Is there a concrete plan to link the farmers with the markets?" The question was posed to the Narendra Modi government by a Member of Parliament during the just concluded winter session. The 25-day-long Parliament session, which saw path-breaking legislation like 10 per cent reservation for economically weaker sections, witnessed lawmakers from different parts of the country wonder why market prices of 10 out of the 14 kharif (summer) crops were lower than their minimum support prices (MSPs) during the harvest season in October 2018 or whether there was any proposal to waive off loans of farmers up to Rs 3 lakh. Overall, there were about 400 queries from the 789-member-strong Rajya Sabha and Lok Sabha on issues specific to the agrarian economy. Crisis in agriculture seems to be troubling every second lawmaker.
Agriculture may account for just 17 per cent of India's wealth ($9 trillion or about Rs 64 lakh crore Gross Domestic Product or GDP) but it accounts for close to 50 per cent of employment generation. A crisis in the sector is also not a new phenomenon as growth has been eluding it for several years now. But what triggered the volley of questions from the MPs was the stark realisation that the much publicised efforts - subsidies, freebies, MSP, farm loan waivers - may not even be providing symptomatic relief to the long-standing farming problem despite India registering a record foodgrain production of 284.83 million tonnes in 2017/18.
Farmers, it seems, remain poor even during a bumper crop season. Official estimates indicate that as many as 22.5 per cent farmers were living below the poverty line in 2013, while the All India Financial Inclusion Survey, conducted by the National Bank for Agriculture and Rural Development in 2015/16, found that the average monthly income of an agricultural household in India was Rs 8,059, without adjusting for inflation. As many as 52.5 per cent agricultural households have debt. A NITI Aayog study states that while farmers' income in nominal terms rose 9.18 times in the 1993/94 to 2015/16 period, the real farm income (which takes out the effect of inflation) had only doubled in 22 years.
Throughout 2018, and even before, farm distress was visible in the form of protest marches all over the country. Several states saw change in government during this period - the recent ones being the BJP's losses in Madhya Pradesh, Rajasthan and Chhattisgarh - primarily due to farmers' ire. The fact that primary agri-produce prices continued to remain muted in spite of the increase in MSPs for 22 kharif and rabi crops showed that such promises are hard to fulfill in the real sense.
The other easy-to-announce option, which has been the first decision of governments of states where farm distress has led to regime change, is to promise loan waivers to farmers. But even that has its share of problems. First of all, not every farmer gets covered and there are widespread complaints of exclusions. But more importantly, it can wreck finances of state governments. The Reserve Bank of India's (RBI's) analysis of state finances (by comparing state budgets of 2017/18 and 2018/19) indicates that farm loan waiver is one of the factors responsible for fiscal stress in states where politicians have been populist.
The total debt waiver granted by various states during 2017/18 amounted to 0.32 per cent of GDP, as per the revised estimates, the RBI notes, and this analysis does not take into account the most recent waivers announced by the new Congress governments in Madhya Pradesh, Rajasthan and Chhattisgarh. Farm loan waivers do not show up in increased investment or productivity, and they make banks and other institutions reluctant to lend to farmers. Even a recent Comptroller and Auditor General of India report said the Central government was able to meet its fiscal deficit targets only because several of its key expenses in sectors like agriculture remained 'off budget' or unpaid.
The criticism over loan waivers has prompted state governments, and even the Centre, to explore the idea of transferring some money upfront to the farmer before every crop season. The Telangana Rythu Bandhu Scheme is already operational and provides Rs 4,000 per acre to every land-owning farmer every season. Telangana Rashtra Samithi President K. Chandrasekhar Rao rode back to power in the state on the back of the goodwill generated by this scheme.
The biggest criticism against the scheme is that it does not cover tenant farmers who form a big chunk of India's farming community. Not having proper land records is another major reason that prevents several farmers from availing of such benefits. The bigger fear is that competitive welfare politics may see this end up as an additional dole to the farmer, instead of being one single welfare scheme that replaces all other subsidies on fertilizers and other inputs.
India's commendable growth in food production - it is the seventh-largest agri-product exporter and one of the largest producers of wheat, rice, pulses, fruits, vegetables, etc - has happened in the backdrop of all these problems that are plaguing the sector. The agrarian challenge, even in the midst of surpluses - in spite of the area under agricuture falling since 1995, the production has galloped - is not just the farmer's problem. It is a political issue, a social issue, an economic issue. The problem, in a nutshell, is that while in many crops in good monsoon years, production and productivity rises, the farmer barely covers his cost. In drought years, he never covers his cost. So he loses either way.
