2.Challenges in Cultivation of Agar

1.Illegal trade and decline in Agar trees in the wild: Agar is a protected species under the Indian Forest Act, 1927, and is scheduled tree species under the Wildlife Protection Act, 1972 and hence its harvesting from the wild is prohibited. However, illegal trade has been thriving in Assam and consequently the Agar forests have significantly dwindled. Illegal harvesting of Agar has meant that the farmers/harvesters are being paid very low prices by the middlemen.

2.Problems in legal formalities related to harvest of Agar: Although over the past few decades, people have taken up Agar cultivation on private lands, but such farmers are also facing problems in getting transit permit from the Forest Department. Lack of fulfilment of legal formalities forces farmers to engage in illegal harvest which results in low prices for them.

3.Lack of price regulation: Due to the high volumes of illegal trade in Agar there is a lack of organised markets for purchasing Agar from the farmers. Most of the trade is in the grey market and consequently there is no fixed price for Agar wood. Moreover, it is reported that some middlemen promote a false propaganda that even harvest from private lands are against the law to scare the farmers in selling at low prices. The price ultimately depends upon the bargaining by farmers with the middlemen/traders and at times the farmers are paid as little as Rs. 1000 to Rs. 2000 per tree.

4.Problem in getting trees infected naturally: Only the trees that have developed a fungal infection produce Agarwood. Formation of Agarwood depends on the intensity and frequency of insect infestation, and aging of the plant. However, only about 5% to 20% of the trees develop the fungal infection naturally. It must however be mentioned that artificial inoculation techniques for Agar have been developed which expedite the infection and formation of Agarwood. In India the Rainforest Research Institute (RFRI), Jorhat has also developed artificial inoculation technique, however these need to be transferred widely to Agar cultivators.

5.Identification of infected trees: Since not all trees in a field are infected simultaneously and percentage of natural infection is low, therefore it is important for the farmers to identify the infected trees from non-infected ones. Many farmers are unable to determine whether the tree is infected or not, as experts say that only the trained farmers can make out infected trees from the healthy ones. Consequently, farmers often chop off healthy, non-agarwood bearing trees. It is therefore essential to build capacities of farmers in various aspects related to Agar cultivation, including the identification of Agarwood bearing trees.

3.Project Idea

Assam is a major hub of Agarwood cultivation and trade in India. The daily trade of Agarwood in Assam is around INR 4 to 5 crores – including the sale of raw materials to finished products1. But plantations of Agar are being done randomly by the individual farmers in Assam with no effort to organise the growers and undertake Agar planting in a more scientific way (quality seedlings, spacing, crop combination, nutrient application, facilitating fungal infections, examining the intensity of fungal infections and formation of Agarwood etc.). There is no effort for establishing planned agroforestry models based on Agar. The farmers are left to use their wisdom to plant Agar and other crops.

Moreover, owing to lack of appropriate policies, a majority of the trade in Agarwood was not regulated resulting in poor returns for the farmers/cultivators. Recently, the Assam Cabinet has permitted harvest and processing of Agarwood grown on private lands upto 35 bighas of farmland. This initiative would greatly help in promoting Agarwood cultivation in Assam and would ultimately help in income generation for the farmers of the region. Farmers from Sivasagar, Jorhat, Golaghat and Hojai areas in particular would benefit from this decision by the Assam government. Moreover, the state government has also proposed the setting up of an International Trade Centre on Agarwood at Golaghat.

It is in the light of the above factors that the present business model for promotion of Agar cultivation has been developed. This business model seeks to promote Agar cultivation on private lands (thereby, reducing illegal harvests of Agar from the wild) and lead to increased economic gains for the farmers/cultivators as well as other people engaged in the Agar value-chain.

Project idea is to mobilise farmers and support them to engage in cultivation of Agar (preferably agroforestry models) by providing them financial and technical support. The promotion of agroforestry would ensure that the farmers would be able to get a limited amount of economic returns from their farmlands while they would be assured of substantial returns after the trees mature.

