INDIA IN TRANSITION. The digital route to transforming farm sector

In March 2016, Prime Minister Narendra Modi announced doubling farmer incomes by 2022. This policy replaced increasing food production as the main focus.But the goal of doubling farm incomes was criticised by many experts as unachievable even as they lauded the shift in priorities.

Since the onset of the Green Revolution in the late 1960s, India has pursued policies focused almost entirely on ensuring national food security.

By the early 2000s, productivity per hectare of staple crops wheat and rice had grown steadily and total foodgrain production had more than doubled. The Green Revolution polices have, however, failed in raising farmer incomes, especially for the small and marginal cultivators.

Over the last two decades, the real incomes of small and marginal farmers have fallen by as much as 30 per cent due to rapidly increasing input costs, weather-related shortfalls in yields, widening price swings, and lack of access to technology, finance, and markets.

This has resulted in increase of farm indebtedness, leading to over 3,00,000 farmer suicides since 1995 and farmer unrest in many areas of the country.

Farm distress has now emerged as a major political issue and is sure to figure prominently in the April-May 2019 national polls.

The government’s new policy focus on increasing farmer incomes was clearly timely, but how to achieve that goal is far from clear. Various government initiatives have been announced, many based on digital innovations, to give small and marginal cultivators greater access to finance, technology, markets, and risk management tools.

In October 2018, the Center for the Advanced Study of India (CASI) partnered with the World Food Prize Foundation, McKinsey and Company, and the Chicago Council on Global Affairs to assess India’s new farm crisis and responses to it.

At the Foundation’s annual Borlaug Dialogue in Des Moines, Iowa, the organisers presented a panel discussion of how Indian agriculture might be transformed through digital innovation and policy reforms in four critical areas.

Productivity focus

Caught in the grip of Green Revolution policies and incentives, much of India’s farmland remains devoted to growing wheat and rice. With the focus ironically on better irrigated and market-connected regions, farmers growing single crops of paddy and rice in rainfed areas are the most disadvantaged by the ‘green revolution era’ policies.

Today, greater returns to farming are possible where cropping is more diversified. Small and marginal cultivators, in particular, improve their incomes by growing vegetables and fruits and raising livestock.

To diversify, small farmers need less costly and readier access to the financing, technology, and inputs, and fewer barriers to the sale, storage, and transport of those more perishable products. Digital innovations and government-issued soil health cards can offer that access. Credit can be extended to small farmers at lesser risk and cost through digital channels.

Digital extension services can provide real-time advice to help farmers transition to new crops. Mobile phones, especially through the use of WhatsApp, make it possible for farmers to determine the price and time at which to sell their crops and possibly to enter into sales contracts.

Post-production

The single greatest challenge is enabling farmers to realise better prices for their produce. That, in turn, requires a shift from production-centric incentives to market-centric incentives.

Most farmers face many obstacles to better monetisation of their production. These include the distance from markets, dependence on local moneylenders and traders for access to capital, little knowledge of price movements, the need for ready cash at harvest, the cost of transport to markets, the control of markets by trader cartels, and the lack of nearby and inexpensive storage facilities.

Digital solutions are seen as a way to overcome many obstacles. Digital lending could help break the linkage between local sources of production credit (and other lending) and the farmer’s ability to sell for the best price. Online price discovery and marketing platforms would provide farmers transparency and unmediated market access.

The Modi government is working to create an electronic national agricultural market (eNAM) and has enlisted about a third of the country’s regulated wholesale markets in the scheme, but its effectiveness depends on the so-far-incomplete participation of traders in those markets who remain resistant for the obvious reason that it would lessen their price-setting power.

A more promising possibility is the creation of local or regional farmer producer organisations (FPOs) through which over a thousand local farmers could gain market power and better price realisation. To be effective, the FPOs result from the initiative of the producers themselves and when they achieve some scale, have professional management. This may be a case where government could provide an enabling regulatory environment and perhaps initial financing.

Risk management

In recent years, farmers have faced extreme fluctuations in weather patterns.

Many Indian farmers now also face the risk of increased price volatility due to cycles of over- and under-production of certain crops. The impact of these supply-demand imbalances and resulting price swings is, in part, a problem of success, the increases in total production of many crops.

For small and marginal farmers who lack access to early warnings of weather and production shifts, the risks are magnified. The risk is greater for those growing perishable commodities such as fruit and vegetables, who have no access to storage. Nor does the great majority of farmers have any form of crop insurance to guard against sudden and sometimes total losses.

Digital innovations offer much promise for buffering both weather and price risks. The government has developed large-scale weather forecasting capabilities which have been shown in limited use to reduce losses by 5-10 per cent and proposes to develop price forecasting models.

The next and critical step is to make these forecasts accessible to large numbers of farmers in terms they can apply readily to their locations and crops. Additionally, the government announced in 2016 a crop insurance scheme underwritten in part by government subsidies and enabled by digital technologies for verifying crop losses and connecting insurers with small and marginal farmers.

It is not clear if these digital platforms are in widespread use. One of the most promising responses is not digital — encouraging the construction and operation of local, inexpensive crop storage facilities through financing guarantees and/or tax incentives.

The digital potential

There is much promise in digital applications to improve farmer livelihoods. Indian agriculture needs to be made more market-oriented through reform in existing policies, even as government provides enabling environments for digital innovation.

The government should focus on regulating sensibly rather than intervening directly in markets, removing constraints on the operation of digital systems across agency and state boundaries, facilitating local infrastructure development (such as storage facilities and irrigation), and removing any legal or bureaucratic obstacles to the scalability of digital innovations when they appear.

The writer is Acting Director and Visiting Scholar at CASI. The article is by special arrangement with the Centre for Advanced Study of India, University of Pennsylvania.

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