Mentors Comment:
The article debates about the role of private investments in agriculture and the possible consequences of it.
Begin with brief background of the context in question.
In the main body, the discussion should include the following:
First discuss the gaps in agriculture system of the country – infrastructural gaps, financial gaps, role of government etc.
Then move on to explain what effect would private investment have on India.
Discuss what can be the issues associated to increased private investments.
Link it to doubling of farmer’s income and end with a positive note.
Conclude with way forward.
Answer:
In India, a large part of the agri supply chain ecosystem is either in the public sector, or strongly linked to it. The huge scale at which it is done has many chinks in the armour. This has resulted in food quality issues, huge wastage of food, reduced remuneration to farmers and agrarian distress.
Role of Government:
The Indian government attempts to insulate the cultivator from price fluctuations by procuring their produce at Minimum Support Prices (MSPs).
The 7500+ Agricultural Procurement and Marketing Committee (APMC) mandis provide a marketplace for the transaction and the Food Corporation of India (FCI) plays the role of the buyer, storing the procured produce in the relevant warehousing corporation’s warehouse.
Ultimately, this gets distributed through the Public Distribution System (PDS) shops and reaches the consumer. For non-MSP crops, the producer is dependent on the traditional private channels to market her produce.
Agriculture is a ‘state subject’ and a large part of investment as well as regulatory progress is happening at the state level.
Till very recently, regulatory barriers had constrained the development of storage and processing infrastructure but measures like inclusion of agri-warehousing under priority sector lending by RBI, subsidy schemes, tax incentives and the Warehousing Act (which will promote negotiability of warehousing receipts) have helped private players take an active interest in the same.
The Private Entrepreneur Guarantee Scheme is one such initiative to incentivize private investment for construction of warehouses by private entrepreneurs, with an FCI guarantee to hire them for 10 years, assuring a fair return on investment by the entrepreneur.
Challenges posed due to monopoly of Public sector:
Inefficient price signals: The government has been buying almost one-third of all rice and wheat produced in India through the PDS system, but in other kinds of grains, fruits and vegetables (both being highly perishable), the role of the government is limited. This leads to MSPs being ineffective as both price signals and as insulators from the perspective of the larger agricultural population.
Limited reach of mandis: Also, this procurement system has failed to cover the entire country evenly (back of the envelope calculation suggests that on an average, a farmer needs to travel 12 kms to reach the nearest mandi and more than 50 kms in NE India) while according to the recommendations by National Farmers Commission, availability of markets should be within a 5 km radius.
Too many intermediaries, information asymmetry: The above mentioned problems have led to formation of long marketing channels, with multiple intermediaries, adding to the woes of the producers of perishable agri goods. These intermediaries have led to a cost inflation of ~250% (over the cost of production) and have exacerbated the existing information asymmetries in agriculture, especially for non-MSP crops.
Inadequate infrastructure for storage: The Planning Commission has recently estimated the gap between agri-warehousing supply and demand at 35 mn MT. Currently, public sector agencies like the FCI, Central Warehousing Corporations (CWC) and the various State Warehousing Corporations (SWC) have a storage capacity of 71 mn MT, while the private sector has close to 25 mn MT. To put the scarcity in perspective, food grain stocks held only by the government was 80 mn MT last year (peak) according to the FCI annual report.
Skewed distribution of capacity: Skewed distribution of this capacity is another issue, with North India having access to 60% of the total storage infrastructure. The Planning Commission has recently estimated the gap between agri-warehousing supply and demand at 35 mn MT.
Lack of cold storage infrastructure: India’s current cold storage capacity at 25 MT is barely sufficient for 10% of fruit and vegetables produced in the country.
Lack of collateral management options: Collateral management refers to financing of agricultural goods stored at warehouses, and is estimated to be a ~Rs 3,500 cr opportunity by industry sources.
Private investments potential to improve the situation:
Comprehensive agriculture logistics solutions: Private players that provide integrated post harvest management solutions have entered the space to fill these gaps. They could also provide collateral management and other value added services (quality testing, agri insurance, bulk procurement and rural retailing) to its clients.
Integrated cold chain solutions: They could provide customized solutions for cold storage and refrigerated transportation across India for fresh and frozen commodities.
Contract Farming: involved in contract farming and agro processing, working on improving income realizations for small farmers through yield improvements, productivity increases, and consistent produce pricing.
Alternate marketplaces: By providing a way to bypass the long chain of intermediaries by directly connecting buyers and sellers of agricultural produce and allied services, via a web and mobile based information exchange platform.
Reducing the information asymmetry: Riding on the high mobile penetration in rural India private players are working on the problem of information asymmetry for agricultural producers, by making personalized agricultural market information available to the farmers at minimal costs, through a mobile based service.
Innovative ICT tools for supply chain management: A hosted web service for supply chain management, which can be accessed via basic mobile phones and web browsers, which makes it uniquely suitable for in rural markets. It is a configurable service which offers customers the ability to capture and share data in a simple, low-cost way, empowering them to make better logistics decisions.
These solutions could lead to better supply chain management in Indian agriculture, reducing inefficiencies and increasing farmer realizations, as well as curbing food waste. A co-ordinated effort with good policies bolstered by logistics of the private players can help in achieving the goal of doubling farmer’s income by 2022.
