2. Challenges In Agroforestry

Agroforestry sector in India is constrained by various factors, which are limiting wide-scale adopting of agroforestry by the small and marginal farmers in particular. The major challenges include:

• Lack of awareness: It has been observed that many farmers are reluctant to grow the trees on farm land as they feel that growing trees together with crops would drastically reduce crop production.

• Lack of technical know-how: Farmers lack technical inputs about choosing appropriate agroforestry models for their farms – including choice of tree species as well as the choice of intercrop. They also lack technical knowledge regarding post-cultivation techniques related to tree species. In fact, there is also a lack of information with the farmers related to suitable agroforestry models (combination of tree and crop species) based on diverse agro- climatic conditions.

• Regulation on harvest of trees from farmlands: Government regulations related to tree felling/harvesting, transportation and marketing limit the wide-scale adoption of agroforestry in the country. For example, in Uttar Pradesh the farmers are free to harvest tree species like Eucalyptus, Poplar and Subabul from farm lands while for certain other species they require permission for harvesting, transporting and marketing. However, majority of farmers do not have clear understanding of regulatory procedures related to tree felling and hence they refrain from cultivation of trees on their farmlands.

• Poor market linkages: Marketing linkages for sale of trees by farmers are not well developed and the farmers are exploited by middlemen. In fact, there are frequent fluctuations in the market prices of eucalyptus and poplar and farmers are often not aware of the market scenario.

• Lack of institutional mechanism: There is a lack of organisation of farmers and also lack of dedicated institutions such as Producers Groups (PGs), Farmer Interest Groups (FIGs), Farmer Producer Organisations (FPOs), Cooperatives and Farmer Producer Companies (FPCs) etc. in the agroforestry sector. The absence of institutional development results in lack of effective extension, value-chain development, financial support for farmers and transparent market system.

• Lack of market support mechanism: Unlike the agriculture sector Minimum Support Price (MSP) system is yet to be introduced in agroforestry sector by the government with the result that farmers are exposed to frequent price fluctuations of wood and also exploited by middlemen.

3. Project Idea

This business idea aims to promote agroforestry sector by creating an enabling system wherein farmers can obtain quality saplings for plantation, adopt improved Package of Practices (POPs), access financial services, engage in value- addition and leverage their collective strength to negotiate remunerative prices for their produce.

The basic approach is to promote a cluster-based approach wherein farmer groups would be federated in the form of FPO that shall link agroforestry farmers to the mainstream markets. The FPO would also support the farmers in a variety of activities viz. identification of most suitable agroforestry species, providing quality planting material, introducing improved POPs, maintenance of trees, harvesting, grading, transportation and marketing.

4. Impacts and Sustainability

4.1 Impacts – Social, Economic and Environment 

It is expected that this model of agroforestry will bring significant social, economic and ecological impacts which are explained below:

Social Impacts

• Vibrant economic institutions developed in the form of FIGs in the villages to address issues that relate to the economic, social and environmental well-being of the habitants.

• Awareness, education and skill development of the farmers in agroforestry.

• Enhanced leadership among the small and marginalized farmers due to their role in business decision making, management of production, infrastructure and supply chain.

• Agroforestry is expected to generate additional employment opportunities (nurseries raising, sale of plants, harvesting, and transportation of wood and managing procurement depots) at the local level.

Economic Impacts

• Agroforestry is expected to enhance the income levels of farmers while also increasing employment opportunities for marginal and small farmers and landless.

• Reducing economic exploitation of farmers by middlemen and integrating them with the markets through FPO. This will make them free from the exploitative intermediary-based marketing system.

• Linking farmers to financial institutions for improving their access to credit while also increasing their propensity to engage in savings.

• Increase in productivity of soil thereby resulting in higher yields from intercrops.

Environmental Impacts

• Raising of trees in farmlands would lead to increase in green cover and thereby contributing in carbon sequestration and climate change mitigation.

• Increasing availability of fuelwood at the farms and thereby reducing pressure on forests

• Improving soil heath at the farms through nutrient cycling and reducing soil erosion.