Is there a way out? There are ways, and many of those solutions come from farmers working closely with big companies and sometimes small tech entrepreneurs who are seeking to solve specific problems in agriculture. But these solutions work when the government realises that often it is better to forget doles, MSPs or even the kind of policies that led to the first Green Revolution and which are now at the root of the problem.
An Income Revolution
In September 2018, Ashok Dalwai, Chairman of the Committee on Doubling of Farmers' Income, submitted a 14-volume report on how to transform Indian agriculture to the Modi government. The key differentiating feature of this report was its singular focus on income generation. "We call it a report on income revolution for farmers. While India's previous agriculture revolutions were all production centric, the one we are about to embark upon must be all about farmers' income," says Dalwai.
Ashok Dalwai, Chairman of the Committee on Doubling of Farmers' Income
He believes that once agriculture begins to make economic sense, other problems will disappear on their own. "Agriculture is the largest enterprise in the country. An enterprise can survive only if it can grow consistently. And, growth is incumbent upon savings and investment, both of which are a function of positive net returns from the enterprise. The Dalwai Committee's prescription is simple. Improve crop and livestock productivity; use resources efficiently to cut cost of production; increase crop intensity; diversify towards high-value crops; and finally, improve the real prices received by farmers, and shift some farm hands from farm to non-farm operations.
Incidentally, the Dalwai Committee is not the only one to highlight the importance of higher and steady income as a solution to agrarian challenges and realisation of the aim of farmers' welfare. Almost every other committee, right from the National Commission on Farmers headed by eminent scientist M.S. Swaminathan to the Doubling of Farmers' Income note prepared by NITI Aayog member Ramesh Chand, to the OCED-ICRIER report, Agricultural Policies in India, prepared by Ashok Gulati, talked more or less the same language.
And these recommendations are not mere academic exercises but models that are being successfully tried out in several pockets of the country. But none of them have been scaled up and applied to solve the problems of farmers across the country. The recommendations focus on productivity growth, income growth or both as well as diversification to increase farmers income.
The Big Corporate Experiments
Agriculture has always been considered the purview of the government and the corporate sector has largely been kept off by restrictive policies and sometimes active disincentives. But over the past few years, the participation of many private players has grown in significance, helping not only the companies control their inputs but also farmers increase their incomes.
S. Sivakumar, Head of agri and IT businesses of FMCG major ITC, says enhancing farmer income is at the core of what they do. According to him, there are four main ways of enhancing farm income. One, get more (income) from the same produce. Two, make more out of the same crop (productivity). Three, make more from the same farm (crop intensification). And four, make more from non-farm but allied activities.
S. Sivakumar, head, Agri & IT, ITC
"In case of wheat, the standard template has been to maximise yield and sell to the Food Corporation of India. As a result, some of the special varieties with special taste started dwindling. But we knew that an atta consumer in Chennai wants a completely different kind of wheat flour from a Delhi consumer. We developed a system to signal back such feedback to farmers, and as a result he gets a higher price," says Sivakumar. The growth of ITC's Sharbati Atta under the Aashirvaad brand is an example. "Because we started price discovery through e-choupal, the produce (wheat) started to move from the farmer to us rather than going through the mandi. Today, the farmer has a better crop, fetching higher value." With 2-2.5 million tonnes of procurement, ITC is only behind FCI in sourcing wheat from farmers in the country.
Over 50 years, the number of crops that farmers are growing have multiplied in tune with the generic demand in the market. Also, the context has changed. One person's cash flow and availability of labour may not be the same as another's. So, extension services (farm advisory) need to be personalised, says Sivakumar. "Understand the farmers' context, and then use your knowledge in conjunction with the farmer," he says.
ITC's entry into fresh fruit juices like jamun and guava is linked to the third component of getting more out of the same farm - crop intensification. "This can be done in multiple ways through crop diversification. Most of these are high-value, perishable crops. Market linkage is critical, hence linkage with us helps," says Sivakumar.
