Indian Agriculture: What ails and fails the farmer?

March 2018, Business Times

Come June, the most anticipated news in India is the arrival of monsoons and
the promise it holds for the country's 119 million farmers and 144 million
agricultural laborers directly involved with agriculture. The impact of a good
monsoon could be felt in the collective sigh of relief heard, when IMD improved
their long-range forecast for this year to 98% and ruled out El Nino possibilities
altogether.
With the monsoon going well, we may have a bumper production year in 2017-
18, on the heels of a good 2016-17. In 2016, India produced its largest ever cereal
food grain estimated at 273 million tonnes. We also saw bumper production in
pulses, sugarcane and cotton. Agricultural budgets have gone up from Rs 16,646
cr to Rs 41,855 crore in the last 3 years. And the government has introduced
many agro-centric initiatives like Pradhan Mantri Fasal Bima Yojana, Soil
health cards, Pradhan Mantri Krishi Sinchayee Yojana and National Agriculture
Market (eNAM). Minimum Support Price (MSP) for different crops have also
been enhanced regularly. Our Prime Minister also pledged to double farmers'
incomes by 2022 and this certainly makes for a rosy picture.

Understanding why Indian farmers don't reap what they sow:

Despite this positive outlook, we recently saw intensive agitations across states.
While farmers may have genuine reasons to protest and demand government
support, often these protests are perceived as lawlessness by general public. We
must remember though, that farming is indeed a tough job with earnings that
hardly measure up to the hard work and toil involved. In fact, annual earnings
of a 3-acre farmer are much lower than an IT sector or corporate newbie. For
Indian farmers, this boils down to survival each season.
Today food production is not the trigger for an agricultural crisis. Global and
local market volatility is the current bane. Global explosion in food grain
production has changed the market dynamics leading to pressure prices on our
produce. While produce prices are constantly under pressure, costs are rising
everyday thereby impacting farmer's incomes, debt repayment capacity and
their overall wellbeing. Making matters worse, farmers bear the entire risk in
the farm to market cycle. Be it outbreak of pests at production or losses in
storage & transport or price uncertainty while marketing, the risk is not
distributed evenly amongst other stakeholders like grain traders, aggregators or
processors.
Being an agricultural nation, our farmers deserve considerably more. To create
a more enabling environment addressing the following priorities will form the
core of any transformative reform agenda for agriculture in India:
1) Minimizing the risk for farmers and distributing it equitably across the
agro-value chain.
2)
2) Ensuring a fair share of the value that is generated at the end consumer
level reaches the farmer.

What ails the Indian farmer:

Indian farmers require long term sustainable solutions instead of short-term

rhetorical promises and reactive concessions. This process involves recognizing
and acting on the macro challenges listed below:
1. Weak Producer - Consumer Linkages: there is a disconnect amongst
what the Indian farmer produces and what the consumer demands. The farmer
is not connected to aggregators, food processors and retail chains to help shape
the nature of his produce. As a result, produce remains the same annually,
largely dependent on farmers and is often driven by the government's MSP
program.

2. Weak Supplier Power: The farmer is barely empowered as a supplier.

He continues to be small & marginal, inadequately resourced, ill-informed on
markets and marketing, ill-equipped to manage risk, burdened with credit &
debts and is dependent on traders to reach the buyers.
3. Overdependence on Agriculture: 60% of the Indian population
depends on agriculture for livelihood while contribution to the national GDP
through agriculture is only 14-15%. Clearly this is a recipe for unsustainable
development.
4. Technology Starved: The farmer is not equipped with the latest
technology nor trained to adopt it fast. Lack of new technology solutions keeps
the farmer from gaining an equal footing globally. Also, they have little control
over driving development and change due to the involvement of multiple
pressure groups such as environmentalists.
5. Commercial Agriculture vs Subsistence Agriculture: Policy
frameworks across different crops remain the same and do not enable any
significant impact. Whether they are basic food grains, pulses and oilseeds that
meet staple dietary requirements and food security needs of the country or
commercial crops like cotton, sugarcane, chilies that feed into industries that
produce consumable goods or even vegetables and fruits for domestic
consumption or export crops - the same broad stroke policy measures are used
across each segment.
6. Low investment in Research & Development: Less than 1% of the
Agricultural GDP in India is spent on research. That is abysmal considering this
sector is critical to food security of the country and provides livelihood to 60%
of our population.

