New Set Of Reforms Will Help Transform Agriculture From A Bottomless Pit Of Subsidies To An Enterprising Industry

"Nature works in mysterious ways,” it’s often said to drive home the fundamentals when humans deviate from the "natural ways of living".

While the jury is still out on whether the coronavirus is lab-grown or of natural origin, the Covid-19 pandemic, as if confirming the often used phrase, has brought some fundamental changes in the way we have been living and co-living with nature.

One such fundamental change in narrative became conspicuous when Finance Minister Nirmala Sitharaman used terms such as “value chain” and “farm gate infrastructure” while announcing the third part of the economic package, related to the agriculture sector, earlier this month.

Why I call it a fundamental change is because in many such announcements previously, the narrative has been to disburse cash and subsidies.

However, this time, the announcement explicitly talked about value chain and the need for creating farm gate infra level investments.

All the while the Finance Minister falling just short of using the term “demand driven supply chain”, yet hinting enough on the same, when she mentioned in the flow that the real issue is not the lack of supply at farm level but to find the market for the supply.

As an entrepreneur who is working at various crossroads of farm-to-fork supply chain and food and dairy processing, at the outset, I find this as a welcome change and an effort to identify the problem the way it should be.

This is significant because it shifts the narrative from supply (farmer) towards investing in a value chain that puts customer demand first, that too in an integrated fashion – a key tenet of value chain concept.

This could be something unpopular because, until this point, all governments had focused on giving subsidies, which resulted in unplanned supply explosion, followed by government procurement in the absence of demand and the net result – millions of tonnes of food and grain rotting.

No one cared enough about demand, as the subsidy-dependent farmer stayed in her comfort zone to continue to produce the way she has been doing for decades if not ages, and continued to find buyers in the form of governments through Agricultural Produce Market Committee (APMC), minimum support price (MSP) routes etc.

A graphic below gives an idea of the extent to which the farm-to-fork supply chain is broken and also highlights the opportunity where government and other stakeholders such as entrepreneurs can intervene.

Currently, the penetration of technology in the agriculture value chain is abysmal to say the least. This lack of tech enablement in agricultural value chain has given birth to the mother of all problems – information asymmetry amongst the stakeholders such as farmers, kirana store managers and consumers.

A major indicator of this information asymmetry is the lack of a demand-driven value chain. This information asymmetry shows up in the form of various sub problems as highlighted in the graphic above.

A number of players, including established companies such as Reliance with its newly-launched JioMart platform are re-imagining farm-to-fork value chain by connecting farmers, kirana stores and consumers through easy-to-use applications to exchange produce, information, money or credit.

These apps address inherent supply demand mismatch issues and help in creating a demand-driven agro value chain.

But given the humongous size and spread of the farm-to-fork industry (almost $600 billion a year retail industry with 60 per cent of it being food retailing), no amount of interventions, howsoever big it may sound, is enough to reform the outlook of a modern day enterprise. Add to this the amount of setback that Covid-19 has caused by further hurting the supply chains.

At the same time, doubling of farmer’s income will require addressing issues such as accelerated market access, credit access, insurance coverage, and other infrastructure related investments in agriculture.

Given the low land holdings, India has relatively lower farm mechanisation. Moreover, the food processing sector requires due attention so as to play a vital role in reducing post-harvest losses and thus help in the creation of an additional demand for the farm output.

Here are key measures taken by the government to address these issues:

1) Rs 1 lakh crore fund for farm-gate infrastructure for farmers

The most forward-looking of all the measures announced is this fund aimed at fixing the fundamental issue. This fund is targeted to address the lack of adequate cold chain and post-harvest management infrastructure in the vicinity of farm-gate causing gaps in value chains.

It is worthwhile to note that India today wastes Rs 58,000 crore worth of food every year. This wastage is criminal for a country like ours which ranks 102 in the Global Hunger Index.

The fund is intended to be a financing facility of Rs 100,000 crore for supporting agriculture infrastructure projects at farm-gate and aggregation points (primary agricultural cooperative societies, farmers producer organisations, agriculture entrepreneurs, startups, etc).