The farmer groups at the village level would be federated in the form of cluster level organisation or Farmer Producer Organisation (FPOs) which would provide technical as well as financial support to farmer groups while also ensuring competitive prices of Agarwood for the farmers.

4. Impacts and Sustainabiltty

Social impacts

1. Building social capital and social cohesion through organisation of farmers.
2. Building capacity of individual farmers and also farmer groups.
3. Generating additional employment for people involved in the value chain through the FPO.

Economic impacts

1. Ensuring higher prices for Agarwood for the farmers by eliminating middlemen.
2. Increasing productivity of Agar farms through adoption of PoPs for cultivation.
3. Capacity building of farmers in identification of infected trees thereby reducing the harvest of non-infected trees and enhancing revenues of farmers.
4. Cultivation of inter-crops would result in additional incomes for the farmers over the maturity period of Agar.

Environmental impacts

1. Promotion of Agar cultivation on private lands would prevent illegal harvest of Agar from their natural habitat.
2. Agar plantations would contribute to climate change mitigation through carbon sequestration.
3. Increase in biodiversity - plants, birds and insects.
4. Improved soil fertility.
5. Inter-crops would prevent soil erosion.
6. Preventing use of chemical fertilisers and reduction in soil, water and air pollution.

5. Financial Details

5.1. Scope of financing and subsidy

For cultivation of Agar, farmers require significant investment for purchasing seedlings, plantation and maintenance activities. For this purpose, they may fulfill their financial requirements partly through loans and partly through subsidies from National Ayush Mission (NAM).

FPO is also expected to facilitate the farmers to obtain loans for meeting their cultivation costs. These loans would be sourced from NABKISAN or other banks.

It is envisaged that for this business model the FPO would require a loan of INR 34 lakhs for meeting capital costs and another loan as a working capital of INR 4.5 crores (12.5 of total procurement cost) for meeting the working capital requirements for the procurement of Agarwood from farmers. Since Agarwood is a high value product therefore the working capital requirement is higher.

Working capital requirement would be primarily met partly through loans from NABKISAN and partly through loans from other banks while capital costs would be met partially through loans and partially through grant assistance from NABARD.

National Ayush Mission (NAM): Under NAM, a subsidy amounting to 75% of the cultivation cost (subject to specified limits) is provided to the farmers for taking up cultivation of Agar. The facilitating agency and/or the FPO would assist the farmers in convergence and obtaining the subsidies.

National Horticulture Mission (NHM): NHM provides subsidy of upto 40% of cultivation costs for aromatic plants (cost of cultivation INR 40,000 per ha) upto 4 ha per farmer. For Sugandhamantri this subsidy could be utilised through adequate linkages by the farmers. For the North Eastern States and Tribal Sub Plan area the subsidy is 50%.

NABARD: NABARD provides financial grants of upto INR 11 lakhs per FPO for three years to meet initial expenses of each FPO. In addition to this, NABKISAN (NABARD subsidiary) also provides loan to FPOs for upto INR 1 crore for meeting working capital requirements. These loans are provided directly by NABKISAN or routed through other banks.

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): In case unculturable wastelands, erstwhile fallow lands are proposed to be used for Agar cultivation then under ‘land development works’ component of MGNREGA labour cost for bunding and land levelling are provided under this scheme.

5.2.Cost Economics

The proposed business model provides estimates of cost-benefits at two levels i.e. at the level of individual farmer and at the level of the FPO for agroforestry-based model for Agar cultivation.

5.2.1. Cost-benefit for farmers

The following table provides details of the expected cost of cultivation and the expected net revenue for individual farmers engaged in Agar along with Sugandhmantri on one-acre land.

Table 1: Cost-benefits for individual farmers engaged in Agar agroforestry cultivation (1 acre landholding)

Assumptions

• The cost of cultivation of Agar may be sourced from NAM wherein upto 75% subsidy is being given for the cultivation of Agar.

• If required, the FPO could arrange bank loan for the farmers for meeting the cost of cultivation for one year.

