RCEP: A White Revolution for exports

Financial Express, December 7, 2019

By Debesh Roy

India’s decision not to join the Regional Comprehensive Economic Partnership (RCEP) in its present form has brought a sense of relief in the dairy industry. Fear of the country being flooded with imports of dairy products from New Zealand and Australia triggered jitters in the dairy sector, which is dominated by small-farmer oriented cooperative sector.

There was unwillingness on the part of fifteen members of RCEP to engage in serious negotiations with India on its proposals for safeguards, viz an auto-trigger mechanism that would allow India to raise tariffs in cases of surge in imports of products that cross a certain threshold, rules of origin, and a 2014 base year for tariff reductions instead of 2013, to safeguard its steel and dairy industries, along with the demand for market access to India’s services exports. Hence, India had no other option but to withdraw from the largest Regional Trade Agreement (RTA) in the world.

According to the High Level Advisory Group (HLAG) set up by the Ministry of Commerce, Government of India (GoI), lack of competitiveness of India’s exports acts as a major bottleneck in tapping potential from trade enabled through FTAs/RTAs. Therefore, considering India’s objective of becoming an export-led $5 trillion economy by 2024-25, it is high time our industries (including dairy) become globally competitive and enter into FTAs/ RTAs to take the country’s exports to a much higher trajectory, and, in the process, enable substantial rise in the income of small dairy farmers.

The globally acclaimed ‘White Revolution’ had enabled India to become the largest producer of milk in the world. At 176 million tonnes (MT) the country produced about 20% of the global milk output in 2017-18. However, with exports of dairy products valued at $197.27 million in 2018, India ranked 38th in the world, with a share of 0.26% of global exports ($74,519.60 million). This compares poorly vis-à-vis Germany, the largest exporter in the world, which exported dairy products valued at $9,459 million in 2018. Exports of dairy products by RCEP members New Zealand and Australia were valued at $8,865.42 million (third rank) and $1,896.17 million (12th rank), respectively. India’s low value of dairy exports may be attributed mainly to high domestic consumption demand for milk and milk products, very low yield of milk output (1.1 tonnes/animal compared to 3.9 tonnes/animal and 5.9 tonnes/animal for New Zealand and Australia, respectively), and low exportable surplus of processed dairy products due to increasing demand in urban areas.

The importance of the dairy sector in India can be gauged from the fact that it is dominated by 16 million small milk producers who supply their milk to 1,85,903 dairy cooperative societies across the country, providing livelihood support to millions of families. However, about 81% of Indian dairy and milk processing market is part of the unorganised sector, which produces milk under unhygienic conditions. This reduces the overall quality and nutrition levels of the milk produced, thereby further restricting exportable quantity of dairy products. Also, the sector lacks proper infrastructure for milk preservation, processing and transportation in most states.

India’s export of dairy products is led by Gujarat Cooperative Milk Marketing Federation Ltd (Amul), which exports sixteen dairy products to USA, Australia, New Zealand, and countries in South Asia, Southeast Asia and the Middle East. Amul, along with Mother Dairy, and private and multinational dairy companies can become globally competitive by strengthening and modernising their already professionally managed and efficient dairy value chain. There is also a need for milk marketing federations of all states to modernise value-chain infrastructure with a view to producing high value dairy products efficiently.

In this context, GoI has created a corpus of Rs 8,004 crore with NABARD under Dairy Infrastructure Development Fund (DIDF) to provide loans to National Dairy Development Board (NDDB) / National Cooperative Development Corporation (NCDC) for on-lending to eligible cooperative milk unions, state cooperative dairy federations, multi-state milk cooperatives, milk producer companies, and NDDB subsidiaries, with the objective of modernising and augmenting dairy infrastructure for milk processing and value addition while ensuring optimum price realisation by the primary producers.

The apprehension that signing of RCEP agreement would flood the Indian dairy market with cheaper imports from New Zealand and Australia is based on the admission that Indian dairy industry is not yet ready to face global competition. Presently, imports of dairy products form these countries is minuscule, and India had a trade surplus of dairy products with Australia during the last three years as well as with New Zealand in 2018-19 (see graphic).

However, had India decided to join RCEP, the trade balance with these countries would have turned negative. New Zealand exports 95% of it dairy products, and about 84% of its milk supply is controlled by Fonterra, the largest exporter of dairy products in the world. Fonterra has already entered the Indian market by way of an equal joint venture with Future Consumer, offering a wide range of nutritional dairy products targeted at urban Indian consumers. Fonterra is also one of the world’s largest investors in dairy innovation and has one of the largest R&D facilities in the world. The Fonterra Future Dairy plans to become one of the top four dairy players in India within the next four to five years. Therefore, the likes of Amul and Mother Dairy need to raise their spending on R&D significantly, to compete with global leaders like Fonterra.

