Farm growth: Govt must offer incentives, promote technology

Updated: September 27, 2019 8:29:21 AM

Of the total private investment, 79.1% is by farmers, and private corporate investment accounts for only 2.3% of total investments.

Indian farmers have already made a mark in countries such as Canada, the US and Australia. (Illustration: shyam kumar prasad)Indian farmers have already made a mark in countries such as Canada, the US and Australia. (Illustration: shyam kumar prasad)

By Abhishek Singh & Naveen P Singh

Investment has a multiplier effect in strengthening incomes and living conditions of people in a developing economy. As resources are limited, driving public investment from borrowings would crowd out private investors. Experience, over the years, points out that only public spending has a limited impact on farmers. Hence, private investment is the key to resolve the deeply entrenched agrarian problems in a more inclusive manner.

As per the Economic Survey 2019, the share of private investment in gross capital formation in agriculture and allied sectors has declined from 88% in 2013-14 to 82.67% in 2016-17. Of the total private investment, 79.1% is by farmers, and private corporate investment accounts for only 2.3% of total investments.

A bulk of private investments goes to other sectors of the economy even though agriculture continues to be the largest employer. Slow growth in private investment is due to poor economic incentives and low opportunity cost of factors employed, often fuelled by volatile markets. Almost 85% of our farmers have landholdings smaller than two hectares, and this makes attracting private corporate investments all the more challenging.

Tipping points
Over the last several decades, the government has made significant investments to push the growth of agriculture and its sub-sectors with high budgetary outlays. But agrarian distress remains. The high-powered committee on transforming agriculture has also highlighted the importance of private investment in agriculture. Hence, efforts must be made for consolidation and streaming investment measures to tap in private players.

First, consolidation has to happen with savings and borrowings, which constitute more than two-thirds of investment in agriculture. Enhancement of farm savings requires better market price and margins, which would only happen with fairly deliverable markets, and this is a herculean task. The Agriculture Marketing and Farmer Friendly Reforms Index proposed by the NITI Aayog has the potential to improve competitiveness, efficiency and transparency in agricultural markets. The index also captures reforms like liberalisation of land lease and freedom to farmers for felling and transit of trees grown on private land.

Investments through credit may be enhanced to the needy and hard-working farmers/enterprises through an alliance system comprising key stakeholders. For instance, in African nations, government-supported AGRA system (Alliance for a Green Revolution in Africa) is working in tandem to address the issue of credit access and low-cost finance to small farmers, input suppliers, farm cooperatives, agro-processing units and value-chain operators.

Second, there are abysmally low CSR funds in the agricultural systems in India. The concept of smart/precision farming, climate smart villages, organic villages can be platforms for companies to showcase their CSR spending. Tax sops to companies investing in agricultural R&D would help attract private investment. Further, the scope of CSR may also be extended to MNCs to help take up precision agriculture, carbon sequestration and agro-forestry on farmlands.

Third, farm research system in India is one of the world’s largest in terms of scientific and supporting staff. Possibilities of coordinated public and private spending for initiatives necessary to feed 1.6 billion people by 2050 need to be explored. Farm management systems can be established where agricultural scientists from public research institutions and universities can provide free advisory services. Companies can raise funds to manage privately-held farmlands. For instance, in South America, privately-held farmland management companies raise funds and manage farmland holdings for investors that include wealthy family groups and financial institutions. Indeed, export-oriented agriculture requires large investments for establishing global value chains, which only big agri-business enterprises can bring in so as to realise the dream as envisaged in the Agriculture Export policy 2019.

These measures will push private sector investments in new areas from the traditional tractors and farm equipment. Investments are needed in food processing, warehouses, cold storages and supply chain management. Horticulture is another sector with a potential of additional 4 million hectares that can create 8 million additional jobs. Infusion of technology and investments can help reduce the huge post-harvest losses, estimated to be almost 25-30% of the production, and result in returns for investors as also higher incomes for farmers.

As per Census 2011, every day 2,000 farmers give up farming. Attracting youth to agriculture with policy support and fiscal incentives would bring innovative ideas to address the looming agrarian distress and ecological crisis. Today, many professionals and young entrepreneurs are taking interest in farming and agricultural start-ups. There is a need to incentivise agri-based start-ups by providing tax and fiscal benefits.

Fourth, in India, favourable seasons, dietary habits and consumption patterns of people make them use less processed food products as against perishables, but urbanisation and price volatility has the potential to push demand for processed food. In India, mere 10% of food produced is processed into value-added products. Compare this to the US and China that process 65% and 23% of their produce, respectively. Diet-conscious urban population can create demand for investments in food fortification and processed food, thereby reducing food wastage and generate employment. Policy nudge to this sector would yield attractive returns to new ventures and investors. With a CAGR of 20%, the food processing industry will be the new growth engine and will insulate farmers from risks like price crashes, distress sale and associated farm suicides.

Lastly, the link between investment in new technology adoption and conservation of indigenous technologies needs to be clearly ensured. Private players’ investment in technology can ensure this as most of the small and marginal farmers neither have the resources nor are keen to adopt superior and new technologies. This requires a policy push that incentivises strategies for adoption of technology while preserving traditional wisdom and knowledge.

Opportunities ahead
According to the International Fund for Agricultural and Development (IFAD), two out of three youth in developing countries live in areas of potential agriculture growth. This shows the way for tackling the challenge of unemployment with the participation of the private sector. Trickle-down effect of private investment would help enhance farmers’ incomes and emancipate people from poverty and hunger.

Most advanced economies have acute labour shortage in the agricultural sector. Indian farmers have already made a mark in countries such as Canada, the US and Australia. This is another area where the private sector can invest in, by taking agricultural farms on contract the world over and manage them with Indian farmers. It can not only provide jobs for our youth, but also has the potential of building a brand, just like the IT industry did in the late 1990s.

Thus, promoting private investment in agriculture can be win-win for all.

Abhishek Singh, IAS, is secretary, ASRB, New Delhi; Naveen P Singh is principal scientist, ICAR, New Delhi. Views are personal

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