District Investment Accelerators (DIAs): The key to viable PPPs in agri infrastructure

The agriculture sector has shown considerable resilience during Covid-19, especially the second wave. At a time when national GVA contracted by nearly 7.2 per cent, the agriculture sector has witnessed growth of nearly 3.4 per cent at constant prices. However, the sector was beset with one key challenge — the lack of agriculture infrastructure which led to disruptions in input and output supply chains.

A quick dipstick study with farmers and FPOs suggests three key challenges across the post-harvest value chain — lack of storage and primary processing facilities, non-availability of reliable first and last mile transportation, and lack of marketing infrastructure. For example, a banana farmer loses more than 20 per cent premium due to lack of ripening chambers, a wheat farmer loses 10-20 per cent premium and has 1-3 per cent wastage due to lack of storage, and the trend is similar across most crops.

Infra investments

Hence, it is critical to drive investments in post-harvest infrastructure. This can enable farmers to reduce high post-harvest management costs and improve price realisation by 10-15 per cent, lower wastage — India’s food waste currently exceeds 20 per cent resulting in a lower marketable/exportable surplus, and reduce procurement costs for players downstream in value chain by 10-30 per cent.

Despite the seeming benefits of agriculture infrastructure, there has been a decline in gross capital formation in agriculture from 17.7 per cent in 2014 to 16.4 per cent in 2019. In June 2020, the government announced a ₹1 lakh crore financing facility, the Agriculture Infrastructure Fund, with the express intent to reverse this trend.

The AIF offers several benefits to investors seeking to set up post-harvest infrastructure and community farming assets, including a 3 per cent interest subvention, access to a credit guarantee and a moratorium of up to two years. Further, the design of the facility is intended to incentivise the creation of distributed infrastructure closer to farmgate by limiting the cap on the benefits to 2 crore per project.

The viability factor

One of the key risks of smaller units close to farmgate is ensuring they are viable. Without a market for graded and sorted bananas, sorting infrastructure will be unviable. Similarly, without the ability to generate demand for post-harvest machinery and equipment, a custom hiring centre will be unable to meet the utilisation needed to turn profitable. Therefore, a critical enabler to ensure viability of the infrastructure set up under AIF is to actively foster linkages between investors — such as farmers, FPOs and MSMEs — and other value chain stakeholders — such as FMCG companies, warehouse rental players or retailers seeking grade A fresh produce.

There are many emerging models of partnership between value chain participants to set up farmgate infrastructure. For example, a leading warehouse service provider has partnered with local entrepreneurs to setup smaller warehouses closer to farm-gate and will rent out the infrastructure under long-term lease ensuring high viability.

A large FMCG player has partnered with FPOs to set up primary processing unit for spices and has offered business guarantee which will help the FPO get access to bank loan under the scheme. And a company that brands itself “the uber of farm equipment” is partnering with local entrepreneurs to invest in advanced machinery which it will put on its platform, thereby generating greater demand for the entrepreneur. However, all these players state that establishing these partnerships has not been easy.

Enabling environment

To foster agribusiness-farmer/local entrepreneur partnerships, both the stakeholders need support. The farmers and local investors currently have the desire to invest but require support in identifying attractive investment opportunities, evaluating viability in the local market context, applying to banks with the necessary paperwork and marketing the infrastructure.

For example, in a Southern State, an FPO set up a vegetable primary collection centre but was unable to drive utilisation. HoReCa+ customers and agribusinesses are seeking such FPOs/local entrepreneurs to partner with to build backward linkages and outsource supply chain services but are unable to identify them or assess their ability/appetite to partner.

The solution to this matchmaking however doesn’t lie centrally at the Central or State government. In order to promote last mile investments and facilitate business partnerships, we believe a series of District Investment Accelerators (DIA) need to be set up with a dedicated team of post-harvest experts, marketing professionals and finance specialists.

Four objectives

The DIA can be set up under different models — independent unit or integrated with other existing institutional models at the district level. The vision for DIA should be to achieve four key objectives — evaluate the need and identify investment opportunities, general local investor pull and support small enterprises in business planning, handhold interested investors and train them to scale-up, and make investments viable by connecting and developing partnerships.

Public Private Partnerships will be key to scripting the success and viability of post-harvest infrastructure in India. However, they will need some match making to happen. District Investment Accelerators could be that much needed match maker.

Vasudevan is Managing Director & Partner, BCG; Bijapurkar, Partner, BCG; and Jain, Project Leader, BCG

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