Agriculture and Agrifinance - An

Overview
Outline
• Agriculture - Overview
• Issues and Concerns
• Agricultural Lending – Concepts, Methods
• Agricultural Lending – Trends & Overview
• Policy Initiatives: Doubling Farmers’ Income
• New and Emerging Agriculture and Agrifinance
• Agrifinance: Challenges and Way forward
Understanding Agriculture
Share of Agri-GDP
70

60

50

40

30

20

10

0
1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2010-11 2013-14
Agriculture 51.88 47.65 41.66 35.69 29.53 22.31 14.51 13.9
Industry 11.1 13.68 15.98 18.05 20.56 20.69 19.95 19.5
Services 34.63 36.6 40.91 45.26 49.61 57 65.54 65.95
Agriculture Industry Services

Source: Economic Survey, various issues

 Importance of Agriculture in Indian Economy- Role in
Employment and Trade (% share in economy)

Year Export Employment

1950-51 --- 69.4

1960-61 44.3 69.5

1970-71 31.7 67.8

1980-81 27.8 60.5
1990-91 18.5 59.0
2000-01 17.6 58.4
2014-15 12.0 48.0
Source: Economic Survey, various issues
India’s position in world Agriculture
Rank
• Total Area Seventh
• Irrigated Area First
• Population Second
• Economically Active population Second
• Total Cereals Third
• Wheat Second
• Rice Second
• Total Pulses First
• Oil Seeds Second
• Fruits and Vegetables Second
• Implements (Tractors) Third
• Milk First
• Live Stock (cattles, Buffaloes) First
Mile Stones in Agricultural Development
• Green Revolution (1968)
• Blue Revolution (water, fish)
• White Revolution (Milk)
• Yellow Revolution (flower, edible)
• Ever-Green Revolution (2004)
• Bio-Technology Revolution
• ICT Revolution
Issues and Concerns &
Unleashing Opportunities
 Agriculture Sector - Issues
• Declining operational holding
• Declining farm income & profitability.
• Dominance of dry land agriculture.
• Degradation of soil & biodiversity.
• Regional disparity & uneven growth.
• Declining land, water & capital investment.
• Huge price spread – market imperfections
• Threat of climate change - temperature, weather
unpredictability, drought & flood.
 Average Land Holding Size
2.5
S
i
2
z
e
1.5
i
n
1
H
a 0.5
.

0
1970- 1975- 1980- 1985- 1990- 1995- 2000- 2005- 2010-
71 76 81 86 91 96 01 06 11
Avg. LH Size 2.28 2.00 1.84 1.69 1.55 1.41 1.33 1.23 1.16
Source: Agriculture Census Division, Department Of Agriculture & Co-operation, Ministry Of Agriculture,
Government Of India, 2014
THE FARMER’S PLIGHT

•The farmer is trapped in a vicious cycle……

Low risk taking ability→ Low investment→ Low
productivity→ Weak market orientation→ Low value
addition→ Low margin→ Low risk taking ability
This situation makes the farmer and the Indian
agriculture globally uncompetitive despite abundant
natural resources
Problems of the Agri-economy

Economic
Disadvantage

Ecological &
Social
Regional
Disadvantage
Disadvantage
Economic Disadvantage

Marginal & Small Farmers account for 85% of the operational

holdings and 44% of the operated area

Reduces the farmers ability to invest in inputs, gain from

economies of scale, have necessary bargaining power in
markets & service agencies

The plot cultivated is not owned and therefore cannot

serve as collateral for credit or provide security of tenure
Social Disadvantage
Gender related:
- Few women own land in their own right
- Few women have financial resources for leasing in
land of their own
- Little access to the basic means of production

Caste, Community and Social status related:

- Incidence of landlessness is relatively higher
- Inequality in the delivery of public services such as
credit, information, extension services etc.
Ecological & regional / locational
disadvantage

- Located in arid or semi-arid regions, in

remote areas or in regions with poor
agricultural and infrastructural development
- States have relatively poor agricultural
development
What was favorable during Green Revolution?

Perfect blending of 4 Is’

1. Innovation: improved technology
• High yielding: significant incremental gains

2. Incentives: favorable policy environment

• Assured prices and procurement

3. Institutions: pro-agriculture institutions

• Seed sector
• Financial sector
• Food Corporation of India

4. Infrastructure: agriculture driven

infrastructure
• Irrigation
• Power
 What ails Agriculture now?
Complete disintegration between 4-Is in agriculture
•Confronted with 3 shocks
• Price shocks, financial shocks, climate shocks
•Smallholder agriculture
• Low volume of production; low bargaining power and high transaction costs
•Declining and deteriorating soil & water
resources
• Soil erosion, soil salinity, waterlogging & falling water table
•Deteriorating governance of past institutions
• Seed sector, extension sector, grain mismanagement
•Growing subsidies and slowing down
investments
 MEETING THE CHALLENGES
• Increasing production,
productivity
• Diversification of livelihood
activities
• Drought proofing – Watershed
devt.
• Shift in focus to post-harvest
management (PHM)
• Increasing share of farmers in
the consumer rupee;
• Upscaling agri-business activities
• Risk Mitigation through
Insurance.
• Aggregation and
marketing of produce of
SF/MF
• Increase in government
spending
• Increase in agriculture
credit flow
• Supply of credit on
cheaper rates of interest
• Creation of people’s
organization in village
level
Unleashing Opportunities in Agriculture

