The recent agriculture reforms are amongst the most significant since the economic liberalization of 1991. They signal a shift away from the ‘license raj’ that continued to grip agriculture, long after the rest of the economy was opened up.
By Sushma Vasudevan and Aparna Bijapurkar
The recent agriculture reforms are amongst the most significant since the economic liberalization of 1991. They signal a shift away from the ‘license raj’ that continued to grip agriculture, long after the rest of the economy was opened up. These reforms aim to give farmers greater choice in when and where they sell and to whom, recognise that the private sector can play a significant role that is value accretive for all stakeholders, and demonstrate that India can meaningfully participate on the global stage. While there continue to be open questions about how these ordinances will play out, there are 5 key imperatives to make these a success.
First, a concerted shift in approach from ‘selling whatever we grow’ to ‘growing what consumers want and we can sell’. While there are many factors that continue to distort production incentives (where further reforms will be welcome) – such as fixed input subsidies and MSP-based procurement guarantees – the recent measures provide an opportunity to make our agricultural production more demand-driven. In order to do so, we need to adopt a market-product-cluster-based production approach and develop farm to fork value chains. This will necessitate identifying emerging trends and pockets of demand – domestic, export and value added – including in niche, high-value segments like organic (globally $250 bn market by 2025, growing at 12-15% CAGR), health foods like nutricereals, spices, ‘exotics’ (moringa, avocado) etc. Once market intelligence and demand is identified, we can focus on a concerted value chain, cluster development effort from aggregated farmers to end consumers. The moringa cluster in Coimbatore, TN is a case in point where private processor Aavaaram along with the Centre of Excellence for Moringa aggregated about 3000 farmers and delivered a 3 – 5 X increase in farmer income. Second, this new demand-driven production model and cluster-based approach necessitates investing in small-holder farmers and producer organisations who can build a strong production-base that is consistent, high quality, and responsive to market needs. Many FPOs today fail to succeed for several reasons, including lack of market intelligence, poor expertise in planning for and running an ‘organization’, lack of trust and weak governance frameworks for collective action. It is critical to learn from the success of FPOs like Sahyadri Farmer Producer Company in Maharashtra or KASAM in Odisha and create structured programs to incubate FPOs, mentor them through the early days and accelerate scale up, much in the same way that we have models for fledgling entrepreneurs in
the tech space.
Third, in order to get more value for our farm output, we need to accelerate investments in a few key areas. These include modernising storage infrastructure, integrating logistics and distribution, putting in place quality standards and measurement tools, building processing capabilities and export channels. Agriculture has historically been an extremely challenging sector for meaningful returns on investment, as evidenced by the lower GCF to GVA ratios at ~14% for agri and allied vs.~33% for other sectors. While the jury is still out on exactly what kinds of models will emerge, what is clear is that the current landscape will necessitate new kinds of risk capital, new partnership constructs between players operating across the value chain to profitably bridge these gaps, as well as new forms of public-private participation such as creating SPVs for cluster development to enable the private sector to invest profitably – taking on both the risk as well as a fair share of the spoils.
Several success stories exist – like the Banana export cluster in Andhra Pradesh developed under a PPP with Future Group and INI Farms which led to an estimated increase in farmer income by ~2x in 2 years.
Fourth, succeeding in global markets for products with high production that either have low exports (jackfruit) or limited value addition (turmeric, moringa) will certainly require a step-change in competitiveness. However, beyond the usual considerations of varietals, quality, productivity, and logistics, it will be critical to build strong brand recall for Indian agriculture. For example, India is the largest producer and exporter of turmeric, but ‘turmeric lattes’ or ‘golden milk’ fail to evoke any connection to the soil in which they are grown. Further, India is one of the largest exporters of raw moringa which is then processed globally for healthy foods, cosmetics, and hence doesn’t create brand recall and costs us a ~10x premium. Like California Almonds and Mexican Quinoa, it is critical for us to invest in building the India Agriculture brand in global markets.
Fifth, with Covid-19 driving increased digital penetration, the time is truly ripe to enable more digital models across the agri value chain. Estimates suggest in 2019 alone USD ~250 mn was invested by VCs in the ag-tech space in India, signalling its rise across predictive advisory, fin-tech, marketplaces and aggregation services. However, given the large farmer base that is hard to reach and the critical data hidden across departmental silos, these solutions have struggled to scale. A National Open Digital Ecosystem (NODE) in agriculture, as first put forth in a MeitY whitepaper, which creates an open digital stack providing access to a (privacy protecting) farmer registry and data such as soil, weather, crop, pricing etc. can become the UPI of agriculture, on top on which farmer facing apps can be built. This will offer a seamless, integrated, customized farmer-centric journey for key services and solutions.
In order to catalyse these 5 shifts, we need the government to shift its role in agriculture from market-maker to market-facilitator. There are several ways in which it can achieve this, including investing in the ‘commons’ – whether physical value chains or the digital stack, providing the right incentives and support where timing or return is not suitable for the private sector, and equipping producer organisations with access to the necessary resources and skills to transform into thriving enterprises. This will necessitate new capabilities for the government as well, and help achieve the objective of doubling farmers’ income.
- Sushma Vasudevan is Managing Director and Partner at BCG and Aparna Bijapurkar is a Principal at BCG. Views expressed are the authors’ own.