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Consolidation – A critical enabler for efficient farming

Rana Kapoor
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Mr Rana Kapoor
Mr Rana Kapoor

Agriculture sector plays a critical role for livelihood gains for two-thirds of India's population, for sustained national growth, and is pivotal for attaining food security for the nation.

While Indian agriculture faces many challenges across its value chain, at the core of these challenges are the small and highly fragmented farm holdings. This has enormous implications on the production side. The small size of agricultural land holdings is an impediment in increasing agricultural productivity, enhancing farmer competitiveness and incomes, ensuring higher degree of farm mechanisation and, systematic and adequate application of various agri-inputs.

The shrinking of productive agricultural land and land base being utilized for non agricultural purposes also makes the crises of fragmented land holdings multi-dimensional.

Current Status

The average per capita operational size of land holding in India is 1.33 ha, which is far below the world average of 3.7 ha per person. Further, land holdings have shown a marginal decrease from the holding size of that of a decade ago (1.41 ha).

Over 80% of the land holdings in India are classified as small and marginal land holdings with the farm size of less than 2 ha. This implies that over 80% of the farmers in India hold just 39% of the total cultivated land. Maximum numbers of small and marginal holdings exist in the states of Uttar Pradesh, Bihar, Andhra Pradesh and Maharashtra. On the other hand, the numbers of large holdings constitute merely about 1% of the total holdings and occupy approximately 13% of the total area, concentrated mainly in the states of Rajasthan, Madhya Pradesh and Karnataka.

Challenges

Small and marginal holdings have an adverse impact on efficient farming thereby impacting the economic prosperity of the farmer. Difficulty in access to agricultural credit is a prominent drawback related to small farm holdings.

Research suggests that only 14% of marginal and 27% of small holdings were able to get credit from institutional sources whereas about 33% of medium and 29% of large farmers could avail institutional credit in India.

Producers with small holdings also often face problems due to inefficiencies in transporting their produce leading to increased dependence on middlemen. Therefore, there is loss of income which becomes the middleman's commission.

Small holdings also have drawbacks in finding access to infrastructure facilities such as on-farm pack houses, grading areas and other related facilities.

With increasing urbanization and industrial demand, and subsequent pressure on the availability of cultivable land, the scope for expansion of the area available for cultivation is limited.

Also, core to the challenge is an increasing population which leads to further fragmentation of land holdings.

To ensure farmer-centric agricultural development, land consolidation efforts for good quality and efficient farming needs to be undertaken.

NGOs, farmer associations and the extension wing of the agricultural ministry at the grass root level should educate small and marginal farmers on the benefits of land consolidation which will reap benefits in scaling up of their operations and increasing profitability.

Solutions Themes

1.Cooperative farming: Cooperative farming is a method wherein farmers pool their resources in certain areas of agricultural activity for mutual benefit.

Broadly cooperative societies are divided into two types based on the nature of activity. One, for offering agricultural services and the other for agricultural production by sharing production resources like land, water, machinery and implements. Majority of cooperative societies in the world today belong to service cooperatives which are further distinguished by three models viz., supply cooperatives, marketing cooperatives and credit cooperatives.

a.Supply cooperatives deal with providing critical agricultural inputs like seeds, fertilizers, pesticides, micro nutrients and farm machinery

b.Marketing cooperatives handle operations like harvesting, packing, distribution, sales and marketing of farm produce and also livestock and related products.

c.Credit cooperatives are established mainly to take care of the working capital and investment requirements of the farmers.

India has a robust and effective Panchayati Raj system that is an institutional forum for undertaking developmental projects. Pilot studies of collective farming, structured and monitored by the Panchayats can be undertaken at various gram and zila parishad levels.

In the coming years, as the agricultural labour availability becomes scarce, farm mechanization will play a critical enabling role where machines can replace the human labour for farming. A major deterrent so far has been the fragmented and smaller land holdings in villages where the physical movement of large farm machines like combine harvesters and large tractors has been difficult and often counterproductive.

2.Contract Farming and Collaborative Farming initiatives: Though contract farming does not directly help in preventing fragmentation, the need of contractual requirements can be a tool for farmers to collaborate for joint cultivation.

For example, farmers could plough their pooled farm lands with tractors (instead of animals) as most of the contracts are designed for raising a specific variety of the same crop. This would help the farmers also to reduce input costs and, ipso facto, have better price realization.

The joint activities could range from ploughing to harvesting operations and beyond. Since contract / collaborative farming ensure better management of farms and farmers, it can be a healthy tool in arresting further fragmentation of land holdings.

3.Corporate farming: Large corporate and MNCs that are into agricultural supply chain often try to integrate and consolidate their product supply chains to have better control on costs and ensure supply security. We see examples of companies taking over large parcels of land across the globe to cultivate and produce food and non-food crops. Similar models should be allowed and encouraged in India, which will increase farm productivity and bring in desired efficiencies.

Corporates can also be substantially incentivised to invest in arid zones where irrigation facilities are not present. These zones would be developed with irrigation facilities by the corporates. Such efforts will lead to effective usage of agri-inputs, higher degree of mechanisation, sustained supply of raw materials, better quality of produce, higher efficiencies in the supply chain, reduced wastages and a higher value realisation.

Conclusion

While Indian agriculture has shown resilience to many shocks that penetrated into the world in the last decade, the farmers are successfully producing crops in spite of many hardships. However, all this will change in the coming decades as growing population, further fragmentation, land conversion will lead to lower productivity, shortage of labour and dwindling natural resources.

These may put us back in the grip of a perennial food crisis. There is, therefore, a great responsibility on the farming community and the government alike to realize this future shock and take proactive steps to avoid such crises. Consolidation is one such solution theme.

(The writer is Founder, Managing Director & CEO of YES Bank)

(This article was published on May 15, 2011)
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