Farmers' distress is for everyone to see in India. It was always there but demonetization has accentuated it. However, to blame demonetization for everything doesn’t serve purpose. Key challenge with agriculture in India is it being non-remunerative. At one end of it is low value realization for produce and on the other hand is high cost of production. Low level of mechanization plays a key role in high cost of production and low productivity. It is no secret that agriculture mechanization rate of India is pretty low. This is despite the fact that in tractor production as well as tractors sales, India remains number one. One estimate puts the number of operational tractor at about 14 million. That puts the proportion of farming households owning tractor at 15%. However, spatial distribution of tractors across various geographies and states gives interesting insights. In case of Punjab and Tamil Nadu it tells how Tractor Company backed by their own financial muscles have pushed tractors so much that almost half of farming households have it. As one expert puts it bluntly that agriculture mechanization is in fact tractorization of agriculture backed by financial and political muscles of tractor companies in India.
This scenario makes it fit case for farming implement rental markets especially for marginal farmers (half of these are landless, sharecroppers, thus having no access to institutional credit). However, which model of rental market will work in the long run? Lets first discuss various models of agriculture equipment renting platforms.
Custom hiring centers
- Government backed centers having set of agriculture equipments that can be leased by farmers
- Has inventory of own
- No private interest rules out any incentive for the staff.
- Issues of maintenance and up gradation of equipment.
Private company owning implement and executing orders
- Execute orders from farmers. Producer organizations owning equipments is also a variant of this.
- Own inventory makes order execution easy
- Heavy capital investment
- Existing service providers may perceive it competition
- Shifting geographies costly
Franchise based model
- Similar to above but assets are owned by franchise. Back-end is supported.
- Own inventory makes order execution easy
- Risk is born by individual entrepreneur which will limit scale
- Pure market-place model that provides platform services to both equipment owners as well as customers on pay-per-use basis.
- Easy to scale as it uses existing inventory in any geography
- Existing service providers may turn into collaborators
- Not having own inventory makes order execution a logistical challenge
Current state of farming rental markets could be summed up in one word: inefficient. Currently it is present informally across everywhere however; it doesn’t serve the small and marginal farmer. It is influenced by multiple factors some of which may not even be economic in nature such as caste of the farmer who wants to lease equipment. All this ends up impacting small and marginal farmer negatively as more often than not they belong to economically backward community.
In such a scenario Asset-lite model such as farMart’s makes it possible for small and marginal farmers to lease equipment backed by power of technology. At the same time farMart looks to bring in the equipment currently not in rental market to expand the market and make calling equipment in agriculture as commonplace as it is for urban folks to call taxi.
What is farMart?
farMart is an on-demand machinery renting platform for farmers from farmers. farMart helps farmers increase their productivity and lower production cost by providing access to machines at a mere push of a button. At the same time, we raise the (often-low) capacity utilization rate of machines resulting in an alternative source of income for machinery owners thus promoting entrepreneurship in the rural community. Company’s mission is to make farming financially rewarding and environmentally sustainable business by offering advanced technology services.
Business model of farMart?
We provide economy of scale to renting operations using technology as backbone of our operations. farMart earns revenue from the machinery owners as it adds to their income raising machine utilization rates.
Our system is intuitively designed keeping it farmer-centric. Systems are built for Turn Around Time of 5 minutes within which we get back to farmer with our response.
While ours is technology based platform most of our challenges are in domain of data, connectivity and technology platform. We have tried addressing these challenges at our level. However, it obviously limits efficiency of solution.
Low penetration of Smartphone
Most of those engaged in farming aren’t exposed to Smartphone. That's why farMart used IVR based order booking solution. For owner partners we are using tractor based GPS devices to track movement and job executed.
Non-digitized land records
Confusion over land sizes as well as location
Geo tagging land records and satellite based size determination
Prevalence of cash for payment of services
Cash defrauding risk, cash carrying risk as well as cost of cash
Using network of Bank Mitrs for immediate conversion of cash into digital currency
What are the policy measures to support efficient agriculture machinery rental markets
There are two ways in which government can support platform like ours through its policy measures.
1. Treating income generated through farming equipments as Agriculture income thus exempted from Income Tax. This will prompt individuals who are not into farming to invest in modern technology equipments and leasing these to farmers in villages. These farmers can augment their farming income with rent generated out of equipments. Platform benefits with widespread penetration of high-end machines making it much more on spot demand based system.
2. Monetization of data generated by market players like farMart – in process of conducting our business we generated a lot of data points. Some of these could prove to be vital for the policymaker such as geo tagged land records, details of actual farmers (not land owners), and crops grown. It could be mutually beneficial partnership between private entities and government.
Written by Lokesh Singh & Alekh Sanghera.