• Harness untapped yield reservoir

4 pronged strategy • Leverage power of improved
1. Innovations
2. Institutions
technologies
3. Incentives • Utilize fallow lands
4. Infrastructure
• Promote agricultural diversification
• High-value & remunerative commodities
• Labor absorbing & water efficient commodities
• Produce for the market
Agricultural Lending – Concepts,
Classifications
Agri-lending - Features

Dispersion of
client

Seasonality

Rigidity of cycles

Small size

Lack of
assets

Information

Risk
 Classification of Agrifinance
• Based on purpose • Based on security
• Production credit • Secured loans
• Marketing loans • Primary security
• Consumption loans • Collateral security
• Investment credit • Mortgage
• Hypothecation
• Third party guarantee
• Unsecured loans

• Based on tenure • Based on approach

• Short term • Individual approach
• Medium term • Area approach
• Long term • DIR loans
 F-A-R-M-E-R
F Credit availability should be timely and adequate and should include a
(Finance) holistic package of financial services including credit (production and
post-production), savings and insurance that needs to be kept in view.
A Allied activities act as a hedge against the downsides. It is also imperative
(Allied to encourage mixed / integrated farming
Activities)
R Measures against price, production and personal risks are very critical for
(Risk maintaining the health of the rural financial system and ensuring the
Mitigation) viability of the agricultural sector.
M Efficient marketing viz., Producer Companies, Contract Farming, Value
(Marketing Chain Agro Processing are important for S/M farmers.
Access)
E Quality extension & research services in a cost effective manner is
(Extension of necessary for productivity enhancement. The key to raising productivity
Research) lies in “thinking global and acting local”
R Timely and adequate availability of other critical resources (water, seed,
(Resources fertilizers etc.) are very important to ensure that agriculture remains a
other than remunerative and attractive vocation
finance)
Agricultural Lending
Agri-finance

Every 1% increase in real agricultural credit

results in an increase in agricultural GDP by
0.22% with a one-year lag
 Agricultural Credit- Target & Achievement
(Amount in Rs. Billion)

Year Target Achievement % Change

2010-11 3750 4683 124.9

2011-12 4750 5110 107.6

2012-13 5750 6074 105.6

2013-14 7000 7116 104.4

2014-15 8000 8410 105.1

2015-16
8500 8770 103.2
(P)
Source: Economic Survey, various issues
 Ground Level Credit Flow – Impressive Growth
TOTAL CREDIT FLOW TO AGRICULTURE (IN RS. LAKH CR.)
10.00
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-01 -02 -03 -04 -05 -06 -07 -08 -09 -10 -11 -12 -13 -14 -15 -16
Series1 0.53 0.62 0.69 0.87 1.25 1.80 2.29 2.55 3.02 3.85 4.69 5.11 6.07 7.30 8.45 8.77
Source: Source: various Annual Reports, NABARD
 Commercial banks leading the way…
7.00 Agency-wise credit flow to Agriculture (in Rs. Lakh Cr.)

6.00

5.00 CBs Coops RRBs

4.00

3.00

2.00

1.00

0.00
2015
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-16
-01 -02 -03 -04 -05 -06 -07 -08 -09 -10 -11 -12 -13 -14 -15
(P)
CBs 0.28 0.34 0.40 0.52 0.81 1.25 1.66 1.81 2.29 2.86 3.46 3.69 4.32 5.28 6.04 6.05
Coops 0.24 0.24 0.24 0.27 0.31 0.39 0.42 0.48 0.46 0.63 0.78 0.88 1.11 1.20 1.38 1.53
RRBs 0.04 0.05 0.06 0.08 0.12 0.15 0.2 0.25 0.27 0.35 0.45 0.54 0.64 0.83 1.02 1.19
Source: Source: various Annual Reports, NABARD
Agency-wise share of credit flow to agriculture
Agency-wise share (%)
100%
7 8 9 9 10 8 9 10 9 9 10 11 11 11 12 14
90%
18 15 16 17 17
80% 22 19 18 16 16
31 25 17
38 34
70% 43

60%
50%
40% 76
70 73 71 74 74 72 71 72 72
65 69
30% 57 60
50 54
20%
10%
0%

CBs Coops RRBs

Source: Source: various Annual Reports, NABARD
 Falling Trend in Agri.Term Loans
SHARE (%) OF SHORT TERM AND LONG TERM CREDIT IN TOTAL AGRICULTURE CREDIT

