On Agriculture: The future of Indian Agriculture is looking great!!

With of these flurry of well thought out initiatives and reforms, India has moved decisively towards creation of a world-class agriculture ecosystem which will benefit farmers, consumers, wholesalers, processors, and start-ups. Development of Backward and forward linkages as an outcome of the recently passed Acts and other reforms will ensure unmet demand of all consumption zones of India. Finally, India will have One Nation One Market because the concept of unified markets would take shape in the years to come.

1.1 Background of Reforms in Indian Agriculture:

1.1 Almost 111 million farmers are registered for the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan). As per the Agriculture census of 2015-16, India has 146 million holdings which is a rise from 138 million in 2010-11. India has 7,000 odd APMC mandis (2477 principal regulated markets supported geography (the APMCs) and 4843 sub-market yards regulated by the respective APMCs) which were found out with an objective of giving market access to farmers. there’s an enormous variation within the density of regulated markets in several parts of the country, which varies from 118 sq. km. in Punjab to 11,214 sq. km. in Meghalaya, while ideally as per national farmer’s commission 2004 a regulated market should be available to farmers within a radius of 5 Km.

1.2 Under the prevailing APMC Acts, all agricultural produce was procured through mandis to which farmers transported their produce. APMCs charge a market fee of buyers, and that they charge a license fee from the commissioning agents who mediate between buyers and farmers. They also charge small licensing fees from an entire range of functionaries (warehousing agents, loading agents etc.). additionally, commission agents charge commission fees on transactions between buyers and farmers. The levies and other market charges imposed by states vary widely. High level of taxes at the primary level of trading has significant cascading effects on the commodity costs.

1.3 Initially meant to protect farmers, these mandis transformed into local monopolies. Commission agents or arathiyas commanded substantial influence due to being buyers of produce and also providers of informal credit to client farmers. Not much effort has been made in developing infrastructure for collection at the farm gate. The result is that we process less than 10% of our food production and lose approximately Rs 90,000 crore annually (various studies mention a range of figures) thanks to wastage of produce, due to a fragmented and discontinuous cold chain.

1.4 Out of 36 states and union territories, 18 odd states have already enacted reforms allowing establishment of personal market yards/private markets, 19 odd states have enacted reforms allowing direct purchase of agricultural produce from agriculturists by B2B players, 20 odd states have enacted contract farming acts. Most states have exempted levy of taxes and costs on sale of fruits and vegetables.

1.5 As India transitioned from a food deficit nation to surplus one, successive government committees, task forces, reports have recommended reform within the mandi system, enabling framework for contract farming and bringing clarity to the conditions under which the Essential Commodities Act might be invoked.

1.6 During the decades before the present series of reforms, Indian farmer incomes are held back through restrictive also as prescriptive trade policies that focused on ensuring managed lower prices of agricultural commodities to consumers across classes. There has been good amount of labour by academics on the terms of trade of agriculture vis a vis other sectors and therefore the impact it had on depressing incomes and wealth of farming communities. Myriad marketing regulations have resulted in local optima for prices in markets across states. Inter-state barriers created by the APMC restrictions have reduced income opportunities for farmers from surplus regions in respective commodities. Geographical disparities in prices are quite high especially in commodities like vegetables where the shortage of storage and distribution network on scale means hindrance to movement of commodities to distant markets thereby forcing farmers to be satisfied with local mandi price realisations in most cases and making these commodities susceptible to sharp falls and spikes in prices.

1.7 The low realisations at farm gate or in local markets as compared to what consumer buy commodities is one among the historical causes for agrarian distress. In the mandi dominated system, smallholders have no alternative choice to market their produce except in their nearest Mandis where the buyers exploit their monopoly power to maximise gains for themselves. For medium and large farmers, this problem isn’t as serious since they have storage or alternate market options. There are studies which establish exploitation of the smallholder, who consists of 85% of the farm households, in the pre-reform era in marketing.