• Fulfilling industrial demand (paper mills, match stick manufacturing units etc.) through trees grown on farm lands and thereby conserving natural forests.

4.2 Climate change resilience

Agroforestry has the potential to become an important tool to build resilience of farmers against threats of climate change and natural calamities. Agroforestry also has the potential to enhance ecosystem services through carbon storage, prevention of deforestation, biodiversity conservation, and soil and water conservation. In addition, when strategically applied on a large scale, with appropriate mix of species, agroforestry enables agricultural land to withstand extreme weather events, such as floods and droughts, and climate change.

4.3 Sustainability

The proposed model is based on the experience gained in Eastern Uttar Pradesh in the program areas of IFFDC. This model has been designed in a manner that it should suit small and marginal farmers and would ensure higher economic gains for them.

The major factors that are expected to contribute towards sustaining this model are:

• Facilitating agency would provide initial facilitation, startup and handholding support - helping in mobilization of farmers and in the institutionalization of FPO.

• Adequate capacities of FIGs and FPOs would be built related to governance, business planning and financial management including DRR in agro-forestry sector.

• Linkage development with technical institutions, research and development institutions, private agencies and banks, financial institutions.

• Convergence with government schemes and extension of insurance services.

• FPO would bear the entire cost of tree plantation and its management with farmer not being burdened to make any investment of the same.

• The farmer would be able to generate a regular income for 4 years through cultivation of paddy and subsequently would get revenues through sale of trees.

• After first harvest of trees the farmers of the FPO do not need to make any additional investments in tree plantation as coppicing techniques would be used for two consecutive harvests and existing root stock would be used to raise the plantations.

• Farmers or FPO do not need to make any investment for harvest or transportation of trees as the FPO would hire a contractor who would be responsible for harvesting and transportation of trees.

• The economics of this model indicate moderate to high returns for the farmers and FPO.

5. Financial Details

5.1 Scope of financing and subsidy

Under this model the FPO would require loan for meeting cost of plantations in farmers’ fields (75 ha per year for 5 years) as well as to meet its operational costs. It is estimated that the FPO would require working capital assistance to the tune of INR 403 lakhs spread over a period of 5 years. Working capital requirement would be met primarily through loan from NABARD and other banks.

The facilitating agency/ FPOs may also look at the following schemes in order to meet part of the cost of cultivation of trees on farmers fields:

• Sub-Mission on Agroforestry (SMAF): After the launch of Agroforestry Policy 2014 Govt. of India has formulated a sub-mission to promote agroforestry in the country. Under this sub-mission the following provision have been made:

• Nursery Development for quality planting material (NDQPM): Small nursery (minimum capacity 25,000 plants per annum), big nursery (minimum capacity of 50,000 plants per annum) and high-tech nursery (minimum capacity of 100,000 plants per annum) assistance would be available up to 50% of the total cost of the project subject to a ceiling of INR 10 lakhs, INR 16 lakhs and INR 40 lakhs respectively.

• Peripheral and Boundary Plantation (PBP) and low-density Plantations on farmlands- Financial assistance will be provided upto a maximum of Rs. 70 per plant and will be distributed over a period of four years in a proportion of 40:20:20:20.

• High Density Block Plantation (HDBP): Assistance would be based on the number of trees planted per ha. For 500 to 1000 trees it would be a maximum of INR 30000; for 1000 to 1200 trees INR 35000; 1200 to 1500 trees INR 4500 and for more than 1500 trees INR 50000. For sustaining the plantation activities, the assistance would be spread across four years in the proportion of 40:20:20:20.

• Capacity Building & Trainings: States can utilize up to 5% of the allocated funds for capacity building and training activities.

Note:

1. It is to be noted that at least 50% of the allocated budget is to be utilized for small, marginal farmers of which 30% should be women farmers. Further 16% & 8% of the total allocation or in proportion of SC/ ST population in the district will be utilized for Special Component Plan (SCP) and Tribal Sub Plan (TSP) respectively.
2. The SMAF is underway nationwide except in 8 states of NE and Himalayan States. Farmers would be given a financial assistance up to 50% of the actual cost (limited to 50% of the estimated cost as indicated in the Cost norms) for the respective interventions.
3. Farmers groups/ Cooperatives/Farmer Producers Organization (FPO) can also avail the benefit of the programme but the assistance can be accessed as per norms and provisions applicable to the individual farmers.

