Role of private sector in building an efficient agricultural chain

Nishant Jain

Despite several challenges, agriculture in India has been able to produce enough food to feed the burgeoning population; from feeding about 31.86 crore people in 1951 to feeding more than 125 crore people in 2016. Improvement in agricultural technologies and management practices post green revolution has helped the cause. However, only irrigated and high-potential rain-fed areas could actually reap the benefits of green revolution. More than 15 percent people still remained undernourished in India in 2015. Per capita consumption of cereals and pulses (main source of protein in Indian diet) has declined over the years and inefficiencies in the agricultural value chain further inhibit the benefits of sufficiency to reach the Indian populace uniformly.

Agricultural value chain comprises of different stages, including supply, production, processing, transportation, trading, marketing, and export. Most of these are interlinked; output of one feeding as an input to the other. Disturbance in any of the above cogs misbalances the whole wheel of value chain. Physical loss of produce during storage and transport, inadequate marketing infrastructure, lack of accurate and timely information, multiple intermediaries, and lack of access to institutional credit among other factors keep the value chain unnecessarily long and fragmented. With so many weak links, making the agricultural value chain robust remains a challenge.

Over the years, public sector has played the key role in agriculture in India from setting up guiding policies to providing goods & services such as fertilizers, extension and marketing. But in an expanding and diversifying economy like India, private players hold potential to mobilise additional investments in infrastructure and R&D as well bring in the desired efficiencies in the agricultural value chain through superior service delivery. The National Agricultural Policy 2000 also envisages promoting private participation in agriculture through contract farming, land leasing arrangements, direct marketing and setting up of private markets to allow accelerated technology transfer, capital inflow and assured market for crop production. Private sector can offer their services in multitudes of ways throughout the agricultural value chain. Conducting research, introducing improved technologies, provision of credit through cooperatives and self-help groups, creating infrastructure (for seeds, fertilizers & pesticides, transportation and processing), helping with extension services, passing on accurate and timely information, and diffusing crop insurance are key areas where private sector can improve their engagement further.

Private sector has already begun engaging in contract farming with farmers. Establishing this farm-firm linkage could help provide credit, assured market, remunerative prices, quality check and extension services, particularly to small landholders. It becomes important to identify the actual cultivator of the land to offer them the benefits of inputs and government schemes such that they could transition from subsistence farming to commercial agriculture. Absence of or weak land tenancy laws in India has resulted in minimal land transfer, thus leaving the already fragmented land fallow on most occasions. A transparent leasing law is essential to push consolidation of land holdings.

Since 1960s, research and development has found a major push in India. High yielding seed varieties, development of less water intensive crops, pest resistant crops, genetically modified crops, biofortification, improved storage, processing & logistics and labor saving technologies have been the key areas of research over the years in which the private sector can contribute further given proper encouragement and incentives from the government. Access to institutional credit without cumbersome procedures is another area where assistance from private sector can go a long way in protecting agriculturalists from the clutches of money lenders charging high interest rates. The public and private sector should work together to diffuse the new Pradhan Mantri Fasal Bima Yojana in response to crop loss due to natural disasters. Private players can contribute towards weather prediction services and accordingly offer crop weather advisories to minimize weather induced risks.

To allow for enhanced private sector contribution in agricultural marketing and processing, there is a need to liberalize agricultural markets and remove barriers. Reforms in existing policies and statutory arrangements, such as processing industries buying directly from farmers and farmers entering into contract with manufacturers to sell their produce, would go a long way in incentivizing trade in agriculture. Involvement of private players at this stage of value chain could help in reducing wastage and post-harvest losses of agricultural commodities as well. This requires better implementation of the model APMC Act, 2003 along with enhanced market access through the pan-India electronic agricultural trading portal, National Agricultural Market (e-NAM).

The public and the private sector can work together in public-private partnership mode to disseminate technology, knowledge and inputs to agriculturalists. On one hand, public extension system can set a competitive stage through policies and programmes, while on the other, private extension system can undertake the projects.

Amidst the dwindling number of farmers and fragmented landholdings, steps must be taken to make farming more profitable – enabling a transition from subsistence farming to commercial agriculture. Agriculture needs to be seen within the framework of an intricate and holistic value chain with the interlinked elements. To improve the state of agriculture in India, the time is ripe to incentivize private sector in order to gain from their abilities. Better implementation of the model APMC Act 2003 across the states, building new institutions to make use of private sector’s R&D capabilities, removing entry barriers in agriculture marketing and processing, engaging more in public private partnerships and creating transparent land leasing laws are some of the ways the government should seek to enhance participation of private sector in agriculture to improve efficiency of the value chain. After all, a well-functioning agriculture sector is a prerequisite for the economic growth in an agri-based economy like India.

Nishant Jain is a Research Associate at The Energy & Resources Institute (TERI), New Delhi.