Indian agriculture is characterised by fragmented farms, fragile infrastructure, significant control of intermediaries, and extreme dependence on weather. Archaic laws which were setup in the 1950s with socialistic intent and to ensure fair markets do not help either. This creates a market that lacks information transparency and poses restrictions on sales and movement of goods, leading to high control and manipulation by intermediaries, increasing the cost of the transaction, and delivers low value for the producers or farmers.
The Union Budget 2016 has set an audacious goal of doubling farmers’ average income in the next 5 years. The announcement of a unified national agriculture market e-Portal in the Union Budget is a very important step towards this. As per a government notification in December 2015, this unified e-platform aims to connect up to 250 Agri mandis across the country by September 2016, and up to 585 mandis by March 2018.
National Agriculture Market (NAM) would offer a common marketplace by providing real time prices across the country to the participants and create an efficient trading system for agri-produce, enabling transparency and better price discovery. This draws inspiration from initiatives like Karnataka governments Rashtriya e-Market Services (ReMS) and ITC’s eChaupal. The first few states expected to participate in this scheme are Gujarat, Maharashtra, Telangana, Jharkhand, and Chhattisgarh.
This e-Portal can be the Amazon of the agricultural world and create significant opportunities for agri-producers and food procurers. Knowledge sharing on the platform can be helpful to increase farm productivity and manage risk, increase transparency for price discovery and reduce sales barriers. The platform can also be expanded to provide farm insurance, derivative trading for hedging, marketplace to procure inputs for farming like seeds, fertilisers etc., enhance farming inputs using weather forecasts and locational satellite imagery that provides inputs on weed formation, moisture etc. However the road to success will not be easy. There are a number of challenges that need to be handled to make this successful.
The easier ones are like providing basic infrastructure, electricity, internet connection and a multilingual platform. However the big challenges are:
Limited infrastructure and financing options – Even after creation of a digitally enabled market, farmers may not be able to effectively use it because they still rely on middle men for financing, assaying, transportation etc and therefore have to sell produce to them rather than in an open market. This requires significant support to enhance funding channels and integrate these with the platform. It also requires creation of storage and processing facilities close to the producers. This accompanied by negotiable warehouse receipts (NWRs) can increase the ability of farmers to store and sell at the right time, reduce wastage, and leverage their produce for financing rather than getting caught up in distress sales. Easing of laws for accreditation of warehouses, granting infrastructure status, treating these as mandis, and allowing electronic NWRs will help in addressing these concerns. It will also play an important role in bridging the current warehousing capacity gap and expedite the adoption of modern techniques for processing and NWRs handling. Along with these, making payments seamless on online as well as offline platforms will ease flow of money and enable farmers to use appropriate leverage.
Agriculture has been a state issue and center has limited control over it. Therefore the first prerequisite is to amend the individual state level APMC acts before states can join this platform. Even after that, a lot of rationalisation of state laws will be required to make this platform work across states smoothly. This may take time but at least till then if this can be used within states, the stakeholders can reap benefits of a partially unified and transparent market.
The challenges mentioned above are only initial hiccups which can be handled by ensuring collaboration between state, central, and local agencies. The e-portal will certainlyFbring a lot of efficiency and transparency to the market in the long run, a much needed reform for the Indian agriculture sector.
Disclaimer: The author is a Service Delivery Lead for Sapient Global Markets. He has worked with global commodity majors and leading mutual funds and hedge funds helping drive business transformation and implementation of solutions in Supply, Trading, Risk Management and Physical Portfolio Optimization areas. Views expressed here are personal