Territorial and functional expansion of agri-markets is needed for healthy agri-growth; secondary agriculture, involving processing of food and non-food agri-produce, is key to this.
By Ashok Dalwai
In 1984, the US secretary of agriculture called a special meeting of experts for advice on controlling the decline of prices of agricultural produce. The deliberations recognised growing volumes and declining exports as the cause—excess supply dampening market prices. This led to the establishment of the New Farm and Forest Products Task Force, which advised diversification of agriculture into high-value crops for creation of new avenues of demand. The Forum advocated development and use of agricultural commodities as industrial raw materials to diversify market and farm income, reduce commodity surpluses, revitalise rural economies and decrease dependency on petroleum imports.
Over the last decade, Indian farmers, too, have been facing a similar situation, with the fundamentals of market forces working to their disadvantage in case of high-volume commodities. Glut-induced post-harvest price dips have been exacerbated by the absence of suitable supply chains. Most surpluses, in the Indian context, are local to a production zone, and are gainfully evacuated to far-range markets with healthier demands.
I argue here that remunerative prices for agri-produce can be sustained only when the market is allowed to expand both territorially and functionally.
Robust supply-chains demand free and fair trade opportunities that let sellers and buyers connect, guided by supply and demand movements. The recent basket of reforms releases new energy for building both domestic and global supply-chains. These include (i) a new market architecture comprising Gramin Agriculture Markets, or GrAMs, as aggregation platforms; (ii) three market channels, viz. APMCs (Cooperative & Private pursuant to the Model APLMC Act,2017) and the intra- and inter-state direct trade under The Farmers’ Produce Trade and Commerce (Promotion & Facilitation) Ordinance, 2020; (iii) Agricultural Export Policy 2018, focussing on volumes, standards & quality and cluster approach to production; (iv) liberalisation of control orders under the Essential Commodities Act, 1955; (v) contracts in respect of farming and services through The Farmers (Empowerment & Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020; and finally, (vi) promotion of 10,000 FPOs.
Increased volumes of production and post-production (eNWR) institutional credit will financially strengthen farmers (crop, livestock & fishery) and help negotiate distress sale. Under Atmanirbhar Bharat that targets an investment of `1.65 lakh crore in the farm sector, agri-logistics will get a boost across all sub-sectors. The interplay of competitive market forces and the highway of backward & forward linkages will help tap unmet demand in distant consumption zones. The expected positive is expanded market area and operations. A territorially-expanded market structure neutralises spatial fragmentation into several market zones (as under the APMC regime)and facilitates “one nation, one market”. Emphasis on exports means supply-chains become part of the global market, and this evens out local surpluses through timely and effective conveyance to demand-responsive markets.
Technology-influenced productivity gains can, in the long run, challenge the price gains made from territorial expansion. The markets and demand for agri-produce need to be always one step ahead to secure a farmer-favouring price equilibrium. This suggests the need for more differentiated markets that identify new types of demands. Hence, the logic of diversifying into high-value commodities, supporting both food and non-food processing. Both demand-pull and supply-push strategies will be needed for such diversification.
The Indian population’s dependence density on agriculture, combined with sophisticated, labour-substituting technologies, leaves little scope for non-farm sectors to absorb surplus manpower. Agriculture, therefore, must create gainful employment and adequate incomes, even as it ensures food and nutrition security. On an average, farmers are engaged for 185 days in a year, and the cropping intensity stands at 154%, indicating land sub-optimal use of land and human resources.
Globally, there is a new wave of agricultural transformation abetted by new technologies and markets for food and non-food agri-products. Some like the US and Europe have been seeing a life-science revolution, supporting migration of the manufacturing sector from dependence on fossil to renewable biomass resources, a feedstock for a sustainable industrial base. The report “Bio-based Products and Bioenergy Road Map—Framework for a vital new US Industry” adopted in the last decade envisioned a ten-fold increase in the use of biochemicals, biomaterials and bioenergy over 20 years. However, Europe is a clear leader in the segment of bio-economy. They have upgraded their 2012 Bio-economy Policy in 2015 with a goal of achieving a greener, renewable base of production and a higher share of agriculture in their total economy. India also must undertake a similar journey.
India’s scope for diversified agriculture is vast, thanks to extensive arable land, multiple agro-climatic zones and a rich cafeteria of soils. Ironically, India’s status as a global super-producer in agriculture is juxtaposed with low average income of its farmers. The road to higher agricultural GVA and farmers’ income rests in efficient management of the post-production segment, comprising agri-logistics, processing and marketing.
Agriculture generates raw materials that meet basic human requirements, and is considered as a primary economic activity. The process of generating the agricultural produce is biological in nature, and is, therefore, a primary agriculture activity, and when the raw produce is processed, it gains additional value, and is referred to as secondary agriculture. Of course, there are certain alternative agriculture activities like beekeeping, mushroom cultivation, agri-tourism, etc, which fall under the ambit of secondary agriculture. Secondary agriculture helps in using all parts of an agricultural produce (e.g. crop residues, animal hair, bones, viscera, etc), processing to enhance shelf-life, increasing total factor productivity, and generating additional jobs and income for farmers. It, thus, encompasses both food and non-food processing, and represents agro-processing.
Processing can happen at three different levels, namely (i) primary processing (simple farm gate practices like cleaning, sizing, packaging, etc); (ii) post-harvest secondary processing (basic processing, packaging & branding); (iii) high-end processing which involves complex processing technologies, machinery and finances, with output of a rich range of products from grains like wheat, rice, corn, soybean, etc.
The canvas of secondary agriculture in India is huge, and can range from new crops, organic produce, herbal & medicinal plants to manufactured commodities like starches from cereals, proteins from legumes, oils & oleo-chemicals from oleaginous crops, resins, gums, rubbers & latexes. All these can serve as building blocks for processed foods, materials, composites, fibre & fuel systems, imparting a leg up to the competitiveness of India’s agriculture sector. The outcome is functional expansion of market alongside territorial extension, creating newer demand for agri-produce.