Recently, ITC launched an integrated programme called Baareh Mahine Hariyali (farm utilisation throughout the year) to see if proper intervention and guidance could yield three crops, instead of two, in a year. "In Uttar Pradesh, the pilot was implemented in four districts covering nearly 2,00,000 farmers. Around 30,000 of those who adopted all the elements of the integrated programme doubled their income," says Sivakumar.
Mahindra is an auto maker, and also India's largest exporter of grapes. Its engagement with grape farmers began some 12 years ago when Indian grapes were being rejected in overseas markets due to pesticide residue. Grapes were being sold in the local market for as low a price as Rs 25 a kilo. "When we decided to help Nasik grape cultivators export their produce, they were getting low prices, and producing 2-2.5 tonnes per acre. Ten years of continuous engagement has seen them fetch double, and from farms that are three times more productive," says Ashok Sharma, MD and CEO of Mahindra Agri Solutions.
Ashok Sharma MD & CEO, Mahindra Agri Solutions
The company's first step was to engage with international customers to understand the technical standards that Indian grapes should have. The next move was to handhold the farmers, for which 40-50 people were employed on the ground. The technical services continue even today. The result was a new business mutually beneficial to both Mahindra and the farmers. "This season we will be exporting 800-1,000 containers, or 12,000-15,000 tonnes, which gives us almost 12 per cent share in grape exports from India," says Sharma.
What Mahindra did was to maintain the export business in existing markets while developing new ones like China, Canada and Malaysia. "Each country has new requirements so we work with the farmer again. Since meeting Chinese requirements was difficult for Nasik farmers, we developed the Baramati area. We are also helping them develop demand for new varieties of grapes by providing tissue culture, seed, customers?," he adds.
The company is in the process of developing a similar model for banana and pomegranate. "The learning is that the private sector has to work on a long-term basis, build trust with the farmer, and demonstrate the results on an ongoing basis," he adds. Mahindra is also using digital tools to engage with the farmer and provide advisory services. Sharma claims that its intervention has resulted in farmers' productivity going up by 15-20 per cent year on year.
Another company with substantial interest and involvement in farming is FMCG major Marico, which, among other brands, has the Parachute Hair Oil. It procures one in every 10 coconuts produced in the country as raw material for its coconut oil-based businesses. It focuses its CSR activities on communities that provide coconut. Udayraj Prabhu, Executive Vice President and Head, Business Project Transformation and IT, Marico, says the best practices they introduced have resulted in at least a 50 per cent increase in farmers' income. "We meet roughly 50 per cent of our coconut requirement through farmers. We check the quality and weight and pay immediately through 26 procurement centres in four South Indian states," he says.
Udayraj Prabhu Executive VP and Head, Business Project Transformation and IT, Marico
"We collected inputs from agriculture universities and experts and identified what works and what does not. We then made a package of recommendations," says Prabhu. An exercise that started in 2016 with the aim to educate 130 farmers has helped 3,300 farmers. "We could increase productivity by 20 per cent, which would work out to roughly 50 per cent increase in their income. We would probably have 10,000 farmers in the programme by the end of this year," he says. The company has also roped in the Marico Innovation Foundation to find better ways to increase income of coconut farmers. "We are trying to see if these entrepreneurs can come up with business solutions that can be commercially sold to farmers to improve their productivity," says Prabhu.
What is common between Marico, Mahindra or ITC is that none of them tie their efforts with any obligations from the farmers' side. And it is not just about three or four companies. From big companies such as Adani, which is probably the biggest buyer and exporter of apples and a few other fruits to sugar mills, the corporate sector has started working closely with farmers, increasing quality and yields of the produce as well as guaranteeing a more stable income.
They are also investing in R&D, helping farmers with better yielding varieties, logistics and even soil management and irrigation. As packaged food becomes a hot area of investment, others are getting into the act. Kishore Biyani's Future Group is investing a lot in staples - it already sells 100 varieties of rice and 57 varieties of flour. Godrej's Nature Basket plays at the premium end of the staples market. Even a Cash & Carry retailer like Metro has different staple brands (Read our report on this, A Staple Diet, in the January 27 issue).
The proliferation of players in the food business has started impacting farmers lucky enough to partner with them. Unfortunately, it is not easy for a company to do long-term business with a farmer. Many laws and regulations get in the way as do interests of powerful traders who dominate the mandis. Also, the fact that agricultural policies and even agricultural trade policies keep changing makes it difficult for companies to make long-term plans based on sourcing and exports (See box, Hurdles Before Companies).
