Abstract
Agriculture is a professional activity that is under the influence of a wide range of risks. While the majority of the risks can be attributed to the natural causes, an equally considerable proportion of risks exist because of systemic failures due to lack of innovative practices and their adoption. Here, as the former part lies outside the purview of human control, it is the latter type of risks that are leading to the often capital-starved business processes in the agriculture in the India. The small and marginal farmers, who dominate in the Indian context, lack ample collaterals to secure access to the available institutional financing options.
To understand the gravity of the situation, it is worth noting that the process of agricultural value-addition begins with the application of inputs (seed, manure, herbicides, minerals, fertilizers, etc.) in farms, which further leads to the commodity production, and ultimately ends with the consumption either at the dining table (for food) or in the form of wearables (for fibre). Traditionally, both the processes and sub-processes, collectively described as supply chain, are viewed in isolation by the existing institutions that extend the financing services (fixed capital and/or working capital) to the farmer/channel partners (until consumers) in lieu of collateral. The same process in recent times has evolved and is represented through a chain of various sub-processes known as a value-chain and defined in the book as ‘The organized links across groups of producers, traders, processors, and service providers, including nongovernmental organizations (NGOs), that join together to improve productivity and the value added from their activities’(p. 4).
In similar vein, the Value Chain Financing (VCF) can also be understood as ‘The financial products and services that support in value addition at any point in the value chain resulting in value-added products and services and hence increased returns are termed as value chain finance’ (p. 35). As it is clear from the looking at both the definitions, the value-chain financing is a great alternative to the traditional ways of financing only the individual stakeholder, it is worth noting the challenges that it might encounter while doing so. First, arriving at a consensus over terms of operation in a multi-stakeholder arrangement is often tricky. Second, virtual collateral (e.g., social capital and stakeholder linkage) for a financial service provider might not make a business case. Third, the regulatory frameworks established in the country over a long time might prove ineffective or limiting in facilitation activity. And finally, the political economy driven scenarios often provide little consideration to the future innovations in the agribusiness space owing to their traditional ways of looking at it.
The book is an outcome of a compilation of a total of 14 chapters, into three themes, that were presented at a national seminar, and therefore appears to lack coherence and consistency in presentation of the content associated with the contemporary developments in the VCF. The chapters, thus, are briefly summarized along with their key contributions and/or shortcomings.
There are three chapters in ‘Theme I: Agriculture Value Chain Financing: Theoretical Framework’, and all are very relevant for the VCF literature. Almost all the aspects of VCF are captured systematically in this section. Chapter 1 by Mani and Joshi briefly discusses about the need of VCF in the complex context of agriculture in the country like India. The conceptual underpinnings of the integrated stakeholder-ship in VCF are highlighted by comparing it with the traditional, fragmented supply chain concept. Various business models for agricultural value chains are also presented along with the rationale, to facilitate an understanding of the concept of value chain and its financing. Chapter 2 by Joshi, Roy and Sonkar is worth mentioning for its comprehensive coverage of the types of VCF. They also argue that the VCF is needed at a particular stage of the ‘farm to fork’ chain that involved various stakeholders. The authors provide details of the business models that can be based on the financing pattern pertaining to either a product-based financing, power-oriented lead firm financing or financing based on receivables. Another section on innovations, covers schemes like KCC (Kisan Credit Card) from the lens of VCF. Chapter 3 by Gouri and Mahajan, after attempting to define the VCF, tries to classify it on the basis of financers to the producers, as Direct (financing only the producers) and Indirect (financing any stakeholder of the value chain). The chapter cites numerous examples to illustrate the primary driver of the VCF in a value chain. The drivers may be a buyer, producer or even a facilitator that acts as a main actor to whom financing is extended by the institutional financers.