In order to boost export of dairy products, GoI needs to consider development of Dairy Export Zones (DEZs) in collaboration with state governments, in leading milk producing states like UP, Rajasthan, Gujarat, Andhra Pradesh, Punjab, Maharashtra, MP, Haryana, Tamil Nadu, and West Bengal. Such zones would involve creation of common infrastructure like cold chain, chilling plants, processing facilities, R&D facilities, logistics, and connectivity to ports and airports. Dairy producers in the cooperative, private, and multinational sectors would need to set up modern hi-tech dairy processing units in the DEZs, for producing high quality products for the global market.

The dairy producing units in the suggested DEZs can enter into contract farming arrangements with dairy farmer producer organisations (FPOs)/ farmer producer companies (FPCs) for sourcing milk. Such an arrangement would be mutually beneficial in terms of cost efficiency and higher export revenue to the dairy companies, and higher income to farmers. State governments, therefore, need to enact the model Agriculture Produce and Livestock Contract Farming (Promotion and Facilitation) Act, 2018, urgently.

The Ricardian theory of comparative advantage has showed why there are significant benefits from globalisation. Therefore, if India’s dairy sector becomes globally competitive, it can benefit from its comparative advantage when it chooses to join RCEP or any other RTAs/FTAs in the future.

The author is senior officer at NABARD
Views are personal

 

COP26: India must commit to landmark Koronivia Joint Work on Agriculture

Financial Express, January 20, 2020

By Debesh Roy

After a lacklustre COP 25 in Madrid, the expectations from COP 26 in Glasgow (November 2020) are high, on an agreement on the carbon markets promised in Paris, on the recommendations of the report on the landmark Koronivia Joint Work on Agriculture (KJWA). Topics critical to agriculture are expected to be addressed by KJWA.

While agriculture remains vulnerable to climate change effects—low productivity and food production are areas of concern—it also contributes 23% to global GHG emissions. Economic development, growing population and poverty reduction will lead to a higher demand for cereals, proteinaceous food items, fruits and vegetables, triggering more intensive use of water and other natural resources. This will cause GHG emissions to spike. It needs to be understood that KJWA has the potential to transform agricultural and food systems, while enabling the overall achievement of Sustainable Development Goals (SDGs) by 2030. Bold action is called for at COP 26.

According to the UN’s Emissions Gap Report 2019, India, along with Russia and Turkey, is projected to surpass it sits NDC target emission levels by 15%, and has room to raise its NDC ambition significantly. Whether it engages fruitfully with the KJWA proposals remains to be seen.

FAO estimates that, while agriculture accounts for 70% of total global freshwater withdrawals, food production and supply chain consumes about 30% of global energy consumption. India has been witnessing fast depleting groundwater resources, resulting from widespread use of pump-sets for irrigation, powered by heavily subsidised electricity, and highly polluting diesel. Groundwater Year Book 2017-18 had estimated that almost the entire country is experiencing depletion in groundwater level, with the maximum decline in parts of Rajasthan, Haryana, Punjab, Gujarat, Telangana, and Maharashtra. A World Bank report had predicted that ~60% of aquifers in India will be in a critical state by 2032.

Perverse subsidies on farm power supply in India over the last four decades, have not only made irrigation by deep tube-well profitable for farmers, but have, in fact, incentivised wastage of energy, too. This has also been exacerbated by the skewed procurement policies in favour of rice and wheat in Punjab and Haryana. However, while this had led to significant increase in production and productivity of paddy and wheat in Punjab, Haryana and western Uttar Pradesh during the Green Revolution period, there is evidence of stagnation in productivity.

The Nabard-Icrier report, Water Productivity Mapping of Major Indian Crops, argues that Punjab and Haryana, which require more irrigation water input to produce unit output of paddy, are less suited for rice production, as compared to the eastern region. Therefore, the report has recommended re-aligning cropping pattern with available water resource endowments across states. One of the fallouts of the paddy-wheat cycle in Punjab and Haryana is the problem of paddy stubble burning and its toxic air pollution effect.

Watershed development is of critical importance, as is evident from the participatory watershed development programme being implemented by Nabard since 1992. Further, ITC’s Integrated Watershed Development showcases the role corporate sector can play in soil and moisture conservation.

Sustainable solutions for water use efficiency like System of Rice Intensification, Sustainable Sugarcane Initiative, Better Cotton Initiative with drip irrigation need to be mainstreamed. Further, precision agriculture through AI and IoT can contribute to meet the challenges to food security.