7. Lack of enabling infrastructure along the value chain: There is a

staggering lack of infrastructure across the entire agricultural value chain. To
make matters worse, a perspective on how this can be fixed also does not exist.

Breaking the vicious cycle - Future Policy Imperatives:

A long-term strategic vision which puts in place a holistic framework is the need
of the hour. Key areas that need to be addressed include 'Increasing Supplier
Power', the 'Producer - Consumer Linkages' and 'Customized Approach to
Different Crop Groups'. These areas enabled with quality infrastructure,
education, R&D, technology, marketing and risk mitigation etc. will give us the
agricultural empowerment we need.
Some solutions that could be considered as part of this framework are listed
below:
1. A 20 Year Vision & Implementation Road Map to enable
suppliers: Essential to this would be consolidation of farmers and their land
into large groups without them losing land title. This will help in gaining
collective scale and can be implemented in two ways
a) Large Farmer Producer Organizations (FPOs): While there are
some successful FPOs currently running, sustainability of operations in FPOs is
still a question. What can help is ensuring that FPOs are properly networked
and federated, regionally as well as centrally.
b) Encourage Land Banks wherever possible, especially hills and semi-
arid areas where farming is difficult. This may be more feasible in areas where
fruits are grown. Individual farmers can form large land banks by depositing
their land into a large pool and then cultivate as one body in a professional
manner on predetermined price and other terms. This could be a partnership
model between producer-supplier bodies on one hand and aggregators, retail
chains, food processors, another buyer on the other hand making them a
stakeholder in the bank.
2. A comprehensive vision document to promote and establish
direct linkages between growers and consumers: A policy framework
that promotes structured, direct linkages between professional aggregators,
food chain collaborators, food processors with large FPOs/Land Banks will
reduce uncertainties drastically. This will ensure a fair share of the value created
at the terminal end insuring the farmer from concentrated risk.
3. Roadmap that establishes a distinctive and customized policy
approach for different crop groups. Each crop group comes with its own
set of distinct challenges. For instance, increasing export crop production
requires a different mindset and policy prerogatives compared to basic food
crops or other commercial crops. As a nation, we need to move from an 'Export
what is Grown' ideology to 'Grow per international quality standards & Export'.
Measures such as establishing Agro Export Zones that have an independent
APEDA equivalent as an enabler will be key. A customized approach and policy
framework is needed for each crop segment such as food crops, commercial
crops and vegetable growing regions.
4. Advance technology adoption throughout the agro-value chain.
Rapid technology upgradation to global standards need to be viewed as a top
priority. Keeping current realities in mind, a complete overhaul of education in
Agri Universities and research in scientific institutions need to be considered.
R&D investments and capabilities in the sector must be enhanced substantially
while bringing in transparency and accountability.
5. State of the art infrastructure in areas like storage & transportation,
knowledge & information, credit & insurance etc. needs to be established.
6. And lastly, a clear plan to reduce dependence on agriculture
from an untenable 60% to a more sustainable 30%. Agricultural
policies would do well to address the need to make agriculture more efficient
and less burdened. Also, enabling supporting professions for people looking for
alternate careers would go a long way.

A revolution of the Indian agricultural sector is what the country is calling out
for today. Not short-term fixes, but a long-term, strategic, sustainable vision
based on the realities of 2017. Agreed, it is easier said than done. But if we can
send space probes to Mars at first go, this should not be such a big deal after all,
right?
The all-India scenario in short is that more than 40% of the agricultural
households as per NSSO survey are willing to opt out of agriculture. They
remain engaged in agricultural sector simply because they do not find any other
source of livelihood. One should discuss the problems of agriculture against this
backdrop.
According to the agricultural census 2010-11, the farmers with less than one
hectare of land as their individual operational holding constitute 67.1% of total
agricultural households in India. They are defined as marginal farmers. Small
farmers (size class of operational holding at 1-2 hectares) constitute 17.91% of
all agricultural households in India. Indian agriculture is fast turning into a
sector dominated by marginal and small farmers with low bargaining power in
the market.

