Farmers can improve their farming techniques by having easy access to loans.
According to the Indian Brand Equity Foundation,India is an agricultural country with 58% of the people relying on agricultural revenue. Despite having the tenth greatest cultivable acreage, we produce less food grain than countries like China, Brazil and the United States for main crop varieties.
Uncertain meteorological circumstances, reliance on the monsoon, drought, low mechanisation levels, financial literacy and little access to institutional finance are all contributing factors. Agriculture finance is important because it helps farmers get greater access to seeds, fertilisers and agricultural equipment, resulting in higher agricultural productivity.
Agricultural loans can be used for a variety of things.
- Working capital loans for seed and fertiliser purchases.
- Term loans for agricultural machinery purchases for farm mechanisation.
- Construction of crop storage.
- Dairy, poultry and fisheries are examples of agri-related activities.
- Agricultural land acquisition, reclamation and development.
Consider some of the ways that agricultural loans can assist farmers.
It is well understood that a farmer who produces more will sell more and hence earn more. However, the industry requires a solid plan to put this strategy into effect. Farmers must locate a customer who will purchase the full crop, or they may suffer significant losses owing to yield deterioration. Farmers might make a lot of money by selling all of their crops to the nearest mandis, multi-retail brands, or processing plants, but they must be cautious.
Farmers must employ the latest farm technologies to boost crop output from the same area in order to increase production. If the farmers do not have the finances to purchase such equipment, they should seek credit from official financial institutions such as banks or NBFCs. The credit can be used to purchase machinery, cattle, irrigation equipment and other items. Farmers in India can also get term/investment loans from a variety of banks and financial institutions.
Providing farmers with easy access to loans will enable them to spend more resources and boost crop yield. The larger crop might be sold to numerous purchasers or the same buyer, putting more money in their pockets. To achieve these objectives, it is not required to change the entire company strategy or locate new buyers.
Crop diversity is another inventive technique to increase income. The majority of farmers are used to growing the same crops year after year and that works for them. Crop rotation, on the other hand, is beneficial to the soil and products such as vegetables, fruits and other perishable goods command greater prices than conventional crops.
Agricultural loans help farmers ensure adequate harvest storage by aiding them in building storage facilities and preventing wastage, in addition to selling farm produce to a wider client base. For instance, in 2019-20, India produced 291.5 tonnes of wheat, of which 4-6 % was wasted owing to improper storage. This indicates that at least 13–18 million tonnes of food grains were lost, which is unacceptable for a country like India, which has a population of over 120 million people to feed. Farmers can meet their agricultural needs by investing in storage facilities, equipment, Agri machinery, irrigation, such as drip irrigation, with adequate finance. Exploring the market's available financing alternatives and expertise will go a long way toward constructing a long-term storage infrastructure to reduce crop waste. The key is to consult professionals if necessary and select the optimal loan type for the business's needs.
Once the crops have been harvested, the farmer may choose to reap the benefits of a larger yield. For Agri products to command the correct price, storage and logistics, as well as complete supply chain management from the farm to the end client, are required. According to publicly available data, Indian farmers lose roughly INR 93,000 crores after harvest.
By picking the crops at the proper stage, post-harvest waste can be reduced. To avoid such losses, information regarding seeds, harvesting and watering practises is essential. Monitoring the farm labour who harvests the crop is familiar with the correct technique, analysing the water quality using test strips to verify the chlorine level and checking the water temperature are some of the most important measures for increased production. Cuts or gashes can spoil the crop/fruit by allowing moisture and insects to enter and harm it, thus preserving Agri products at the proper temperature is very crucial.
Farmers are frequently forced to sell their food at a cheaper price for a variety of reasons, including fear of spoilage, market conditions and decreasing demand. When they are compelled or unwilling to sell at a lower price, it has a significant influence on their profitability and the farmers have a difficult year. Food marketing loans keep farmers produce from going to waste.
Produce marketing loans enable farmers pay off existing loans and dues while also providing liquidity to address unexpected financial demands. Agricultural receipts and produce held in the warehouse are used as collateral for these loans. The loan amount might range from 60 to 80 % of the agricultural produce (depending on storage). The length of the repayment period is determined by the crop type and geographical area. When the conditions are right, the farmer may sell his produce at a fair price and breathe a sigh of relief.
Finance For Value Chains
Farmers do not always have a profitable year. Crops are devastated by unpredictable events such as floods, droughts and storms, resulting in significant losses for farmers. A loan could be beneficial since it can assist farmers in covering operating costs and feeding their family. Value chain finance is an excellent approach to reduce risk while increasing revenues.
Agribusiness and related industries, such as dairy and poultry, could benefit from such solutions. Relevant value chain stakeholders are involved in value chain finance, which varies depending on the crop or area. The financiers assess the risk by considering all value chain participants and implementing risk mitigation strategies that serve as growth enablers. Financiers sometimes get collateral through relationships developed along the value chain.
Value chain finance can let farmers sell their produce to several buyers at the same time by implementing payment deduction at the source. Financiers give loans to farmers in exchange for transactional assurance from the produce buyer. Under the terms of the agreement, the buyer deducts the farmer's loan payback from the sum payable after the crop is realised.
Operating Costs Are Lower
Agricultural loans cover a farmer's credit needs at different stages of the farming process. There are various types of loans available, ranging from seed purchases to fertiliser purchases to harvesting. Each loan has a distinct purpose.
Farmers can easily acquire long-term and short-term loans thanks to quick processing times, low paperwork and suitable security choices supplied by any creditor. Farmers can focus on farming instead of worrying about their credit needs because of the ease and convenience. Finally, there are no additional fees. All costs are paid in advance.
Agricultural loans can help farmers increase their revenue by making their lives easier, allowing them to better manage risks and deal with emergencies without worry. It is critical to select the appropriate financing for the job. Assuring that their repayment terms correspond to their cash inflows and that they can meet their instalment obligations to the lender on time. If payments are not made on time, the farmer's credit score will be reduced, limiting their ability to obtain future loans.
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