Linking rural producers with value chains | The Financial Express

Linking rural producers with value chains

Rural producers will benefit from forming collectives and moving towards formalisation

Linking rural producers with value chains
This would help them achieve volumes, economies of scale, efficiency, and collective investment, leading to better competitiveness.

By Shankar A Pande

Even as independent India turns 75, its developmental agenda continues to revolve around rural areas that account for two-thirds of the population, 70% of the workforce, and 46% of the national income. With significant accomplishments on the economic and literacy fronts, there is a palpable vibrancy in the rural demography. Simultaneously, with the steady rise in domestic and external demand for rural farm and off-farm commodities, the rural economy also appears poised for a brighter prospect.

Regrettably, however, the rural farm and off-farm producers do not seem to be fully geared to seize this momentous opportunity. There are numerous challenges associated with their informal and decentralised nature, the ultra-tiny scale of their operations and the imperfect rural markets that restrict their competitive abilities. Determined efforts are therefore required in the following critical areas.

First, markets need to be studied, mapped, and tagged to the rural production clusters having special advantages. Also important is a plan to impart specific skills, infuse technologies, develop value-added products, strengthen infra-logistics, provide finance and government incentives, etc., for developing a specific value chain in a given rural cluster.

Second, devoid of scale, capital and bargaining power, primary producers are forced to purchase inputs on credit at a higher price and sell their produce in distress. As a result, they realise only around 25-35% of the retail price. Therefore, it i imperative that they operate collectively, through producer-companies or cooperatives, to take care of their needs such as inputs, finance, technology, processing, logistics, marketing, etc, on an aggregate basis. This would help them achieve volumes, economies of scale, efficiency, and collective investment, leading to better competitiveness.

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Third, rural producers do not have the wherewithal to invest in critical aspects such as technology, digital solutions, training of manpower, etc. Therefore, setting up ‘Technology, Quality and Training Hubs’ in rural production clusters would be the right step forward. These can provide related services to rural producers and collectives for a fee. Government agencies, technical institutions, and the private sector can be incentivised to set up such facilities.

Fourth, rural producers generally sell their produce/products without much value addition and get a smaller share in the consumer price. They also lack adequate storage space and capital to hold stocks. The availability of affordable credit and government incentives is therefore necessary for producers to set up processing and storage infrastructure, develop market channels, and hold stocks. Alternatively, the government or private stakeholders may set up such facilities and lease them out to producers. Capacity building in product development, processing, packaging, branding, marketing, etc, is another requirement.

Fifth, the government and financial institutions are employing AI-based data tools to verify the financial information from interlinked databases and make financial decisions. However, since the majority of rural producers operate informally, transact in cash, don’t maintain accounts, and rarely use digital financial channels, the history of their transactions is not readily available. They, therefore, experience difficulties in accessing formal finance. Providing them with skills in financial management, accounting, and digital finance, introducing user-friendly business accounting and financial management tools, launching an exclusive bank credit portal for them, and covering them under the loan aggregation mechanism, would go a long way.

Sixth, most of the rural producers are semi-literate and employ untrained manpower. This limits their ability to adopt modern business practices. To help them align with the modern value chains practices, rural producers need to be provided with skills in key entrepreneurial aspects such as governance, management, planning, finance, technology, IT, marketing, customer care, contracts, compliances, etc., and the soft skills such as communication, networking, collaboration, negotiation, conflict management, ESG issues, etc. This calls for launching an exclusive National Skilling Initiative for Rural Producers, comprising skilling, apprenticeship, counselling, mentoring, business incubation, etc., on the lines of start-ups.

Seventh, the absence of a credible national database on rural producers poses a serious challenge. Formalisation and registration of rural producers, therefore, would be useful in providing them with a unique identity, mapping production clusters, and targeting interventions. Formalisation would also improve their access to various institutional services. Common Service Centres (CSCs), having extensive rural e-governance touch points, may therefore be mandated to take up registration of the rural producers.

Eighth, organised businesses have their representative forums such as associations, federations, etc, for facilitating consultations with the government and other stakeholders. However, such forums are hardly active in the case of rural producers. As rural producers face multiple challenges and need collective efforts for their resolution, they should be encouraged to form Self-Regulatory Organisations (SROs). This would help strengthen the consultative approach to upgrading the rural production ecosystem.

Such a framework would help create a technology-driven, vibrant and competitive rural production sector and realise the goal of having a $5-trillion economy.

The author is Senior executive with NABARD, presently working as the Director, Bankers Institute of Rural Development Views are personal

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