Tech Startups and VCs
If big corporations such as ITC, Adani, Mahindra and Marico are lending a helping hand to farmers and providing agricultural solutions which help a group of farmers, a number of new age agritech start-ups are also focused on solving problems in agriculture while making a business out of it. What is more, they are getting heard seriously by venture capitalists (VCs) and even getting funded.
Bengaluru-based electronics engineer, Krishna Kumar, for example, started CropIn way back in 2010, and developed a software package called SmartFarm, which he wanted to sell as SoftwareAsAService. The software helped farmers take data-driven decisions on yield management, pest control, disease prevention, etc. Initially, the going was tough, but now it is beginning to get traction. The smartphone boom helped.
A recent note prepared by the Ministry of Agriculture suggests that there are over 250 starts-up across the value chain. They try to connect the missing links and deliver products, technologies and services to farmers on the one hand and consumers on the other. Aggregators of farm produce, makers of information and communication technology apps for farm automation, micro weather forecasting players and service providers in segments as varied as input retailing, equipment renting, online vegetable marketing?the list is long. Krishi Star, Crofarm and Bharat Bazar are some such firms that follow the farm-to-fork supply chain model to match farmers with businesses or retail customers. Stellapps, the ministry note says, leverages cloud computing, data analytics and wearables to improve agri-supply chain parameters, including milk production, procurement, cold chain, animal insurance and farmer payments. EM3 Agriservices offers farming services and machinery to farmers on a pay-for-use basis.
Meanwhile, a Bangalore-based start up, called Farmizen, is luring educated city dwellers to dabble in farming by renting minifarms to grow organic vegetables.
Pune-based AgroStar offers a range of solutions to farmers and says it has over five lakh farmers on its digital platform. It operates in three states - Gujarat, Maharashtra and Rajasthan.
Most start-ups try to choose one specific solution for farmers. There are those who are building drones to monitor farms, survey lands and map areas difficult to check daily. There are others who are, for a small commission, creating a bridge between farmers and new age grocers such as Big Basket. For instance, New Delhi-based Kamatan Farm Tech. Pvt. Ltd connects Farmer Producer Organisations (FPOs) to bulk customers like retail food chains, millers and processors. "We have MoUs with 10 FPOs to help them sell their fruits and staples. Over 10,000 farmers are benefiting. We want to touch the lives of 50,000 farmers by the end of 2019", says Pravesh Sharma, co-founder and CEO.
The good thing is that venture capitalists are beginning to get interested and invest. While agritech is not the hottest area of investment for VCs, they are willing to fork out $10 million or more if the idea is interesting. Other investors are also often chipping in - Mahindra & Mahindra, for example, keeps looking out for promising start-ups. It recently picked up a quarter of a start-up called Mitra, which designs, develops and makes air blast sprayers, boom sprayers, dusters and potato harvesters.
Start-ups have a long way to go before they start making a serious impact but a good start has been made
Scientists Chip In
While many problems that ail agriculture are well known, finding innovative solutions is part of the answer.
Monika Garg, a researcher with Mohali-based National Agri-Food Biotechnology Institute (NABI), has developed a special variety of anti-oxidant rich purple and black wheat variety which is being cultivated in Punjab and Haryana. These varieties fetch up to 20 per cent more than the MSP for wheat, and are cultivated by farmers under special purchase agreements with local companies. As a researcher, what Garg did was to get the necessary statutory approvals to use these wheat varieties as input for several processed foods - biscuits, breads, cakes and snacks - as they had several health benefits.
The next step was to sign MoUs with companies, which purchase the seeds from NABI, supply them to the farmers and buy the entire produce. "Last year, coloured wheat was grown over 80 acres. This year, it will be grown over 750 acres. From two local companies, we now have 10 companies lining up to sign MoUs. We don't want to distribute the seeds freely as it is an intellectual property. That also makes companies interested in using this in their products (giving them exclusivity)," Garg says. Her primary research is into exploring the possibility of developing coloured wheat as a commercial crop in India and understanding its effect on lifestyle disorders.
