Making agriculture more rewarding for farmers

Rajesh Srivastava | Updated on March 25, 2020

While the government’s 16-point action plan to boost agriculture is welcome, what’s more important is to minimise the risks farmers face in farm-to-market cycle

While agriculture contributes about 15 per cent to the country’s GDP, it also sustains more than 600 million Indians or half the population of the country. This is an important aspect in the present scenario as the agri-sector will also be expected to play a crucial role in the revival of the Indian economy from its current despondent state.

The Union Budget 2020 brought several commendable green shoots of recovery for the agriculture sector, including the government’s 16-point action plan to boost agriculture towards the goal of doubling farmers’ income by 2022. However, there is much that needs to be done and a more holistic approach will be required to ‘tone and muscle up’ the agriculture sector.

By any measure, for the government’s ambitious objective for India to become a $5-trillion economy by FY2024-25, the agriculture sector has to contribute at least 30 per cent of the GDP and thus become the mainstay. But can it?

Globally, enhanced food production has changed the market dynamics leading to pressure on prices of our produce. Input costs are constantly on the rise, severely impacting farmers’ incomes, debt repayment capacity and their livelihood. What makes matters worse is that all the risks in the farm-to-market cycle are borne by the farmer — these include, among others, production, storage, and transport risks, outbreak of pests , and price uncertainty. Traders, aggregators and processors do not have to undertake these risks. Farmers are “implicitly taxed’ through restrictive marketing and trade policies even though agricultural income is not taxed in India.

More attention needed

The Indian agriculture sector certainly deserves much more attention and allocation of resources. The allocation of ₹15 lakh crore is a great step, but does it ultimately reach the farmer? We tend to forget that more than half this allocation gets utilised in meeting the assistance required during natural calamities, including droughts and floods.

Yes, announcements to provide enhanced irrigation capabilities, agricultural credit target of ₹15 lakh, allocation of ₹2.83 lakh crore for agriculture, and provision of standalone solar pumps to 20 lakh farmers under PM KUSUM are a commendable start, but these address only the tip of the iceberg.

Urgent steps need to be taken to minimise the risk for farmers and distribute the risk equitably across the agro-value chain. Additionally, the government has to ensure that a fair share of the value that is generated at the end-consumer reaches the farmer. India’s agriculture sector requires a long-term and sustainable solution, which ensures first and foremost ‘virtual’ land aggregation by way of cooperatives, by unshackling legislation around it.

The other reforms needed are: privatisation of agricultural markets, improving access of farmers to institutional credit, productivity based production incentives, and farm level cold storages and downstream distribution through integrated cold supply chains via PPP.

Also needed is an intensive and simplified crop and life insurance scheme for farmers through an unified insurance structure and promoting secondary agriculture for small farmers to mitigate risks of crop failure. The multiplier effect of these solutions will go a long way in enhancing sustainable growth for multiple stakeholders of the agriculture sector. The government should also actively work to facilitate and encourage the integration of agriculture and technology. .

The agriculture industry has had a long standing problem of lack of cold supply chain for preserving perishable goods. Although precise figures are not known, it is estimated that India wastes over 20 per cent of its fruits and vegetables, due to lack of adequate cold chain infrastructure. The loss is estimated to be $20 billion each year.

The Kisan Rail project via PPP arrangement and the launch of Krishi UDAN by the Ministry of Civil Aviation on international and national routes are welcome steps in the right direction, as these will help prevent wastage and fill in a long-standing gap in the infrastructure supply chain. However, the devil is in the implementation details which are awaited.

Focus on horticulture

Horticulture is considered as a better alternative farming option for farmers in many areas due to several advantages. Besides the fact that it is more remunerative, horticulture saves water which is critical. Moreover, it can be done on dry and hilly land and has lower risks of failure. Farmers who shift to horticulture, however, do not have a safety net of selling at a minimum price in case of unforeseen problems and the case in point where farmers moved back to field crops is Punjab.

Hence, there is a need for the government to focus separately on horticulture and balance the incentives between field crops and horticultre. We produce several export-feasible horticulture products like medicinal herbs, fruits, flowers and dry fruits which are high value and have the potential to deliver rich dividends to farmers and the country alike.

The move to support districts to emerge as export hubs for a single crop is conceptually good but size, scale, infrastructure, quality and traceability need to be plugged before importing countries can open doors. I would support some mega food parks promoted by the Ministry of Food Processing to be converted into export zones for exporting (primary) processed horticultural products, attaching strong certification of the parks for importers.

The cutting down of MGNREGS allocation by 13 per cent has reduced its positive impact, which too has been compensated in the PM-KISAN scheme. Moreover, the focus on Zero Budget Natural Farming has the potential to result in losses up to 20-25 per cent to farmers. A better implementation of Pradhan Mantri Fasal Bima Yojana should be facilitated in the near future through speedy and transparent processes allowing for timely disbursement of claims. This will enable farmers to claim losses in case of poor crop yields due to multiple reasons. Once optimised, this insurance scheme has the potential to provide a substantial safeguard to farmers and reduce their weather dependency.

Food processing

The processed food industry is still contingent on several uncharted risks. Often it continues to be awaiting measures to live up to its full potential even though the sector plays an important role in helping farmers improve income and reduce risks. Processed foods companies working in this area directly engage with farmers to educate and enhance their knowledge on advancing technologies and develop new crops and product lines.

A major issue for (especially SME) the food processing sector is inadequate access to credit from the banking sector. Unlike credit to agriculture, banks have no compulsion to lend to this sector since credit to food processing is subsumed within the 18 per cent mandated threshold for agriculture. The risks and dynamics of this sector are regrettably not understood holistically by the banks who often decline proposals or else apply onerous terms and conditions on them.

Credit from banks to food processing is approximately 17 per cent of the sector size as against 45 per cent in agriculture even as the food processing sector has been growing and is projected to grow at over 12 per cent per annum in next five years due to the demographic factors. Even direct benefits to the sector such as subventions and incentivisation are minimal.

Overall, the improvement of the sector requires measures to enhance market efficiency by promoting more innovative platforms like ‘kisan mandis’ and other similar initiatives which create a planned and sustainable marketing infrastructure. There has been a shift in the needle. But the the government definitely needs to take bolder and more significant decisions that promote farmers’ livelihood and address not only recommendations of the Economic Survey but also on marketing the produce. Ultimately, we want the government’s ambitious scheme to ‘double farmer income’ to succeed as it will benefit over half the population in the country.

The writer is Executive Chairman, Rabo Equity Advisors

Published on March 25, 2020

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