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Colin raises questions in his paper that go to the heart of the debate. I would like to take up Finance and Markets as the two areas I address. Finance Credit for inputs like fertilisers is widely available, prices may or may not be subsidised, credit can be direct or through distribution intermediaries and is mostly collected successfully because farmers need to come back for more. The subsidy or compensation as it is regarded in India, if there is any is paid through the producing companies and the farmers choice is restricted to suppliers enjoying such advantage which does reduce competition. Credit through suppliers is not free and the smaller farmers have to be sparing in what they take. Timely inputs can make a difference in productivity of 25% and more from my experience in the Philippines. In most developing countries extension is not widely available from public sources. Farmers need advice on practices, varieties and timing as well as more specific problems. They also need guidance as to market is signals on what is best to grow and help in diversification. Small farmers cannot pay for this and that often leaves a private sector that would like to supply extension and would be willing to do so not being able to mount commercially viable operations. The private sector could actually go further and set up tissue culture labs, demo plots and nurseries on a viable basis if they had buyers. The problem in both areas is that the farmer is simply too poor to start a process that would lead to a substantial development of agribusiness. Once farmer incomes increase they are more likely to pay part or even all the costs of services that they can see yield economic returns. There is a very good case for Governments to fund farmers for a period of time to get the process going although I must admit there is uncertainty to how long this period needs to be. In the EU Agrarian Reform support Programme in Philippines for which I was on an Evaluation Mission appeared to provide positive endorsement of the approach. The small farmer cannot allocate all his time let alone anyone else's to farming. Therefore, credit for crop cycle is really crucial. There is a minimum the farmer needs merely to stay in production but a maximum where inputs would be optimal. All private entrepreneurs have a similar problem. The need is recognised and some countries like India have allocated massive sums to provide such credit. If the credit is not made available, the farmer has to turn to his buyer: the collector; transporter; wholesaler or agent that he normally deals with and who often is also the selected channel for input credit delivery and collection. Taking such a loan ties the farmer to the lender for selling his produce and this reduces choice and thus price competition. There is no way around this issue although banks in particular go through all sorts of convoluted manoeuvres to avoid giving smaller farmers this money. Larger farmers do not present a problem, they can provide collateral. Smaller farmers need to guarantee one another or pay high rates to obtain money that the banks were often set up to give and for which they receive free or subsidised money. Interestingly, it is considered accepted wisdom to link credit for smaller farmers to savings presumably because it is good for their souls and is sustainable. I find it difficult to accept this because the objective of the entire process is often lost with the savings schemes earning plaudits and prizes but never being on a large enough scale to make a difference and farmers often end up paying up to 26% for their money. A process that leads to subsidies for banks and strict conditions for small farmers is difficult to swallow. It is better to do that, the argument goes, than pay money lenders 120% or much more and that is what the farmer has to pay for his social needs which are to him as necessary as his crop needs. To leave need for social money out of calculations is to leave the farmer in a debt trap. Many arguments are used to justify not giving the money to those for whom it is intended. Not disrupting commercial banking was a very popular one. Avoiding spoiling farmers through cheap or easy money is another. Sustainability is difficult to deny. But whatever the reasons, money given for distribution is not distributed, banks financed to do so end up richer. There is the additional problem of reaching farm levels. In India NABARD refinances banks that lend to farmers. In some countries and situations this distribution involves a number of levels from national to regional to local. That adds costs and complexity. We need seriously to examine ideas on how to get money earmarked for farmers and in particular for small farmers to the intended beneficiaries. In India there have been experiments with 'kissan' (farmer) cards and 'duet' or swipe cards that are very interesting. Of course, in India there is a myriad of entitlements or opportunities whether taken up or not which are meant to help farmers and it should be possible today to simplify the procedures and at the same time increase uptake of assistance on offer. A card can carry multiple tranches which can be on different terms in that some may entitle full costs while others allow partial coverage. Earlier this year while Team Leader on a TA for ADB financed by DFID preparing for an agribusiness development loan I explored the possibility of trying out this concept on a pilot basis in the Punjab. A pilot