Despite this positive outlook, we recently saw intensive agitations across states
Today food production is not the trigger for an agricultural crisis. Global and
local market volatility is the current bane.

While produce prices are constantly under pressure, costs are rising everyday
thereby impacting farmer's incomes, debt repayment capacity and their overall
wellbeing. Making matters worse, farmers bear the entire risk in the farm to
market cycle. Be it outbreak of pests at production or losses in storage &
transport or price uncertainty while marketing, the risk is not distributed evenly
amongst other stakeholders like grain traders, aggregators or processors.
Being an agricultural nation, our farmers deserve considerably more. To
create a more enabling environment addressing the following priorities will
form the core of any transformative reform agenda for agriculture in India:
1) Minimizing the risk for farmers and distributing it equitably across the
agro-value chain.
2) Ensuring a fair share of the value that is generated at the end consumer
level reaches the farmer.

In fact, annual earnings of a 3-acre farmer are much lower than an IT sector or
corporate newbie. For Indian farmers, this boils down to survival each season.
Agri-food supply chain covers the entire chain of activities from production on the farm to
processing, distribution, and retailing to the consumer.

Supply chains of horticultural produce such as fresh fruits and vegetables (FFV) are particularly
of interest as they involve a large number of players and have significant impact on many
employment and social issues (Best & Mamic, 2008).
Horticulture contributes about 30% of India's agricultural GDP from 13.08% of the cropped area
and accounts for 37% of the total exports of agricultural commodities. Due to the increased
investment and focused attention, there has been a spectacular change in the production and
productivity of horticultural crops. Fruits and vegetables are largely consumed fresh in India with
only a very small quantity going into the manufacture of various processed products such as
pickles, ketchup, jams, chips and fruit drinks.
The Government of India is aware that the horticulture sector is connected with generating
employment, improving the economic conditions of farmers and providing nutritional value to
people (Economic Survey, 2004). Steps have been taken to increase production, improve
productivity of land, improve efficiency of agri-food supply chains and increase exports to enhance
the economic strength of this sector. A number of studies and policy documents have highlighted
the inadequacies of various types of infrastructure. The Report of the Working Group on
Agricultural Marketing Infrastructure and Policy (2007) highlights the need to upgrade
infrastructure in a range of areas such as marketing infrastructure; post-harvest processing,
handling, packaging and transportation; marketing information; institutional infrastructure; and so
on. The horticulture sector is also faced with frequent and sharp price fluctuations, poor quality
and consistency, issues in harvest/post-harvest handling leading to large amount of wastage; and
a lengthy food chain. Though India is the second largest producer of fruits and vegetables in the
world after China, the export competitiveness among the Indian producers remains low. Supply
constraints, yield gaps and logistics costs affect the country's competitive and comparative
advantage.
Whilst technology is available, it is setting out a strategy, and investing and organising the essential
partnerships in the chain that play a crucial role.
Food distribution systems in Asia are changing due to increasing urbanisation, changing consumer
preferences and eating habits, increased infrastructure development, as well as low margins and
high competition. Integrated supply chains and networks, as distinct from loosely related firms in
the channel, provide opportunities for creating added value. Further, branding can lead to high
customer satisfaction and confidence in the purchase. Experience shows that these challenges can
be met by multi-firm approach, by forming partnerships among suppliers, input providers,
marketers and customers in the chain.
Pingali and Khwaja (2004) have identified a two-stage transformation of Indian diet featuring a
move away from inferior goods to superior goods, followed by an increased consumption of
proteins, sugars and fats. In response to the increased demand for fruits and vegetables due to the
diet changes of Indian population, fruit and vegetable production has increased manifold in the last
few decades.
According to van der Vorst et al. (2007), market pressure is forcing improved coordination and
continuous innovation in agri-food chains. Actors in the agri-food chains must satisfy the demands
of diverse consumers, regulatory agencies, local pressure groups such as non-governmental
organisations (NGOs), and others. If goods are produced using child labour or by causing
environmental pollution, or with other detrimental effects, they will not be accepted. Whilst
maintaining price and quality, companies have to work continuously on innovation in products,
processes and forms of cooperation.
The emergence of supermarkets has led to the changes in the retailing model of fresh produce and
the management of the supply chain. Govindasamy and Thornsbury (2014) observe that the U.S.
fresh produce market has adapted to increased consumer demand and sophistication by
streamlining the supply chains. There has been a shift in marketing efforts by way of retailer
consolidation, increased product offerings and year-round supply through increased imports.
Digital technologies can tackle Africa’s food challenges, such as low productivity, high transaction
costs, limited use of modern inputs and minimal commercialization. In other parts of the world,
digital tools have been proven to be effective, but agricultural technology pioneers in Africa face
numerous roadblocks to scaling up their products and services due to the dominance of smallholder
farming.
Chen et al. (2005) note that supermarkets and hypermarkets in North American and Western
European countries account for over two thirds of all food retailing. This trend is seen in other
areas of the developing world such as Latin America and South Asia. The retail revolution has
brought a new approach to the food retail business, and has created new barriers as well as
opportunities for various participants in the agri-food system.
The large retail chain operators, caterers, hotels, restaurants and domestic customers in urban areas
require a regular supply of fresh fruits, vegetables, meat, and other perishable food products. The
improving living standards and greater awareness brought about by globalisation have led to
changes in ways of consumption and buying habits.
In developing countries, supply chain management is becoming increasingly important because
the leading national and international supermarket companies are focussing on meeting the
consumer's desire for products and conforming to global standards of food safety and health.
The produce industry relies on a careful orchestration of the supply chain. This includes planting
the right varieties, harvesting at the peak of ripeness, packing in customised cartons, transporting
over thousands of miles, merchandising, marketing and promotion at just the right moment, which
requires detailed communication and coordination between growers, transporters and retailers.

