History has seen our farmers struggle through manually paddy and grains through a harvesting process of Reaping – Threshing – Winnowing.
Today, many of us know this to be mechanically ‘combined’ and engineered into one machine called the Harvester. This is the Combine Harvester.
Today’s concern – the customer’s perspective of a financier
One of the critical issues that plague the agricultural finance sector today is the lack of involvement or lack of domain knowledge. One side has the users, who are the final customers and use the asset. The second side has the dealers who create niche segments geographically to be able to sell their ware. The third side has the manufacturer who un-enviably has the humongous task of integrating technology, usage and education of the dealers and customers and thereby popularising the machine designed and created. The side is that of the financier who is in the business of lending money, after assessment of risk and one who needs to ensure that he gets the money back in the exercise. Let us for now look at the fourth quadrant, as little closer. How many financiers truly understand the end-use or consider the viability assessment in the truest meaning in Rural Lending? It has most of the time been target driven or more popularly PSL (Priority Sector Lending) based.
Many of us mask this critical input of understanding or the lack of it as ‘risk’. How many of us in the line of financing will actually be able to define a Harvester? Or how many of us will be able to clarify why a Harvester is called a ‘combine’ Harvester? How many of us have actually tried tracing the genesis of the equipments to its roots and the farmers were doing the functions prior to the arrival of the implements or the tractor or the harvester? The day this understanding is integrated into the funding Agri Lending becomes a passionate business and a truly workable model, where the financier also understands the risk.
The early harvesters were primarily known for Paddy harvesting exclusively. However, with growing confidence of the farmer and the growing labour constraints, today, the farmer has moved on to Paddy and other grain harvesting.
When we do talk of harvesters, it is pertinent for us to note that this is dependent on the type of crop and there are different harvesters depending on the type of crop.
Hence, today, harvester manufacturers focus on providing a higher horsepower, such that the machine is able to provide power to different sizes of cutter blades.
Harvesters, therefore, is a very specialised and serious business. If properly run and governed, is a business where the break even is achievable in less than two years.
This requires the user to have a certain discipline which has been found to be consistent in many successful owners – (a) close follow-upt (b) regulated movement (c) clearly mapped harvest cycles (d) good maintenance of asset (e) personal involvement – issue resolution / escalates.
A Harvester needs to be used to harvest approximately for 1,500 Acres per annum in order to be viable commercially. This has been so beautifully and naturally gifted or ordained by mother nature that the machine can be used in sequence from one geography to another.
The Harvester is also suitably transported from location to location on a lorry / commercial vehicle. This is a common sight for many of us who would have visited locations like Sambalpur, Bargarh, in Odisha; Rajahmundry in Andhra Pradesh; Raichur District in Karnataka or even locations like Attur or Ponneri in Tamil Nadu.
If studied closely, each of these harvester machines has a pattern in which they are used / can be used, to be extremely viable. There have been success stories of many people that come to my mind wherein the initial line of business that the customer was into was trading or allied agriculture. Yet these people have very painstakingly taken the risks, fought the odds, made their money in 24 months. As many success stories are there, critics may have failure stories too. Yet, here, we have a theory of design.
A seasoned, serious investor in this business will never invest directly. He would have tested the waters using his own methods. So one of the first principles in Agri Financing is to know what his methodology has been. This will lead to the critical aspect of the need of the farmer being addressed. So the first important aspect from a financier’s aspect is – does the farmer really need the harvester? If the answer is an emphatic yes, then we look at the next aspect.
What is the capacity of the farmer / customer to repay the loan? How is he / she going to deploy the asset? What is the mode of operation? From a Harvester point of view, this is one of the most critical points. This is the point where viability assessment truly comes into the picture. If this is done correctly, then the customer also makes money and will be willing to repay. Agri financing has one underlying principle – the farmer / customer is in 95 per cent of the cases a genuine person, who is willing to repay what he has borrowed since he is also bearing the fruits of his efforts. In most cases where it goes bad, is where this viability assessment prior to getting into the business is not working as planned and the farmer / customer is disenchanted.
‘Intent’ is a behavior and attitudinal pattern which is consistently exhibited by the farmer / customer. It requires the financier to ask the right questions. As was recently mentioned in one of the Consumer Association of India Forums, these are the days where the caveats are meant for service providers more than the service receivers. Hence, if a financier does not assess the farmer / customer well, prior to lending, the financier has only himself to blame.
Many times this intent is latent or hidden until the funding operation is completed. Even in such cases, a prudent financier is one who will use his network and recovery mechanisms to ensure that the losses from such lending are minimised.
The entire cycle of lending in Agri Financing is one of effective assessment and efficient monitoring and recovery. If we know to assess a customer and lend effectively, we also would need to know the right time to be at the customer’s doorstep aligning with his income cycles to be able to remind him of our repayments.
While on one side farmers have seen progression from the days of manual ploughing, to the power tiller, to the tractor and then progressing on the Harvesters. The other side technology in the Indian market has seen a lot of geography based customisation – suited to both large lands and small fragmented lands. There were times when harvesters could be related only to the larger farmers / operators associated with large lands. Today, this scenario is undergoing a change with manufacturers focusing on weight and operations suited for smaller lands. So the question today is – can the financier be the bridge between manufacturer’s offering and customer’s reach and ability? Can the financier look at the farmer / customer’s need and be his advisor, guide, and partner?
Author: Valliyur N Kasinath, Head – Farm Equipment Finance, Sundaram Finance