For farmers, e-commerce may facilitate direct market connections

Tulsi Lingareddy and A. Amarender Reddy

Despite their critical role in ensuring the food and nutritional security of India, farmers in the nation do not actively participate in agricultural commodity value chains and do not have direct market links, in contrast to producers in other sectors.

 

Due to a lack of markets, storage facilities, and transportation, the majority of farmers continue to sell their goods at the farmgate. The National Commission on Farmers (2004) indicated an appropriate density of around 80 sq km for regulated wholesale markets, while the average density of these markets nationwide is above 450 sq km.

Because of this, the majority of small and marginal farmers believe it is not cost-effective to ship their little agricultural supplies to far-off, controlled markets. They thus lose their ability to negotiate for a fair price and sell it to market middlemen at the farmgate. As a result, farmers continue to get a small portion of the consumer rupee and are cut off from the commodity value chains.

Research published in the Reserve Bank of India Bulletin (January 2024) states that the average proportion of farmer producers in the consumer rupee, especially in commodities with low processing requirements like foodgrains, is restricted to the range of 45–69%. For perishable goods like fruits and vegetables, the percentage drops to 30–40%.

Farmers can gain from having direct connections to agricultural commodity value chains in two ways: first, by having a larger share of the consumer rupee due to fewer market intermediaries; second, by being able to better understand how consumer preferences for quality and demand are changing, they can adjust their crop production methods accordingly. The development of direct market connections between farmers and other players in the agricultural commodity value chain, such as processors, traders, and exporters, may be facilitated by advancements in digital or electronic commerce, or e-commerce.

E-commerce, to put it simply, is the buying and selling of products and services using online marketplaces or platforms. The last 20 years have seen the expansion of e-commerce due to the nation’s broad use of mobile networks and the Internet. The Covid-19 pandemic’s effects on supply chains hastened the adoption of e-commerce in both India and worldwide trading in goods.

As a result, the e-commerce sector grew quickly, accounting for almost 20% of all worldwide sales in 2021. McKinsey & Company projects that by 2025, it will be around 25%. Over the last five years, the Indian e-commerce industry has seen significant expansion, with a compound annual growth rate of over 27%. According to estimates from the Department of Commerce, the Ministry of Commerce and Industry, and the India Brand Equity Foundation, it is projected to reach $350 billion by 2030.

The marketplace model and the inventory-based model are the two main categories of e-commerce models. In contrast to the other business model, which entails creating or acquiring goods and selling them on one’s own e-commerce platforms, a marketplace business model only offers a platform to link buyers and sellers for a commission on each transaction.

The marketplace model accounts for much of the development in the e-commerce sector. But since it costs a lot to build up a platform of one’s own, small and medium-sized enterprises find it less lucrative to make use of e-commerce because they cannot take advantage of economies of scale. The Open Network for Digital Commerce (ONDC), a not-for-profit organization, was established in December 2021 with the goal of establishing fair competition. With support from banks and other financial services organizations, the Department for Promotion of Industry and Internal Trade launched the campaign.

Unlike the current e-commerce models that rely on particular platforms and technologies, the ONDC is built on an open-source approach. The ONDC is anticipated to provide equal access to digital commerce for all businesses and people in the nation, especially small and medium-sized businesses (FPOs), much like the Unified Payment Interface (UPI) for digital payments.

Farmers may register as buyers in addition to sellers in order to acquire inputs, agricultural equipment, technology, and information services, as well as to take advantage of institutional loans and logistics. There has been a noticeable advancement in the onboarding of FPOs, according to recent reports on the ONDC site. As of March 2018, over 5,000 FPOs were vendors, providing over 3,100 items.

The bulk of the physical market still exists, even if e-commerce offers direct access to marketplaces. What is concerning is that not enough people know how to use digital technology for purchasing and selling, especially small farmers and dealers. Another significant obstacle is the lack of necessary information and communication technology (ICT) infrastructure in rural regions.

To sell on e-commerce platforms, vendors must guarantee both quantity and quality. Farmers need facilities for crop grading, packing, standardization, assaying, and certification. Even with FPOs, small farmers may not be able to afford the extra expenditure needed to create these facilities. According to a policy document by the National Bank for Agriculture and Rural Development (NABARD), barely one-third of the markets have grading facilities, and only a small number of marketplaces have computerized weigh bridges.

A significant obstacle that farmers encounter is the scarcity of reasonably priced, suitable, and regulated storage facilities. Data released by the storage Development and Regulatory Authority indicates that as of March 2023, the nation’s overall storage capacity under different agencies was around 201 million tonnes. It is anticipated that by 2024–2025, there would be a 436 million tons need for agricultural storage.

The majority of these obstacles related to the physical market are also impeding participation in the electronic national agriculture market (eNAM). To guarantee farmers’ broad involvement in the ONDC or eNAM network, fundamental infrastructure and logistics must be provided. To provide quality standards and certification as well as the necessary controlled storage, Gramin Agricultural Markets (GrAMs) in villages with sufficient market infrastructure facilities must be developed and upgraded.

It is necessary to improve the Agricultural Market Infrastructure Fund, which was established in collaboration with NABARD with a budget of Rs 2,000 crore to construct infrastructure and storage in 10,000 GrAMs and 585 APMCs in 2019. Farmers must be well informed about the use of e-commerce software.