When Mysore-based Raithamitra Farmers Producer Co. decided to focus on superfoods, it wanted to mitigate a major uncertainty that troubles the farm sector - price fluctuations. By becoming a pioneering company in India to deal in non-native chia and quinoa, a grain like crop cultivated in South America, that is exactly what they did. The company supplies seeds to farmers, and buys back chia and quinoa to supply to industries that produce nutraceuticals.
Since FPOs come closest to understand farmer needs, they also supply fertilizers and pesticides at government-fixed prices by procuring the same directly from manufacturers. The company's directors say they have plans to launch their own superfood retail brands in India. The company, which recently gave a dividend to its members, also buys vegetables and fruits directly from farmers, paying the market price of the day - no middleman or commissioning agent, and the farmer earns more.
Closest to the operations of FPOs, though at a much larger scale, is the Gujarat Co-operative Milk Marketing Federation. With 3.6 million milk producers as members, the legendary co-operative is the owner of the iconic Amul brand of dairy products.
As Indian farmers seek solutions to their problems, this growing tribe of new generation entrepreneurs is set to become a force to reckon with. India's position as the world's sixth-largest food and grocery market, and the world's second-largest agricultural land holding nation, only adds to this business potential.
Tapping the Private Market
One of the key recommendations of expert committees on enhancing farmers' income has been liberalisation of the agriculture value chain, especially post-harvest marketing networks. Maharashtra has already proved that state governments can do this. Early signs of its impact on farmer revenues are already visible.
"As early as 2005/06, we amended the APMC Act (Agricultural Produce Market Committee Act) to provide four to five options to the farmer. He can sell his produce in the routine mandi, he can sell in a private market, or to anyone who has a direct marketing licence to operate outside conventional markets. There is also the single licence option available to private aggregators to bypass the mandi system and procure from as many districts as they want to operate within the state. Contract farming is also an option," says Sunil G. Pawar, Managing Director, Maharashtra State Agriculture Marketing Board.
While most states are yet to open up their markets to private entities, Maharashtra has established 53 private markets, which together have an annual turnover of Rs 15,000 crore, close to a third of the Rs 50,000 crore business the state's conventional mandi system does in a year. "Almost 1,000 direct marketing licences have been issued to enable retail chains of major corporates like Mahindra and Reliance to negotiate prices and seal purchase deals directly with farmers. Almost 30-40 single licences have been given, again to companies, mostly individual processors and exporters. In 2016, we deregulated fruits and vegetables from APMC. So, farmers are allowed to sell that also outside mandis without paying market cess or commission. The business under direct market licence alone is Rs 7,000-8,000 crore a year," says Pawar.
Six months ago, the Maharashtra State Agriculture Marketing Board had another first. It set up 150 state-of-the-art weekly farmer markets across the state where farmers can come and sell their produce. "The turnover so far has been almost Rs 8,500 crore. Every market has 40-50 farmers; this may go up to 100," says Pawar. The signal is clear - No middle man; the producer takes the bulk of the retail price.
Maharashtra may have shown the way, but that did not prevent the state from being one of the centres of farmer unrest. For a country as complex, large and complicated as India, positive measures, even if they are in hundreds, can only be looked at as pilot projects. Massive restructuring of government policies and programmes, both at the Centre and State levels, in areas of leasing of farm land, contract farming and services, formation of farmer groups, etc, is required, and no amount of private sector engagement or individual effort can replace it unless laws themselves are changed to remove the hurdles that are holding back Indian agricultural incomes.
Historically, the role of almost every government committee ends with the reports it submit. In the case of the Doubling of Farmers' Income committee, that has not been the case. This gives hope. In the first week of January, the government notified the constitution of an empowered body to supervise and guide the implementation of the Dalwai Committee's report. Dalwai, the man who crafted the report, was been made the chairman. "I just had the first meeting of the body. We will develop cells for monitoring implementation of the committee's recommendations," says Dalwai.
Policy interventions are needed, and so are investments. The Indian corporate sector might have demonstrated several scalable ideas and projects, but when it comes to infrastructure creation, individual farmers' investment remains as high as 98 per cent. Enhancing farmer income is, therefore, key to farmer welfare, as also to the future of Indian agriculture.
Ironically, India's first Prime Minister Jawaharlal Nehru had famously said in 1947: "Everything else can wait, but not agriculture."
With inputs from Ajita Shashidhar and K.T.P. Radhika