000 RS to match the losses and investments of the cooperatives. Every single Indian is paying RS 780 per year to sustain the cooperative system, without realistic prospects to turn them into healthy businesses.

Apart from the disappointing, and costly results, the heavy government support to such groups creates an additional problem of local market distortion: investments are not made on the basis of healthy business opportunities and creates once again dependency on external support. It also results in unfair competition towards new private investments / companies that wish to set-up viable businesses in similar sectors, but which have no access to similar (seemingly) unlimited, free financial support from government.

Click here to read complete concept paper

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