Strategies based on compositional Agri-GVA trendlines.

 

Agriculture is India’s most asymmetric workforce-economic dynamic. 43% of India’s workforce depends on the sector which contributes only 17% to national GDP. This results in low average per-capita farmer income at Rs 55,000 compared to a national average of Rs 1.5 lakh.

Prime Minister Narendra Modi’s promise to double farmer incomes by 2022 is an opportunity to break out of a 70-year stagnation. At the heart of this is to empower farmers to realise the full consumer-price for their crops and other products. Atma Nirbhar Bharat Abhiyan (ANBA) is a transformational step towards this. Further, the composition of agricultural gross value add (GVA) is rapidly changing, and we must evolve a strategy that capitalises on these market forces and utilises technology to deliver on this promise.

INDIA’S AGRI-COMPOSITION IS RAPIDLY CHANGING

A look at agricultural GVA composition over the last decade reveals rapidly changing dynamics. Projecting to 2024-25 shows starker changes are yet to come. Strategies based on these trendlines will enable higher market value realization for our farmers.

CROPS: Contribution of crops to total Agri-GVA has fallen from 65.4% in 2011-12 to 55.3% in 2018-19. It is projected to fall to 46% in 2024-25. Within crops, the value-output of horticulture, including fruits and vegetables, is growing at 14%. There is a need to track horticulture value-add separately as data shows this segment is growing faster than the 7.4% crop value add.

LIVESTOCK: Contribution of livestock to total Agri-GVA has risen from 22% in 2011-12 to 30% in 2018-19, growing 15% YoY. Dairy production and meat consumption are rising, and again there is a need to track them separately since they require different modes of growth and distribution and vastly different policies for income growth. The milk group forms the bulk of the livestock GVA, and its value-output is growing at 13.%. Meat value-output is growing faster than dairy, at 14.7%. Livestock might grow to 37% of Agri-GVA in 2024-25.

FISHING AND AQUACULTURE: This segment is registering highest growth at 18% YoY, and is projected to contribute 10.4% in 2024-25.

NON-CROP: These segments together are growing at 14% YoY and projected to 55% of GVA in 2024-25. Crops have an MSP fixed by the government and leveraged by large government purchases while non-crops are left to market forces – leading to price volatility and higher uncertainty for farmers. These segments now need the help of Agri-tech platforms so the producer can receive market prices.

The Agri-GVA composition projected to 2024-25 shows tectonic changes. To capture maximum value and double farmer incomes, our policies must be proactive to these trendlines.

Table: Nominal Gross Value Add composition in India’s agriculture sector. Source: MOSPI, MAFW, MFAHD. (*indicates total value output, not value added. 2018-19 GVO for horticulture, milk and meat is projected by authors based on latest available data).

STRATEGIES FOR CAPTURING HIGHER VALUE

HORTICULTURE OPTIMIZATION: India is the second-largest producer of horticulture, at 307mn tonnes. Value output of horticulture is fast-growing at 14%. The sector needs an exclusive strategy to optimize value realization for farmers, reduce wastage, and orient for export markets.

FOOD PROCESSING VALUE-ADD: Top Agri-export economies like the USA, European countries like Germany and the UK, and China balance their exports of natural produce with processed products that are higher value add. These products are efficient to make in mass, are less perishable than produce and fetch higher prices. India needs more investment in food processing to capture local and global markets.

FOOD PARKS: The Ministry of Food Processing has created Mega Food Parks in India based on a cluster approach that aims at maximizing value and minimizing waste. More investment is required to enhance the capabilities of the currently-operational food parks and to build more. Each state must be empowered to create unique processed foods based on the local produce.

EXPORT-ORIENTATION: India is the second-largest agricultural producer, but doesn’t rank the same in terms of export values. While high internal consumption accounts for some of this mismatch, the larger reason is we have not consciously oriented our economy, and particularly the agriculture sector, towards exports. Apart from food processing, branding, grading and sorting, and global supply chain connectivity are crucial.

BRANDING: India needs a massive, recognizable brand makeover that capitalizes on existing Indian food trends that exist all over the globe. For example, Thailand has a well-known national brand. Thai restaurants all over the world subscribe to this brand and procure unique spices, vegetables and rice from the motherland exclusively. Likewise, India can build a cohesive brand that can fuel its exports and increase its standing as an exporter of unique Indian products.

GRADING AND SORTING: For exports, grading and sorting are crucial and these activities start at the farms. We need to formulate a national policy that is conducive to building the brand image discussed earlier. With a cohesive policy, we can start training our farmers and producers to grade and sort as required. This will help farmers consciously orient toward export markets as well.

SUPPLY CHAIN FACILITIES: Internal supply chains have been strengthened with GST and extensive road infrastructure projects. Further enhancement with a focus on high-speed rail like the freight corridor projects and port development for export orientation comes next.

FISHERIES: The ANBA reforms give special attention to fisheries with the launch of PMMSY intended to double exports to Rs one lakh crore. India needs additional infrastructure to improve value-add in fisheries also.

DAIRY PROCUREMENT: India is the largest dairy producer globally at 169mn tonnes. Our dairy production is rising at 13.5% by value-output and we need better strategies to procure and consume it. We can utilize part of it to increase domestic protein consumption by incorporating dairy products in the midday meal schemes. To capture export market share, we require bigger private players and dairy cooperatives like Amul that can maximize brand and supply chain value. Though a small country, New Zealand has managed to build a massive dairy brand with these strategies.

ESSENTIAL COMMODITIES: Amending the Essential Commodities Act was a vital gateway to implementing all of these suggested steps. Products like cereals, oils, pulses, onions, and others are being deregulated, allowing farmers to realize better market prices. The logical conclusion of ANBA would be for our farmers to get market or near-market prices for their products and to stop having to rely heavily on subsidies.

In the 21st century, the quickest way to deploy these reforms and strategies at scale across a massive country like India is via technology platforms. The use of Agri-tech platforms can now become part of national policy via an Rs 5,000 crore Fund under NABARD’s leadership.

All the strategies discussed here, with export-orientation being the lynchpin, will enable our farming citizens to earn incomes closer to the national average, to be independent and stop relying heavily on subsidies, pursue their own differentiated strategies to maximize value, and walk with their heads held high.

T.V. Mohandas Pai is Chairman, Aarin Capital Partners and Nisha Holla is Technology Fellow, C-CAMP.