Interest Subvention introduced

22.5 22.0 25.0 24.9 19.6

28.8 30.3 28.1 28.3
34.1 35.6 35.4 35.2 37.4 36.9 34.7 34.5 36.8
39.3 41.6 39.6

77.5 78.0 75.0 75.1 80.4

71.2 69.7 71.9 71.7
65.9 64.4 64.6 64.8 62.6 63.1 65.3 65.5 63.2
60.7 58.4 60.4
1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2009

2010

2011

2012

2013

2014

2015
2008
-96

-97

-98

-99

-00

-01

-02

-03

-04

-05

-06

-07

-08

-09

-10

-11

-12

-13

-14

-15

-16
Source: Source: various Annual Reports, NABARD
Policy Initiatives
GoI Policy – NITI Aayog
• Two Pronged Strategy
1. Raising Agricultural Productivity
2. Making Farming Remunerative – Doubling Farmers‘
Income (DFI) by 2022
• Five important aspects of agriculture that need immediate
attention to bring economic advantages to millions of farm
families.
1. Raising productivity to Accelerate Growth

2. The Minimum Support Prices

3. Agricultural Land Policy: Leasing and Titling

4. Farmer Distress and Immediate Relief

5. Potential of the eastern region needs to be harnessed

 Strategy for Doubling Farmer Income
• Seven Point strategy for Doubling Farmers’Income (DFI) by 2022
1. Growth in production and productivity
2. Effective use of inputs
3. Reducing Post-Harvest Losses
4. Value Addition and Agro-processing
5. Reforms in Agriculture Marketing and e-NAM
6. Risk, Security, and Assistance
7. Allied and Ancillary Activities
Budget Announcements - 2017-18
• Target of Rs.10.0 lakh crore agri credit in FY 2017-18
• Continued thrust
• Rural, agri and allied – Rs.1.57,223 cr 24% higher than last
year on doubling
incomes
• Committed to double incomes of farmers in five years
• Measures
• Fasal Bima Yojana allocation is raised to Rs 13,240 crore next covering water
fiscal, from Rs 5,500 crore now. Coverage to be 40% (vs.30% saving, allied
last year) sectors, market
• Rs 5,000 crore Micro-Irrigation Fund to be set up by NABARD reform, risk cover
towards that goal
• Long Term Irrigation Fund (LTIF) – corpus to Rs.40000 cr
• RA/DF product
• New minilabs in 648 KVKs for soil testing for Minilabs by
NB?

34
 Budget Announcements - 2017-18
• Dairy Processing Infra Fund - corpus Rs.2000 cr to
grow to Rs 8,000 crore in 3 years • Increase in
• Agri credit target: Rs 10 lakh cr (2016-17: 9 lakh cr) credit target is
a necessary
• Model law on Contract farming condition. FI is
• Market Reforms sufficient
condition as
• Coverage of eNAM to expand from 250 to 585 40% of farmers
APMCs - Assistance of upto Rs 75 lakh for cleaning are out of insttl
network
and packaging of farmer produce
• Persistent in
• Market reforms will be undertaken, states will be targeting agri
asked to de-notify perishables from Essential market reforms
Commodities Act
35

• eNAM to integrate with commodity exchanges

 Challenges and way forward
• Growth in volumes impressive - physical outreach is a concern
(40% farm households do not have access to Institutional
credit)
• Only 2% of the food produced is processed while farm
commodities worth Rs.92,000 crores are wasted every year
• Inadequate post harvest infrastructure- as against requirement
of 61 mln tonnes of cold storage capacity, only 32 mln tonnes
set up so far. Deficit of 29 million tonnes
• Credit (input) intensity increasing rapidly, production response
not commensurate.
• Flagging marginal productivity of credit – Issues in real sector –
role of public investment.
• Credit focused on production (inputs) - income side of farmers
– value addition & marketing - remains a concern.
Emerging Agriculture and Agrifinance
• Financing High value agriculture:
Horticulture – growing fruits & vegetables, a wise & best option …
The new Green Revolution termed as ‘Organic Green Revolution’
High-tech agricultural projects – green house, floriculture, etc.
Livestock & Dairy – exploring livelihood Options
Plantations, agroforestry, wasteland development etc.
• Financing Urban and peri-urban agriculture:
scope for production of Organic Crops
Vertical farming Hydroponics/Aeroponics
• Agriculture to agri-business: Agriculture as an enterprise
• Financing the entire value chain – supply / value chain financing
 Compiled by

Dr. Kanhu Charan Badatya

GM & Member of Faculty
College of Agricultural Banking (CAB),
Reserve Bank of India (RBI), Pune
kcbadatya@rbi.org.in