Majority of chapters that belong to the ‘Theme II: Agriculture Value Chain Financing in Case of Select Commodities’ of book are limited in their coverage of VCF for commodities. As most cases are descriptive about the value chain and its cost-economics or value-appropriation share, there is often a missing element of financing need and ways of catering to those needs by the institutional/non-institutional financers. Clearly, only Chapters 4 and 8 are in-line with the thematic description of this section. Chapter 4 by Birthal et al. belongs to the section theme in which the case study is used to exemplify the incidence of financing through borrowing among farmers. While it affirms the claim that more than half of the farmers resorted to some kind of borrowing, it also attempts to identify the determinants that lead a farmer towards credit. The findings confirm that farmers’ primary choice of borrowing was the local traders, closely followed by the cooperatives. This necessitates the need to evolve the VCF that moves beyond the mundane ways of financing the agribusinesses. Chapter 5 by Sutradhar includes sufficient findings to illustrate the economics of vegetable farming done by the smallholder farmers for supermarket channel and traditional channel in the state of Rajasthan. However, the description is limited to a comparison of value chain and the distribution of value within the value chain. Also, there is no mention of mechanisms for financing or credit to farmers. Chapter 6 by Singla just stops short of explaining how VCF is done, while it reports the higher profit realizations despite incurring higher costs by the farmers in the modern retail linkages. Chapter 7 by Ramappa and Manjunatha accomplishes only limited discussion about the VCF and improved financial services/credit extensions and/or provisions to the producers. In their survey findings, it is deciphered that VCF is demanded by most of the stakeholders in a value chain. It is also recommended by the authors that the banks and the government should work towards increasing the access of farmers to credit. However, there is no concrete mechanism or framework that can explain how to achieve the objective of improved access. Chapter 8 by Upadhyay, Pandey and Dhar describes a value chain map for the dry fish right from the fisherman till the consumer. They also provide details about the prevalence of the bank accounts and fulfillment of the credit requirement, that is done through different financers that are available in the North-east region. It emphasizes the need of better and customized servicing in financing the value chain because of the fact that it is quite different from the traditional, individual-level credit extension. The authors recommend system strengthening at each stage of the value chain through microfinance or bank (institutional finance) initiatives. Chapter 9 by Ashok is a brief description of poor tribal women’s participation in broiler value chains. While various financing agencies are enlisted in the chapter, the relevant details about the extension of finance and credit are missing. Overall, it is written with a higher marketing orientation rather than emphasizing the financing needs and addressing the challenges faced in VCF of profitable broiler value chains in tribal regions. In Chapter 10, Sirohi et al. study the ‘farmers as consumers’ aspect utilizing the prominent input, fodder, for dairy cattle. The authors have rightly identified ‘lack of VCF’ as a constraint in unlocking the full potential of the value chain, but have not provided details of the issues faced while attempting financing. Chapter 11 by Venkatram et al. has analysis of the potato value chain and identifies the gap that is existing in the VCF in monetary terms for different states.
‘Theme III: Institutional Framework for Agriculture Value Chain Financing’ of the book is found lacking in terms of quality. This is primarily due to the fact that there is a higher tendency to describe the changes in the value chain. However, little energy is devoted in taking into account the new changes that would lead the financing patterns of the institutional and non-institutional lenders. Therefore, all three chapters of the theme add little worth to the overall VCF literature from the lens of the theme. Chapter 12 by Roy, Joshi and Chandra is not relevant to the theme of the book and the topic of VCF at a broader level. The chapter covers a range of aspects that govern the operational features of electronic National Agricultural Market (eNAM) in India. However, nowhere in the chapter there is an attempt made to address the challenges of value chains, while it deals with the spatial distribution and co-integration in the agricultural produce markets. Chapter 13 by Nayak discusses about the aggregation among the farmers in the form of Farmer Producer Organizations (FPOs), but stops short of giving any information on the VCF mechanisms that they indulge in. This chapter also deviates from the core objective of the book by describing the economic aspects governing transactions of FPOs in markets at different levels. Chapter 14 by Ghosh does not touch a single dimension and/or challenges faced in the VCF of agriculture. It would have added value to the discussion, if the author could shed some light on whether/how the evolution of the APMC Acts in different states has led to change in the patterns of value chains and its financing practices.
In the light of the coverage regarding the VCF and the specific gaps that have been identified and enlisted as aforementioned, it may be concluded that although the book is a timely attempt to address an important topic of financing, the value chains, there are various limitations that have resulted due to the compilation of the book. First, more than half of the chapters are not even found attempting in addressing the challenge of the VCF, leave aside the concrete mechanisms of achieving an optimized financing for the Indian context. Second, there is misclassification of the chapters in the form of three themes in the book. Among the three, only the first theme comprehensively covers most of the relevant theoretical dimensions of the subject. A better outcome could have ensued if there were additional chapters in the themes for the case studies that demonstrate the ways of financing the smallholders (or farmers in general) in India. It is important as the challenges of the value chain in India are not entirely different from those faced by the agriculture sector in general. The possible additional themes could be ‘institutional and non-institutional financing’, ‘innovative approaches to financial/credit disbursement to farmers’, etc. to capture the contemporary developments in the field. Third, relevant case studies, that could have highlighted the quantum of VCF needed for particular crops under production were found to be absent. Also, it could have incorporated the aspect of ‘who undertakes the financing and under which contextual factors it is done?’.
While going through the book, it is felt that to capture more domain knowledge, there should have been either more themes for classification, or more chapters should have been included, which would focus mainly on the financing modes for the VCF. The presented 14 chapters that are divided into three broad themes in the book have a more general issue of misclassification and digression from the relevant information. Except for some chapters (i.e., Chapters 1, 2, 3, 4 and 8), the book has not been able to capture the essence of the VCF, and largely ignored the addressing to the challenges in the implementation of VCF in India. Nevertheless, the book has attempted to engage the reader in the contemporary discussion about that of ‘value chain financing’. It has provided strong reasons to pursue in the direction that leads towards the conversion of challenges to opportunities. At various instances, there was a tendency to focus the need for financing from the perspective of a developing nation such as India. However, the attempt of catering to the needs of a more focussed reader by the authors has to be acknowledged, though it could have been done with reasonable caution as it could have provided even greater clarity to the subject of VCF for the Indian context.