“We believe that for supply chains to function efficiently and limp back to normalcy, quickly, there needs to be availability of working capital. Having a separate liquidity line or nudging the Public Sector Banks to prioritise lending to entities that are working in the agricultural supply chains to create this liquidity is important.”
Correcting supply chain fragilities
This crisis can bring in opportunities if utilised well. This is the time to focus on important aspects of bringing about fundamental changes in supply chains and the agri sector as a whole, which otherwise might not get the attention given our focus on the urgent things that bother us here & now. Here are a few suggestions that can bring about corrections in the linkages:
- When we look at agri goods and their movement, we need to first differentiate between the physical aspect of the agri commodities and the logistics part. By focusing on aggregating the demand and supply of various commodities, can we bring about match making akin to an exchange? This is what the intermediaries/ traders provide, except that they bring about liquidity as a BIG enabler. Therefore, we need to look at a platform that not only does the match making, but also provides liquidity as a combined value proposition using ag-tech dimension.
- Second, we could also look at a transportation exchange specific for perishables & non-perishables so that there is efficient use of movement of goods in a cost-effective manner. A better understanding of inter-state movement of agricultural goods and reforms there would empower efficient linkages.
- At this crucial time of crisis, understanding the difference between essential and non-essential commodities will pave way to local administrators playing an enabling role of movement of essential commodities than creating hurdles with best intent
- On the physical aspect of commodities, bringing in technology to address the quality dimensions is important. This is one area where there is a lot of mistrust among the buyers and sellers as they are worried about hedging the counter party risk. Therefore, a uniform quality parameters matrix that becomes the standard for goods could be put on the Tech Platform to sell, by the sellers so that there is no issue of qualitative assessment by the buyer. There will certainly be a range or a band, but transparency is bound to kick-in when there is standardisation of the quality parameters.
Easing access to working capital
As an agri-value chain enabler, Samunnati has been providing working capital solutions to stakeholders across the agrivalue chain. We believe that for supply chains to function efficiently and limp back to normalcy, quickly, there needs to be availability of working capital. Having a separate liquidity line or nudging the Public Sector Banks to prioritise lending to entities that are working in the agricultural supply chains to create this liquidity is important. National procurement agencies like etc., can also play an enabling role in making working capital available to players facilitating the movement of agricultural goods. When procurement is done from Farmers or FPOs and supplied to these national procurement agencies, there could be entities that can discount these receivables other than Banks. We need to look at whether can these agencies make direct payment to these funding entities since the sellers have already received their money.
In focus: enabling mechanisms
The guidelines on eNAM for FPOs released are very enabling. All the three major steps taken go a long way in enabling supply from the producer to the respective buyers. There will still be the necessity for aggregation of produce given that majority of our farmers are smallholders producing small quantities that fall short of a threshold volume for a meaningful aggregation / transportation cost. We believe that FPOs are well poised to play this role of being aggregators. Entities working with FPOs need to be supported with logistics and liquidity so that they further make sure that the FPOs provide valuable services to their members.
[box type=”shadow” align=”” class=”” width=””]Contributor: Anil Kumar SG, Founder and CEO, Samunnati[/box]