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Insights into Editorial: Agribusiness: Making up for lost time
The agricultural sector in India has entered a new low. Trends in agriculture are distressing. These distressing trends highlight the enormity of the challenges lying ahead for the Indian agricultural industry.
- Based on the sector’s current trajectory, the demand-supply mismatch in crops is likely to hit more than 15% by 2020, with the gap worsening to 20-25% by 2025 if unaddressed.
- Agricultural productivity levels have been stagnant for the past 10 to 15 years, with our crops requiring around two to four times the average global water intensity.
- Wastage levels in our agricultural supply chain hover between 30% and 40%.
- More than a third of farmer households today live below the poverty line.
- The NITI Aayog recently highlighted that the sector is 28 years behind its time.
For Indian agriculture to make up for lost time, changes will be needed across four main dimensions:
There is significant room for improvement for India’s agricultural productivity. Indian farmers produce an average 2.9 tonnes of rice per hectare, whereas the global mean is 4 tonnes per hectare. To fix this gap, a range of improvements will be needed on inputs, resource availability and farming methods.
However, adopting best practices to boost productivity will call for a significant investment in farmer awareness programmes. If our farmers have access to the best seeds, can leverage state-of-the-art treatment practices and cultivate the right crop portfolio, productivity can be enhanced by 15-20% over a 10-year period.
- Farmer income:
Several surveys and studies have highlighted the plight of the Indian farmer. Some studies have shown that 40% of farmers would quit if they had alternative employment choices. This calls for a two-pronged approach.
- The first is to fundamentally change the economics of a farm, by not only improving productivity, but also ensuring farmer financing issues are well addressed. Subsidized rural credit, creation of innovative agri-financial instruments like sale option contracts and rural insurance are key elements that can help in this regard.
- Second, as farmer financial well-being is highly correlated to a robust rural ecosystem, there should be special focus on the development of supply chain-related infrastructure (warehousing), the food processing sector and logistics.
- Ownership models:
Most farm holdings in India are small. Many farm owners are ageing and their next generation is migrating to urban India for jobs. The challenges of effective land utilization will, therefore, be under further pressure in the years to come.
- Also, agricultural rental restrictions have not been revisited to reflect the realities of a very different India today. Many land owners keep their land fallow or underutilized. Even where informal rental agreements exist, land owners remain hesitant of long-term leases for fear of losing their land. At the same time, tenants feeling the duration of tenancies being too short and unpredictable, do not invest in productivity enhancing improvements.
- The recent draft on the law to formalize leasing of agricultural land is a step in the right direction. More than just regularizing rentals, the Draft Model Act makes it possible for all the estimated 25 million farmers renting agricultural land to qualify for bank finance, insurance and other government benefits.
Adoption of new business models and technologies in the agricultural sector can also boost India’s agricultural productivity.
- Sensors, such as those that monitor soil, weather and crop conditions, or animal biometric collars, help agriculture by enabling real-time traceability and diagnosis.
- Automation solutions including technologies like agricultural robots that can simplify farm work in a variety of ways, e.g., plough a field in just an hour, compared to the full day taken by a human.
- Engineering solutions such as vertical farms optimize resource consumption and effectiveness.
What should the government do?
Build national awareness of agri best practices: This requires driving an integrated national programme involving research institutions, state administrations as well as the private sector.
Drive land aggregation: The government must take steps to encourage contract farming and producer companies. However, this requires facilitating lease-based models of land aggregation while protecting the land-ownership rights of farmers. Additionally, wasteland development should be used to pilot commercial farming.
Revamp policies related to procurement and movement of agri commodities: Three changes are critical here. Firstly, to provide remunerative incomes to farmers, procurement at minimum support price should only be done when prices go below that level. This should apply even to procurement for buffer stock and any social schemes. Secondly, the government needs to drive the implementation of a standardized Agricultural Produce Market Committees Act. Finally, to enable free inter-state movement of agri commodities, the Essential Commodities Act should be scrapped.
Streamline subsidies to encourage sustainable use of inputs: The current subsidy policy encourages over-use of inputs like power, water and fertilizers. These incentives can be redesigned without compromising end-goals of productivity or costs.
As the country with the largest arable land acreage, India can not only ensure its own food security, it can also become a source of food for the entire planet. The potential of the sector to become a growth engine for India and food provider to the world can definitely be achieved. Hence, the government should not only respond to the immediate challenges facing the farmer and the agricultural sector but also reboot the agricultural policy to create an ecosystem for the future of Indian agriculture.