• PM Kishan Samman Nidhi Yojana: This scheme is underway nationwide since its announcement on 1st February 2019. Farmers can avail upto Rs. 6000 in 3 equal tranches to meet out the cost of planting material, inputs and any other cost.

• Pradhan Mantri Krishi Sinchai Yojana (PMKSY): Under PMKSY, Financial Assistance of 55% for Small and marginal farmers and 45% for other farmers for adoption of Micro Irrigation system is available. This scheme is available for all crops including horticulture plantation.

• NABARD Refinance: In tune with the National priorities, NABARD extends refinance support for promoting wasteland development/ agro-forestry through Eucalyptus cultivation at a concessional rate of interest.

• MNREGA: Farmers can meet the plantation cost from MNREGA. The activities such as land leveling, pond digging, nurseries raising can be included under MNREGA.

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 engaged in agro-forestry sector-wood sales and marketing.

5.2.1 Cost-benefit for farmers

The following tables provide details of the expected cost of cultivation and the expected revenue for individual farmers engaged in eucalyptus and paddy cultivation on one-ha land.

Table 3: Cost-benefits for individual farmers engaged in SRI rice cultivation (1 acre landholding)

Assumptions

• The cost of plantation and maintenance of Eucalyptus plantations would be borne by the FPO. The estimated costs accruing to the FPO have been indicated in the last column.

• It is assumed that the farmers would not require any capital assistance for meeting the cost of cultivation of paddy.

• 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 cost of planation of Eucalyptus and its maintenance for 5 years (excluding labour costs) and cost of cultivation of sugarcane for one year.

• Farmers would be able to get four crops of paddy (during the first four years). However, the yield from paddy would decline progressively by around 10% to 20% each year – as the trees gain height and this has been factored in the above calculations.

• It is assumed that a spacing of 3m x 2m would be taken for tree plantations.

Economic analysis

Under the proposed model, farmers are able to get total net returns of around INR 4.20 lakhs over a period of 5 years. Although the returns from Eucalyptus are realized only after 5 years but farmers also get annual returns (for the first 4 years) though sale of Paddy. Benefit Cost ratio (over a 5-year period) for an individual farmer is calculated to be 2.99 which indicates the financial viability of this model.

Table 2: Economic analysis of Eucalyptus agroforestry cultivation in one ha landholding

5.2.2 Cost-benefit for FPOs

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

Table 3: Cost-benefits for FPO engaged in aggregation and marketing of Eucalyptus (375 acres)

Assumptions:

In the above analysis the following assumptions have been made:

• The above analysis assumes that the FPO is promoting agroforestry plantations of Eucalyptus with about 500 to 1000 farmers cultivating an aggregated area of 375 ha over a 5-year period.

• The FPO would engage in mobilisation of farmers and engage in capacity building in POPs, technical guidance and intercropping for Eucalyptus farmers.

• Loan will be obtained for INR 4.03 crores (spread over a period of 5 years) as working capital for meeting plantation and maintenance cost for Eucalyptus plantations as well as for meeting the operational cost of FPO.

• This model assumed that the FPO would get 40% share of revenues from the sale of Eucalyptus trees for the first two harvests.

• A loan of INR 0.02 crores would be obtained for meeting the capital costs.

• An increment of 5% each year for price escalation in costs has been factored in each year.

• The staff of FPO will coordinate the entire business operation while services of experts would be obtained for capacity building.

LOANS

It is envisaged that for this business model the FPO would require a loan of INR 403 lakhs as working capital and a loan of INR 2.15 lakhs for meeting the capital costs.

Working capital loan would be spread across a period of 5 years and repayment is expected to start from the end of 5th year onwards. The working capital loan is expected to be paid over a period of 10 years.

Table 4: Working capital loan for FPO

The repayment of loan for capital expenditure would be initiated in the fifth year and considering the small amount of loan it would be repaid in a single installment.

Table 5: Capital expenditure loan for FPO