The National Bank for Agriculture and Rural Development (NABARD, 2011)2Study on Organised
Agri-Food Retailing in India found that food retailing forms about 61% of the total retail, estimated
at about Rs. 10,700 billion in 2008–2009. Organised agri-food retailing is still urban centric and
minuscule albeit growing one and a half times as fast as food retailing. Food retailing, whilst
essential, is not very profitable for organised retailers but it ensures regular footfalls in the stores.
Linking primary producers with modern food supermarkets is seen as a way to improve rural
livelihoods, especially small producers. It is important to ensure that the process of establishing
linkages between corporates and primary producers is not “exclusionary in nature and becomes a
win-win” situation for the participants in the supply/value chain (Singh & Singla, 2011).
The recurring themes in various debates on the role of the organised retail sector have been the
strong emphasis on the expected beneficial effects of improving the current state of agri-food
supply chains and improved prices to farmers. However, the National Bank for Agriculture and
Rural Development (NABARD, 2011) Study found that the struggling Indian organised retail
sector has not been able to make the investments in the supply chain to reduce the costs.
A detailed study of the existing trade system and the trade environment is necessary to understand
the product flow, exchange levels, forces affecting the operation of the supply chain such as
governmental policies, and so on. Such a study helps to identify the potential supply chain partners
of an agri-supply chain and delineate their functions, roles and relationships. Cooperation among
supply chain partners is necessary to establish traceability which can improve verification of
quality and reduce the costs in case of food safety problems. Introducing information technology
(IT) tools, such as chain-wide reporting, improves transparency, decision making, and control of
supply chains and is also useful in reducing administrative costs.
n their study of malting barley to beer agri-food supply chain, Leat and Reoldo-Giha (2008) have
identified five factors affecting the relationships in the supply chain viz. communication,
compatibility of aims, contractual relationships based on professional regard and personal
relationships, high levels of trust and a willingness to resolve any problems, and commercial
benefit.
Ministry of Commerce and Industry, Government of India, commissioned a study by ICRIER
(Joseph, Soundararajan, Gupta, & Sahu, 2008) to analyse the impact of organised retailing on
unorganised retail, farmers and intermediaries. The study concluded that both unorganised and
organised retail would coexist and organised retail would contribute by setting up modern supply
chains and raising productivity in both agriculture and industry.
There are multiple reasons for this productivity gap, but one significant one is glaring
inefficiencies in India’s agricultural supply chains. Logistics play a critical role in any economic
sector, but when goods are perishable the supply chain becomes that much more important.
In India, the infrastructure connecting these partners is very weak. Each stakeholder: farmers,
wholesalers, food manufacturers, retailers all work in silos. Also, demand forecasting is totally
absent and the farmers try to push what they produce in to the market. Data integration, financial
flow management, supply-demand matching, collaborative forecasting, information sharing,
 goods movement synchronization through efficient transport scheduling, are very well practiced
in high technology industries with immense benefits