2 The Path-Breaking Reforms in Indian Agriculture:The path breaking reforms include The Farmers’ Produce Trade and Commerce (Promotion & Facilitation) Act (FPTCA), 2020, The Farmers (Empowerment & Protection) Agreement on Price Assurance and Farm Services Act(FAPAFSA), 2020, Liberalization of control orders under the Essential Commodities Act, 1955, Agriculture Infrastructure Fund (AIF), 2020 and the release and execution of operational guidelines for promotion of 10,000 FPOs have happened in the recent months. The model leasing act which was released by Niti Ayog in 2016 and the Agriculture Export Policy 2018 of the Ministry of Commerce & Industry which focuses on commodity clusters for exports were both very progressive steps in the reforms for the agriculture sector.

3. Implications of Acts for Farmers and their bodies including FPOs

3.1 FPTCA gives direct access to buyers/processors to succeed in bent farmers directly outside the APMC Mandi and can help in removing intermediaries in between thereby farmers may realize better price of their produce specially for commodities not covered under MSP. This new act provides freedom to the farmers to sell their produce literally to anyone of their choice and anywhere within the country with no barrier or friction. Competition in buying from the farmers would mean better services and costs to the farmers and prevention of practices that are natural outcomes of monopolistic structures.

3.2 With improved market linkages post FPTCA and FAPAFSA, we’ll also see a shift in what our farmers produce. With increased understanding of market demand and price patterns, through direct engagement with agribusinesses, farmers will have their focus on growing crops with higher market price and this will reduce our dependency on imports.

3.3 Digital platforms, which are inbuilt the last five years, will proportion with participation by FPOs who would understand the fundamentals of creating contracts, agricultural commodity markets, price forecasting, and therefore the like.

3.4 Post reforms, there would be increased volumes of production and post-production (eNWR) institutional credit which can financially strengthen farmers (crop, livestock & fishery) and help negotiate distress sale.

3.5 FAPAFSA, focuses on creation of framework for contract farming in India.

3.5.1 There is scope of FPO to act as an intermediary/aggregator between the smallholder farmers and the buyers. Terms of the agreement may include the time of supply, quantity and quality of the produce, grade, standards and price etc. The Act has safeguards for farmers ashore, insurance compensation, the infrastructure and equipment used at the farm land etc. Even the dispute resolution within the Act has been delegated at the district level with the formation of district boards avoiding the necessity for moving courts for grievance redressal at the preliminary level.

3.5.2 FAPAFSA will provide an enormous boost to growing of horticultural crops for table purposes also as special varieties for domestic also as international markets. This will lead to enhancement of incomes at the hands of the farmers as also risk mitigation since the businesses getting into contract farming agreement would offer inputs, Good Agriculture Practices, Advisories and Monitoring also as Fixed Price Contracts. This would help the farmers with assured income for the commodities grown under these contracts.

3.5.3 This move also will encourage the firms to take investments decisions in agriculture infrastructure; storage, food processing, research and development, and harvest to plug linkages.

3.6 Agriculture Infrastructure Fund (AIF) would facilitate the development of PHM infrastructures at farmgate, that has collection centres and pre-processing facilities amongst others. A continued drive on aggregating farmers through farmer producer companies/organisations will increase their negotiation power and develop community assets under AIF. Funds for the event of the farming and fisheries sector have also been launched to diversify the sources of farmer income.

3.7 FPOs are expected to participate during a big way in processing of agriculture produce at the extent of primary processing (simple farm gate practices like cleaning, sizing, packaging, etc); and also secondary processing (basic processing, packaging & branding).

3.8 FPO Operations and Management jobs across levels will become aspirational for educated rural youth from villages and that they wouldn’t got to urban areas for such opportunities.

3.9 it’s expected that the FPO movement will convert into a mass movement with thousands of commercially startup FPOs everywhere India over subsequent 5 years

4. Implication of the Acts for emergence of latest private markets:

4.1 I estimate that a minimum of around ten thousand plus Grameen Agriculture Mandis (GAM-It might be any nomenclature) 10,000 Pvt Mandis to be set up all over India over over the next 5-6 years as a results of these reforms and this may contribute significantly in reducing the food wastages.

4.2 The private Mandis would even be closer to the growing or production clusters as against the tertiary locations/town/cities where the APMC mandis are located today. These private Mandis are going to be much more efficient, automated and mechanised than the APMC markets of today and equipped with facilities of sorting grading pack house etc. this may change the whole dynamics of agriculture value chain and can help to extend the worth realization significantly and also reduction in food wastages will help significantly in food security of the state in next one decade approximately by just improving in post-harvest handling losses which is currently around fifteen to 25 percent only thanks to multiple handling. We estimate a perpetual saving of between USD 25 to 30 billion once a year on account of those changes which can be captured partly by the farmers and partly by the trade and consumers with the whole country being better off.