• Due to the long span of cultivation/harvest inflation could not be factored in the above calculations.

• The above assumption does not factor in drip irrigation system. In case drip irrigation is factored in then the yields are expected to increase by about (10 to 20)%.

• The labour costs are included while calculating the above costs but in-case farmer engages in performing various agricultural operations then the cost of labour may be a saving for the farmer.

• Working Capital includes the cost of Agar planation and its maintenance for 5 years (excluding labour costs), cost of cultivation of Sugandhmantri for one year as well as crop insurance for two years

• Two-cycles of Sugandhmantri (10-year rotation) are assumed with harvest beginning from the third year of cultivation onwards.

• Agarwood trees are generally harvested in a phased manner by the farmers – depending upon the scale of infection and also the maturity of the tree.

• Although harvest is assumed at the end of 20 years but in reality, farmers might start harvest after 15 years resulting in revenues must before the projected periods.

• Out of 210 trees planted, it is assumed that 180 trees would survive.

• It is assumed that all trees would be infected (through natural or artificial inoculation) and for this purpose the role of FPO is providing artificial inoculation facilities for farmers is envisaged.

• Interest on working capital has been included in the above costs.

Economic analysis

Under the proposed model, farmers are able to get total net returns of around INR 88 lakhs over a period of 20 years. Although the returns from Agarwood commence only after 15 years but under the present model the farmers also get annual returns (from 3rd year onwards) though sale of Sugandhmantri. The Benefit Cost ratio (over a 20-year period) for an individual farmer is calculated to be 8.19 which indicates the high profitability of this model.

Table 2: Economic analysis of Agar agroforestry cultivation in one-acre landholding

LOANS

Under this model farmers would be able to generate revenues through the sale of Sugandhmantri from third year onwards. From an economic perspective it is felt that farmers would require working capital to meet the initial cultivation and maintenance cost of Agar and also inter-crops and would be able to repay the working capital in annual instalments starting from the 3rd year onwards.

Table 3: Working capital loan for farmers

5.2.2.Cost-benefit for FPOs

Details of cost-benefit of FPO engaged in aggregation and marketing of Agarwood is provided under the following table:

Table 4: Cost-benefits for FPO engaged in aggregation and marketing of Agarwood (50 acres)

Assumptions

In the above analysis the following assumptions have been made:

• The above analysis assumes that the FPO is promoting cultivation of Agar with about 50 to 250 farmers cultivating an aggregated area of 50 acres.
• The FPO would engage in mobilisation of farmers and engage in capacity building in POPs, technical guidance and artificial inoculation for Agar farmers.
• The storage infrastructure will be made of low-cost materials.
• Loan will be obtained for INR 4.50 crores as working capital for procurement of Agarwood from farmers. This is 12.5% of total cost of procurement per year and is based on the assumption that harvest of Agarwood would be done round the year.
• Although new Agar plantation would take 15 to 20 years to mature but this model assumes that the FPO would start procurement with existing Agar farmers while also promoting new plantations.
• A loan of INR 0.34 crores would be obtained for meeting the capital costs.
• An increment of 5% each year for price escalation in the market value of Agarwood (selling price) has been factored in each year.
• An increase of 5% each year in the cost of procurement as well as in administrative costs has been factored.
• The staff of FPO will coordinate the entire business operation while services of experts would be obtained for capacity building of farmers and for artificial inoculation.

LOANS

It is envisaged that for this business model the FPO would require a loan of INR 34.15 lakhs for capital expenditure and a loan of INR 450 lakhs for meeting the working capital requirements for procurement of Agarwood from farmers.

Although the total value of Agarwood procured from the farmers is around INR 3600 lakhs but the working capital has been calculated at 12.5% of total cost of procurement per year and is based on the assumption that procurement of Agarwood would be done round the year from the farmers. The working capital loan is expected to be paid over a period of 6 years.

Table 5: Working capital loan for FPO

The repayment of loan for capital expenditure would be initiated from second year onwards and it is expected to be repaid over a period of 10 years.

Table 6: Capital expenditure loan for FPO