Ground Zero: New agriculture law may not spell the end of commission agents

The last of a two-part series finds how farmers in Punjab depend on commission agents for credit

The Modi government has defended The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act on two principal counts: greater choice to farmers and more importantly freeing them from the clutches of commission agents (or arthiyas). But many farmers, even those who aren’t part of the protests in Punjab expressed fear of losing access to the services of commission agents. Ironic as it may sound, Adani’s silo storage facilities lists farmers ability to sell directly without involving commission agents at its silos as one of its unique selling points. But farmers selling at the Adani silo and FCI officials confirmed to Business Standard that payments for the wheat being procured by the government from the Adani silo were being routed through commission agents to farmers for several years. In effect, a system that was designed 13 years ago with the same objective of freeing farmers from middlemen was still firmly in place.

All procurement in Punjab by FCI and private companies at various mandis is always done through commission agents. They charge 2.5 per cent of the sale value as commission. There is great ambiguity over who exactly foots this bill. Invariably it turns out to be the farmer. When farmers get their produce to mandis, they approach the commission agent who sorts, cleans, weighs and sells the produce. The procuring agency pays the commission agent the money who deducts 2.5 per cent of the amount before handing over a cheque to farmers. The government has often urged commission agents to transfer the entire MSP to the farmer and then take payment for their services, but this practice is seldom followed. Under Punjab’s Agricultural Produce Marketing Committee (APMC) Act, this commission is to be paid by the buyers. But with the commission agent responsible for both receiving and distributing the farmers money, there is little accountability on who ends up paying the commission. There are 27000 licenced commission agents in Punjab and they have become the most crucial players in the procurement process in states like Punjab, Haryana and UP.

The commission agent is also the farmers critical credit support system in times of need. Even though interest rates on these loans range from 18 to 24 per cent, most farmers don’t mind this practice. Bahadur Singh, 62, a farmer from Sangrur said, “Arthiyas help us with money whenever we are in need. They lend us money for seeds, farm operations and even for our children’s education. Will any big company or bank lend me money without any paperwork within a few hours’ notice?” The 27000 commission agents in Punjab generally have a network of more than 100 farmers who hail from the commission agent’s village and villages in the vicinity. These farmers sell through them and are financed by them.

A fascinating display of this symbiotic relationship is visible at Khanna – Asia’s largest grain market. As far as the eye can see, open sheds with workers from Bihar and West Bengal sorting and cleaning piles of wheat dot the landscape. While it’s not procurement season and most mandis across the state wear a deserted look, Khanna is rife with activity with trucks intermittently ferrying wheat to the market and hundreds of commission agents busy dealing with buyers and lending to farmers.

Sanjeev Dhammi, a commission agent at Khanna has been in the business for 30 years. His family has been in it for 50 years. “The farmers we lend to have been our family acquaintances for generations. When a farmer approaches me for a loan, I give it without any paperwork or collateral. That’s because of the trust and mutual respect between us. A farmer can knock on my door in the middle of the night for any financial help for a medical emergency and I issue a cheque without any questions asked. The government wants to finish us off by ending mandis with this new law. It must realise that without our services the procurement system would become a nightmare.”

While arthiyas like Dhammi play a crucial role in financing farmers, corporations like Fairfax which has emerged as the biggest player in agricultural storage have been operating in this space for a while. And by the looks of it, the new law wouldn’t have much of an impact on the activities or influence of either Fairfax or Dhammi.

Fairfax owned NCMS provides credit to farmers in the post-harvest season when there is a glut of produce in the market. In the post-harvest season when the supply of produce is high, prices often fall. Farmers who want to hedge their bets on higher prices a few months down the line in the off-season approach NCMS warehouses and silos with their produce. NCMS has tie up with 68 banks and it pledges the produce of the farmer with banks as a collateral through which the farmer can avail loans of upto 70 per cent of the pledged produce’s value. Banks ask NCMS for a warehouse receipt which issues the same after due diligence and quality checks of the produce. In this way the farmer not just gets access to institutional credit but is also able to get a higher price for his produce as and when prices rise.

But NCMS role is largely restricted to the post-harvest season. The farmer borrows most in the pre-sowing season. Banks usually lend to bigger farmers. And that is where most of the 86 per cent of India’s farmers who are classified as small and marginal turn to people like Dhammi. Ravi Shankar, head of business operations at NCMS said, “We are running a project in Kota and Sriganganagar where commission agents and farmers can directly sell to us. Commission agents are a single source of collecting produce of hundreds of farmers. Big corporations don’t have the capability to go to every farmer and collect their produce. Even with the new law, commission agents will actually expand into newer private markets. Unless the government makes it easier for small and marginal farmers to get bank credit, they will continue to borrow from commission agents. The arthiyas are not going anywhere.”