project covering catchment farmers could try out such a system in collaboration with the private sector service suppliers who have been trying to develop extension services. I would welcome observations based on experience by others, it is very hard to think up a scheme that someone has not probably tried somewhere else already. Markets The farmer receives muted market signals, muffled usually by a long and inefficient chain which in turn reflects the poverty of urban markets. When the latter are mostly concerned with getting cheap produce without regard to quality, the signals from those who are advancing credits to farmers do not favour investment leaving aside the fact that the farmer simply does not have the means. To protect farmers, states often introduce regulatory systems entrenching the role of physical markets as the places where trade can take place. Such systems are easily distorted by cartels who seek to control markets and can lead to petty corruption and great inefficiency. All efforts to help in the process tend to be directed at physical facilities such as cold stores and market facilities without sufficient regard to backward and forward linkages and most important of all to market forces. New market signals need to come from changing consumer needs due to income growth or export possibilities. The existing chain in India has successfully supplied consumers with a very wide range of produce at low prices. That is what the consumers wanted. There would be resistance to such signals from vested interests but that is something that can be changed. Sooner or later vested interests see the new opportunities and are often best placed to exploit them. In India the market regulatory system is in the process of being amended precisely due to such developments. The amendments may not go far enough and it is already evident that ground realities are indeed going much further in any case. Demand for better quality produce is the best incentive for investment in facilities like cold chains and controlled environment. The Indian market is poised for such change. In the past well meaning public sector attempts to build parts of superior chains have not led to satisfactory results. These often seek to replicate existing systems but with higher levels of investment. To deliver quality, you have to have an integrated superior system with linkages back to research and nurseries and forward to retail. From farmer markets to wholesale markets is just not good enough as the National Dairy Development Board Fruit and Vegetable project in Bangalore in India is discovering. As far as facilities go, the private sector does not always want to take ownership of facilities-I was Team Leader for an IFC Mission to Sri Lanka where we were looking at possible privatisation of Dambulla Market and we found that although the traders were best able to run the market they were not exactly over eager about privatisation. It is difficult to make much money from wholesale markets. Of greater interest are the new possibilities offered to supply supermarkets. However, in India the Government has not allowed market entry to the supermarket chains that now dominate the markets in Singapore, Malaysia and Thailand. In these latter countries normal supermarket procurement procedures have become the norm and all the technical aspects of meeting quality standards and certification have been dealt with. I am involved with trying to supply these chains from Cambodia and much remains to be done for Vietnam. Korea has targeted the much more difficult but lucrative Japanese market. Colin is perfectly right in his theme paper in that I am not aware of any small holder successful supply to liberalised markets. Another condition is necessary. Of course, it would be easier with larger farmers. With small farmers, there has to be aggregation to give critical mass. It is a problem we have to try to solve. BAT worked with small farmers and systems to aggregate. Hayleys in Sri Lanka have organised gherkin production with McDonalds as a target buyer. We have the model of the NES system. It should be possible to set up a wholesaler/exporter or supplier to the local market that establishes an integrated system from harvest to retailer or importer, working with small farmers, arranging inputs and credit and using a cold chain to distribute. It would not be expensive and could be very profitable. That sort of system could meet new requirements about identification of source. The constraint is that you need a buyer who wants the resulting premium produce and this pre-supposes the existence of supermarkets, catering and institutional buyers. The latter have been missing except in most countries. That is why export markets are so tempting. What is undeniable is that strong supporting services will be required as Colin concludes and these are sadly depleted in too many countries. Personally, I would prefer DFID to concentrating on helping as many of the poorest small farmers as possible on the basis of a number of pilot projects that address these problems in an integrated way with results being conveyed to a larger number. Special Project Vehicles could be used to maximise chances of success and maximise cost effectiveness. Hopefully, this debate will lead to some consensus on what the best way forward is. Best wishes, Vinay Chand, 230, Finchley Road, London NW3 6DJ, UK Tel: 44-20-7794 5977 Fax: 44-20-7431 5715 <address removed><mailto:<address removed>>
Please visit dfid-agriculture-consultation.nri.org.