‘Institutional framework must for agricultural growth’

Our Commodities Bureau

Mumbai, July 15: The Indian government needs to actively involve ‘enablers’ and ‘capital providers’ in the Indian agricultural sector leading to rapid and sustainable growth, says Rabo India Finance Private Ltd. The four identified entities are input companies, large successful processors, leading cooperatives and agricultural universities and research institutes.

The Input Companies, by virtue of their size and access to both financial and human resources, can play a key role in corporatising the agribusiness and also by integrating the entire supply chain, which is characterised by a large number of intermediaries, inadequate storage and transportation infrastructure and inefficient
information flow.

The large successful processors with financial resources will also be helpful, as they would be interested in obtaining good quality raw materials in a timely manner. Cooperatives can also leverage their existing network and strengths and develop new income streams.

Besides, agricultural universities and research institutes can help by way of developing new products and processes for the food industry
Also, the government will have to create a regulatory environment which would facilitate market forces in price determination. The government polices of dual intervention in product pricing with price controls on input and output and food subsidies have resulted in undesired systematic inefficiencies.

A unified, facilitatory institutional framework with the necessary government machinery will be necessary to facilitate agricultural growth. Also, the government will need to revamp the existing institutional framework for marketing and distribution of agricultural produce. In addition, cooperative laws will need to be modified such that, their growth will not be reliant on member capital alone. Nor should there be any restriction to enter profitable strategic alliances with private sector players. Last but not the least, Government should provide financial incentives to private sector players to invest in supply chain infrastructure, such as cold chains and grain storage warehouses to shorten the payback period and render the investments attractive. Plus, the statutory levies on processed foods segment should be rationalised to give it the required fillip.

The private sector can also play an important part in the changing the face of Indian agriculture sector. They can first improve the supply chain inefficiencies in order to reduce losses and optimise value. Large companies with interests in the food sector need to act as chain integrators, aiming at quasi or complete integration from the farm to the processor.

The Agri-service centre concept (ASC) could also provide a solution to some of the problems in the supply chain organisation. The ASC aims to integrate the farmer with the processor, through an offtake arrangement by the latter for output of requisite quality. Given the farmers limited access to knowledge of new farming techniques to optimise yields, the involvement of an input company will be appropriate. The incentive for the input company will be the opportunity to develop a new market for its products. With proper guidance to farmers on crop-wise package of inputs and agronomic practises, output of requisite quality could be available to the processor.

Other facilities such as credit and insurance could also be provided through the involvement of banks and insurance companies. The ASC concept can thus translate into a worthwhile prospect to all entities like the farmer, input company and the processor.

Inspite of the agricultural sector contributing nearly 25 per cent to the GDP and employing close to 70 per cent of the country’s labour force, it is plagued by multitude of problems which hinder its rapid growth. A long and discontinuous supply chain, inadequate storage and transportation infrastructure and inefficient information flows have been the largest constraints in the development of Indian agriculture. These lead to low farmer income, which in turn inhibits the timely usage of quality inputs and affects yields. Due to lack of funds, farmers rely on village commission agents to meet their requirement of funds, despite steep interest charges. Further, farmers lack knowledge of appropriate agronomic practices effects farm output. All these translate into high consumer prices.

Further, the discontinous policy framework has led to distortions in the pricing and distribution of agricultural products.

For instance, there has been a drop in the public sector investment in this sector in the last decade. In the Ninth Five Year Plan, funding to agriculture and irrigation was down to 11.4 per cent, as opposed to 14.4 per cent on a average in the earlier three plans.