The fact that food companies prosper but farmers commit suicide shows that profits are in the market, not the farm. It is time to replicate the Amul story many times over In the ongoing debates on the new land acquisition bill, the potential of agribusiness to address agrarian distress has not been explored. There are several domestic agriculture companies, both listed and private, that are doing extremely well amidst an increasing number of farmers’ suicides.
The classic case is of suicides by cotton farmers. Of late, share prices of textile companies are performing extremely well and attracting huge private investment, but cotton farmers continue to be in distress. Even in staples such as pulses, rice and wheat, food companies do well but the farmers are in trouble. It is significant that all these foods are processed, but not by the farmer. The money is clearly in the market, and not merely in production.
Recognising this, several farmer-owned producer companies and new types of self-reliant cooperatives, broadly called Farmer Producer Organisations (FPOs), have recently been set up. They aggregate, sometimes process, and then market agricultural produce. The best example of such an FPO is Amul Dairy. Along with other National Dairy Development Board (NDDB)-promoted dairy cooperatives, they have brought millions out of poverty.
In this context, a cold, hard look is required at how agribusiness operates, and at the policy measures, if any, that need to be put in place to enable FPOs to thrive. However, non-dairy agriculture is far more difficult to handle. Prices and supply are volatile and vary at times by over 100 per cent unlike in the case of milk. This not only makes farming difficult, but agribusiness as well.
A look at the listed successful companies in food processing, if we exclude multi-national companies that focus entirely on semi-ready or ready-to-eat foods, shows the following: for listed rice and pulse mills, whole wheat, plain flour and semolina producers, and edible oil companies, net profit margins are low at less than 5 per cent but interest costs are often twice the profits. Debt-equity ratios are hovering at around 200 per cent. Taxes are over 50 per cent of net profits.
Most important, such companies, unless backed by deep pockets, take years to establish, based initially on promoter capital, and later, capital from the share market. Rice mills and processing units listed on the stock exchanges usually take 10 years or more to become successful with high market valuations, profits and dividends. Thus, we largely see private unlisted companies in this sector, outside the purview of public accountability.
What does this mean for farmers and the several hundred FPOs that have already been set up? First, the low margins do not really matter. If we take the profits not on the total value-added sales, but on the value of raw produce, the margins are much higher. For the farmer this is a significant increase in income, and is sometimes the difference between poverty and prosperity.