A NABARD survey says middlemen funded by banks have kept growers captive to high-interest loans

Kashmir’s acres of undulating apple orchards may soon be waste lands, a survey by the National Bank for Agriculture and Rural Development (NABARD) accessed by The Hindu shows. The Rs. 4,000-crore industry has been brought to its knees by a network of middle-order market functionaries comprising pre-harvest contractors (PHCs), commission agents (CAs) and wholesalers — who are the real and the only assured beneficiary of the Valley’s apple produce, not the farmers.

The survey on “Marketing System and Price Spread of Apple in Kashmir”, according to sources, will be released here on April 17 by Chairman of NABARD Dr. Prakash Bakshi before its passage to the State Level Bankers Committee. The survey may compel Reserve Bank of India (RBI) to reframe its guidelines and directives to the financial institutions in Jammu and Kashmir as it has shown that the banks have been continuously “encouraging feudal system and usurious lending by commission agents” in violation of rules and regulations.

Burdened by the usury imposed by PHCs and CAs, the grower ekes out a marginal income despite the end-user in Delhi, Mumbai and Bangalore buying the product at three times the cost. The Kashmiri grower is constrained to sell the apples at just Rs. 40 or Rs. 45 a kilo – Rs. 5 more than his production cost — but the consumer in Mumbai pays between Rs. 90 and Rs. 120.

According to the survey, there are around 3000 CAs — 250 in Parimpora (Srinagar), 250 in Narwal (Jammu) and 2,500 elsewhere in Kashmir division. The Fruit Mandi of Sopore, known as APMC Market Sopore, which is Asia’s largest fresh fruit market after Azadpur in Delhi, has 500 CAs. The wholesalers and CAs, mostly based in Delhi, employ the local PHCs for the purpose of making the growers “captive” and “distress sellers”. The survey calls the modus operandi as ‘interlocking of informal credit and output markets’.

It has been significantly pointed out that in flagrant violation of the Jammu and Kashmir Agricultural Produce Marketing [Regulation] Act of 1997, even in 2012 it is the grower in valley who is forced to pay commission to the CA in Delhi for forwarding and trading of apple. It is the other way round in the rest of the country.

The local commission agents (and forwarding agents) of Kashmir are flush with the money — Rs. 1-2 crore — the banks generously lend them. They lend it to the captive growers at a higher interest or charge a commission based on the value of apple sold, which at 12% is interest charged but goes by the name of commission charges.

“In this way banks are (indirectly) contributing to survival of the old traditional system of informal funding by commission agents; this malpractice by commission agents is unknowingly doing three types of harm to the apple economy: (a) Encouraging economic feudal/ slavery type system of lending by commission agents; (b) Misuse of bank capital for usurious lending by commission agents; (c) Encouraging continuation of unmonitored system of captive orchard owners paying commission to commission agents in violation of APMC Act-1997 of J&K Govt. because of their over-dependence on commission agents in market”, it adds.

Of the Rs. 1024 crore advanced to the Kashmiri growers in 2010-11, Rs. 645 crore came from Delhi-based CAs and wholesalers, Rs 207 crore from Kashmir-based CAs and Rs 172 crore from rest of the country. The total formal credit provided by all banks to the Kashmiri growers was just around Rs 200 crore. However, J&K Bank’s ‘Apple Project’, which is believed to be the outcome of RBI’s repeated snubs to the bank for maintaining a low level of 11% as against the stipulated 18% funding to the priority sector of agriculture, has changed the situation to an extent in the last two years.

It was because of this default that J&K Bank was once forced to park an amount of over Rs. 300 crore with NABARD against the punitive interest rate of 3%. NABARD in turn lent same money to J&K government’s agriculture sector at 6.8% interest rate.

In the initial year of 2011-12, J&K Bank achieved its 100% target by advancing Rs 363 crore to 17,336 growers but restricted its “Apple Project” to just the two districts of Baramulla and Shopian. The NABARD survey has recommended that the project be extended to all other districts in Kashmir in a phased manner.

“Over-dependence and exploitation of these growers in the market stems from their over-dependence on funding from the commission agents. These commission agents have devised ways of scuttling the approach of small growers (who are separated and independent) to the banks. Banks somehow find it more convenient to have business dealing with traders and commission agents than with small growers although from culture point of view both are locals and Kashmiri. It is apprehended by the study team that Apple Project of J&K Bank could possibly also meet the same problem if onward lending by commission agents/ traders to small growers is not checked, which is not possible except through legislation or provision in the existing APMC Act”, the survey has recommended.

“Industrial farming”, “contract farming” and “corporate farming” have been visualized among the futuristic solutions. “Other alternatives that could emerge alongside banks and commission agents for financing of apple growers in the existing set up is corporate sector, i.e. industrial companies entering in apple sector. This could take the shape of contract farming or corporate farming. In case of contract farming, the grower himself would have to arrange finances while the marketing of the apples and purchases of inputs problem is shared by the company. In case of corporate farming, the grower is set free from all encumbrances, including the borrowing”.