Second, there has been insufficient investment in necessary technologies that would extend the
shelf life of these perishable goods. Produce spoils rapidly and requires special cold storage to
increase chance it may be sold before spoilage. More than 30 percent of fruit and vegetables
rot before being sold today. ISB identifies the following, collectively called cold storage, as vital
to a successful supply chain:

 Pre-cooling facilities
 Cold Storages
 Refrigerated Carriers • Packaging
 Warehouse and Information Management systems
 Traceability
 Financial and Insurance Institutions

The report also connects the existence of such facilities and support mechanisms to the evolution
of the prepared foods industries, like frozen foods.

The supply chains of different agricultural commodities in India, however, are fraught with
challenges stemming from the inherent problems of the agriculture sector. The agri-supply chain
system of the country is determined by different sartorial issues like dominance of small/ marginal
farmers, fragmented supply chains, absence of scale economies, low level of processing/value
addition, inadequacy of marketing infrastructure etc.
Agribusiness, supply chain management (SCM) implies managing the relationships between the
businesses responsible for the efficient production and supply of products from the farm level to
the consumers to meet consumers’ requirements reliably in terms of quantity, quality and price. In
practice, this often includes the management of both horizontal and vertical alliances and the
relationships and processes between firms.

s. This calls for the collective action in supply chains.

A terminal market for fruits and vegetables has been set up in Bangalore. The market (known as
SAFAL) can physically handle up to 1600 metric tons of produce a day. It is linked to some 250
Farmers Associations and 40 Collection Centers that have been established in selected producing
areas. The market receives sorted, graded and packaged produce from these associations and
centers, and this is then auctioned at the market. SAFAL also has forward linkages to a number of
retail outlets (Cash and Carry Stores). The market has modern infrastructure, including
temperature and humidity-controlled storage facilities, and ripening chambers. This calls for the
collective action in supply chains.
Supermarket procurement regimes for sourcing of fruits, vegetables, dairy and meat strongly
influence the organization of the supply chains. The rising scale of organized retail

India's greatest need is for an effective cold chain solution that can integrate the supply chains for
agricultural commodities from production to consumption centers,

“There is a need to find solutions for crop specific agriculture logistics and leverage the multi
modal system for transportation," said Ashok Dalwai, chief executive officer, National Rainfed
Area Authority, ministry of agriculture and farmers’ welfare
here is need to protect those who provide food for all. The doubling of farmers’ income is not
possible without doubling the sales and doubling market rate of the agricultural produce, and cold
chain is a key enabler to make this happen,"
Warehousing enables the markets to ease the pressure during harvest season and to maintain
uninterrupted supply of agricultural commodities during off season. Hence, it solves the problems
of glut and scarcity, which are the usual problems in agricultural marketing. As per the working
group report on warehousing development an additional 35 million MTs warehousing capacity is
required during the 12th Five Year Plan period for the storage of all major crops. It is felt that there
is a scope for private sector to complement the efforts of the state in ensuring that the warehousing
services does not lag behind the demand and the current wastages are eliminated for the benefit of
the society and the business community at large.
In 2012, the production was 257 million tonnes of food grain (rice, wheat, coarse grains and pulses),
75 million tonnes of fruits and 149 million tonnes of vegetables. Out of these amounts, only 2.2 % of
these are processed. In contrast, countries like USA (65%) and China (23%) are far ahead of India i
n reducing the wastage and enhancing the value addition and shelf life of the farm products. The los
ses in postharvest sector are estimated to be from 10 to 25 per cent in durables, semi-
perishables and products like milk, meat, fish and eggs. The estimated losses in fruits and vegetable
s are higher and reached from 30 to 40 per cent

In 2012, the production was 257 million tonnes of food grain (rice, wheat, coarse grains and pulses), 75
million tonnes of fruits and 149 million tonnes of vegetables. Out of these amounts, only 2.2 % of these
are processed. In contrast, countries like USA (65%) and China (23%) are far ahead of India in reducing t
he wastage and enhancing the value addition and shelf life of the farm products.