Traders squeezed as Indian farmers turn stockpile gamblers

Access to low-interest capital allowing some farmers to wait rather than sell at lower prices immediately after harvest

Indian women standing in front of a table full of onions.
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Farmers such as 68-year-old Ghanshyam Gokale are quietly shaking up agricultural commodity trading in India, forcing the likes of top soybean processor Ruchi Soya to shift its business model away from futures contracts and towards the “spot” market.

Gokale, and other prosperous growers like him, has stopped selling his crops immediately after harvesting. Instead, he has converted his old house into two warehouses, where he stores his produce and waits for prices to rise when supplies dwindle.

Rising wealth due to a rally in agricultural crop prices, a jump in farm loan disbursement at more favourable interest rates and larger houses with space for storage are giving millions of farmers the freedom to decide when to sell their harvest.

That is disrupting seasonal supply patterns and squeezing processors and exporters, who have been left unsure whether they will get enough supplies on time to fulfil their contracted obligations.

“Money gives you the power to hold crops,” said Gokale, who kept back his entire harvest of 350 quintals (1,295 bushels) of soybeans from 30 hectares (75 acres). “Farmers are getting higher prices. They are becoming rich.”

Soybean, rubber, rice and sugar cane prices have more than doubled in five years, while wheat and corn prices have surged more than 60 per cent, boosting earnings of farmers.

“Usually small farmers rush to sell their crops in the first three or four months after harvesting and prices fall,” said Gokale, who plans to build a cold storage for potatoes at his farm in Piwdai village, near the central Indian city of Indore, 600 km (370 miles) northeast of Mumbai.

“I started selling crops after six months. By that time supplies fall and I garner higher prices.”

Supply cycle disrupted

In September and October, farmers’ holding back of supplies of onions, a staple of many Indian dishes, forced the government to organize emergency supplies from China and Iran to calm record prices ahead of elections in five states.

With the exception of highly perishable commodities such as some vegetables, farmers have started holding back almost every crop, from pulses to cotton to rubber, says Nitin Kalantri, a pulses miller based at Latur in the western state of Maharashtra. As a result, he struggles to operate his mills at full capacity.

Jagdish Rawalia, another prosperous farmer from neighbouring Sanawadia village, said there was less risk in delaying sales now that farmers mostly borrow from banks that charge around four per cent interest per year.

“Just five years back the interest rate was 16 per cent,” said Rawalia. “Moneylenders were charging much more than that. Then there was more risk and less incentive in holding back supplies.”

Farmers usually borrow ahead of sowing to buy seeds and fertilizer. Private moneylenders had been charging interest as high as 30 per cent per year from farmers in the absence of institutional credit. So after harvesting farmers were quickly selling their crops to repay the loans.

In 2008 the government waived agriculture debt of millions of farmers who had defaulted, reopening access to bank loans for many such farmers in a populist move that, along with an interest subvention scheme, made new credit cheaper.

“More and more farmers will borrow from institutions like banks and co-operative societies in coming years as the banking network is expanding in rural areas,” said a senior official at National Bank for Agriculture and Rural Development.

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