While the allocation figure may sound large enough when seen on standalone basis, it is at best a modest figure given the scale of broken infrastructure that needs attention.

While the modalities of how this fund will be executed are yet to be announced, the suggested way would be to have metrics-driven and milestone-based yet less of red tapism infested mechanism.

Given some of strides that Narendra Modi government has made in delivering large infrastructure projects with agility, the expectation is that the fund should bring a fundamental change in infrastructure.

2) Amendments to Essential Commodities Act (ECA) to enable better price realisation for farmers

No better time to have a re-look at the half-century-old ECA that was enacted in days of scarcity. Today’s hunger challenge is not because of scarcity of food produce but because of wastage and leakages in the supply chain.

The act has often been an impediment to the growth of agricultural enterprise. More often than not, it has been an instrument of inspector raj to fleece entrepreneurs. It has stifled better demand supply match and appropriate revenue realisation to farmers.

Government has promised deregulation of agriculture food products including pulses, onion and potato, cereals, edible oils, oilseeds etc, and made a point that stock limit to be imposed under very exceptional circumstances like natural calamities, famine with surge in prices.

In my opinion, there could be hassles initially due to overstocking and hoarding etc, but if this act is regulated and done in consonance with better price discovery mechanism and fixing of demand supply asymmetry, this could be a path-breaking change.

3) Agriculture marketing reforms to provide marketing choices to farmers

Licence raj may be over, but farmers in India are still bound to sell agriculture produce only to licensees in APMCs. This kind of licence system with the misplaced ECA has created a well-oiled, middlemen-run mechanism that results in hindrances in free flow of agricultural produce and fragmentation of markets and supply chain.

When the cross continental and cross national trade barriers have been rationalised, this kind of licence permit system is still acting as a barrier for free inter-state trade.

Finance Minister Sitharaman announced that a central law will be formulated to provide adequate choices to the farmer to sell produce at attractive price.

If this is done after due diligence and in consonance with the amendment of ECA, this will go a long way in optimising the role of middlemen, reduction of information asymmetry in the farm-to-fork value chain.

While the government has promised that it will promote a framework for e-trading of agriculture produce, there are a bunch of startups which are working to provide better market access for farm produce. A help from government in the nick of time, will be a shot in arm for these startups.

4) Rs 10,000 crore scheme for formalisation of micro food enterprises (MFE)

I can personally relate with the ‘vocal for local with global outreach’ theme. During my stint with Unilever, our strategy revolved around creating some local jewels through local flavour based variants under the global food brands.

This drives home a point that even global brands have to reformulate their recipe to cater to local tastes and sensibilities. If we invert this, we get what the Prime Minister called as vocal for local with global outreach.

Most of the unorganised or even organised food tech brands fail to scale at a speed that is needed to be global phenomenon in the ever-changing consumer food preference.

Impetus such as this, flanked with the consciousness that the brands have to dream big, denote a heightened awareness in government corridors about the need to talk in a language that consumers and markets understand.

While Sitharaman spoke about support to existing micro food enterprises, farmer producer organisations, self help groups and cooperatives and a cluster-based approach, government must delineate certain specific provisions to private sector enterprises/startups as well.

This government, per se, has not shied away from talking about private sector in the same breath as it talks about co-operatives. More can be done on this front to drive a better result-oriented execution.

Apart from above key points, there were other points on the same lines such as animal husbandry infrastructure development fund – Rs 15,000 crore, Rs 20,000 crore for fishermen through Pradhan Mantri Matsya Sampada Yojana, Rs 4,000 crore for promotion of herbal culture etc.

All these points had one central theme, that is willingness to look at agriculture beyond just a producer and social sector activity.

India having had treated agriculture as a bottomless pit that just needs subsidies to survive to re-imagining agriculture as an enterprising industry that exists to serve customer needs is bound to bring agility in modernisation of agriculture.

If this is done successfully, then it will be the most transformative of the most-widely pursued activity in our country.