4.3 India will move towards have One Nation One Market since the fragmented approach under the APMC Mandis will change to an idea of unified markets giving higher incomes to the farmers through disintermediation also as efficiencies arising out of logistics and primary processing.

4.4 There would be greater competition amongst buyers in the form of contract farming buyers and also those using the new private mandis thereby enhancing incomes of farmers.

5. Implications for Startups/Agtech companies focused on agriculture

5.1 These reforms will create opportunities for startups in areas starting from supply chain, warehousing to logistics and e-commerce.

5.2 FPOs or farmers are expected to also enter into agreements with farm service providers. This may give the ‘Farming as a Service’ (FaaS) a huge boost. Several agri-tech startups are operating in this space. Some startups are trying to reduce friction in trading of agricultural commoditiesby developing an AI based system of grading and assaying. Many of those new FaaS firms use cutting-edge technologies including cloud, big data, AI and blockchain to bring traceability, slash food wastage and help farmers increasing their operational efficiencies and crop yields.

5.3 These Agtech start-ups would also help their clientele like financial institutions, government entities, agribusiness companies and b2b buyers to analyse and interpret data to derive real-time actionable insights on standing crops enable flow of credit, insurance and every one sorts of services to farmers.

5.4 Innovative Startup business models will attract more investor money and may achieve scale and improve productivity; improvement in post-harvest management will reduce wastage; and digital marketplaces will increase reach and market linkages.

6. Likely outcomes on Agribusiness companies, Trade Efficiency and Exports

6.1 As India’s productivity levels converge to global best practices, India can emerge as a big player in global food supply chains. These reforms make sure that an enabling environment is made for India becoming a food export powerhouse with investments by private sector players and focus on commodity clusters will lead to an USD 100 billion dollar of agricultural exports per year within 5-6 years.

6.2 While promoting the export of agri-commodities, it’s expected to enable companies, traders, and farmers to store the commodities when prices within the market are low with none restrictions and freely sell their produce in any market which will provide remunerative prices.

6.3 The reforms also will provide a chance to agribusinesses to create consistent supply and standardised variety by direct procurement from farmers, run their operations more efficiently, and boost export volumes and share of food processing. this may also help eliminate other system inefficiencies like high intermediary and logistics costs. There are many samples of agribusinesses working with farmers resulting in higher farmer income and development of agribusinesses.

6.4 With developments in contract farming, we can expect private sector investments into secondary agriculture including high-end processing which involves complex processing technologies an enormous range of products from Cereals, Pulses, Oilseeds, new crops, organic produce, herbal & medicinal plants giving boost to processed foods and industrial products from agriculture produce enabling further value capture at the hands of the growers and processors within the agriculture sector.

7. Impact on non-farm jobs, agri entrepreneurship and employment

7.1 Under all announced programmes that target an investment of `1.65 lakh crore within the farm sector, agri-logistics will get a lift across all sub-sectors. the event of food-processing industries and processing of commercial products out of agriculture produce will create rural, non-farm jobs.

7.2 With many farmers trying new farming models and crop diversification, we’ll see the increase of agri-entrepreneurs, specialists and professionals in farming best practices, storage, finance, quality, transport, aggregation, branding, technology, and marketing will emerge across the country.

7.3 The private sector investments within the agriculture sector will create new jobs in allied sectors like logistics service providers, warehouse operators and processing unit staff.

8. Conclusions: With of these flurry of well thought out reforms and initiatives, India has created moved decisively towards creation of a world-class agriculture ecosystem which will benefit farmers, consumers, wholesalers, processors, and start-ups. Development of Backward and forward linkages as an outcome of the 2 Acts and other reforms will ensure unmet demand of all consumption zones of India. Finally, India will have One Nation One Market because the concept of unified markets would take shape in the years ahead.
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Published by Sunil Khairnar

I have been working in the agribusiness, commodities and development sector in India for more than 27 years. I have a B. Tech in Agriculture Engineering and a Management Post Graduation from IIM Ahmedabad.