Electricity subsidy for irrigation needs to be phased out. A sustainable alternative is the use of solar energy for irrigation. A viable model of “solar trees” in farms where farmer producer organisations (FPOs) can own solar panels as source of irrigation and also income for farmers by selling power to the grid, needs to be promoted. This could necessitate tripartite agreements between FPOs, discoms (for power purchase) and banks (for financing FPOs). This model, along with ministry of non-renewable energy’s KUSUM scheme, Gujarat government’s Suryashakti Kisan Yojana, and other projects, would help achieve the target of 175 GW renewable energy by 2022. Experiments on solar-wind hybrid energy pump-sets also should be implemented on the ground and scaled up. However, there needs to be self-regulation through AI-based sensors in drawing of groundwater.

The Stern Review Report (2006) had called for urgent and transformative actions for addressing the challenges of adaptation and mitigation of climate change faced by agriculture. The Water-Energy-Food nexus approach of FAO envisions a balance between different goals, interests and needs of people and the environment in a sustainable manner. This approach enables demystification of the complex and dynamic interrelationships between water, energy and food, so that limited resources can be managed sustainably. Therefore, the Central and state governments in India, along with financial institutions, research agencies and corporate entities, need to provide adequate resources towards research and adoption of climate smart agriculture and WEF nexus approach, to enable the country to achieve SDGs by 2030. This should be at the top of India’s agenda at COP 26.

The writer is senior officer at Nabard. Views are personal

 

Green development: Strategising mitigation of agricultural methane emissions

By Debesh Roy

Financial Express, August 24, 2020

The challenge of green development should encourage nations to make concerted efforts to achieve the goal of restricting GHG emissions to 1.5% above pre-industrial levels set by the Paris Agreement and also achieve SDGs by 2030.  For achieving the 1.5% goal, emissions must drop 7.6% per year till 2030. The Paris Agreement aimed at securing commitment by countries to enhance their NDCs by 2020. According to the Emissions Gap Report, 2019 of UNEP, India, Russia and Turkey are projected to achieve 15+% lower than the NDC target emission levels, giving them enough room for raising their NDC ambitions significantly.

While the focus of Paris Agreement and the NDCs was on CO2 emissions from energy use and industry, which dominate total GHG emissions, reaching a record 37.5 GtCO2 per year, there has been a conspicuous absence of a plan to mitigate methane (CH4) emissions. Interestingly, CH4 emissions contribute to a third of the current anthropogenic GHG warming. Research by scientists at the Department of Earth Sciences, University of London, led by EG Nisbet, has shown that implementation of a wide array of mitigation and emission reduction strategies could substantially cut the global CH4 burden, at a relatively low cost compared to the parallel and necessary measures to reduce CO2, and mitigate the atmospheric methane burden back towards pathways consistent with the goals of the Paris Agreement.

Agriculture is the largest contributing sector to global emissions of non-CO2 GHGs, accounting for 48% of emissions in 2015. USEPA has projected that between 2015 and 2030, global agriculture sector emissions will increase by 10%. Further, agricultural soil emissions and livestock enteric fermentation emissions are projected to increase by 14% and 12%, respectively, between 2015 and 2030.

Paddy cultivation contributes about 15-20% of the total anthropogenic methane emissions. Methods like System of Rice Intensification (SRI), drip irrigation, soil amendments, organic matter management, different tillage, rotation, and cultivar selection, can facilitate mitigation of methane emission. Research has shown that SRI reduced methane emissions by 22% to 64%. SRI also facilitates a significant reduction in the cost of production, saving of freshwater and increasing yield and farmers’ income.

However, despite being practised for more than two decades, SRI has still not been mainstreamed in India. Skilling farmers and organising them into FPOs to collectively adopt SRI technique and disseminate the benefits of SRI needs to be incentivised and prioritised by central and state governments, and NABARD.

Experiments by scientists in Tamil Nadu have revealed that seasonal methane emission flux from paddy cultivation declined by 78% due to drip irrigation. SRI, in combination with solar-powered drip emitters along with artificial intelligence (AI)-embedded systems could be the best bet to increase rice yield and mitigate methane emission significantly.

Methane emissions from livestock are the result of enteric fermentation and manure management. It has been observed by scientists that a per cent increase in dietary fats in a forage diet comprising 30g lipid/kg dry matter intake has resulted in 3.5% reduction. The share of methane emission from enteric fermentation is estimated at around 54%. It is imperative to increase investment in R&D by leading dairy industry players by focusing on development of dietary supplements to reduce enteric fermentation, for which support from NABARD via Dairy Processing and Infrastructure Development Fund (DIDF) could be availed.

Mitigation potential from the agriculture sector is estimated to be approximately 593 MtCO2e in 2030. While India is among the top four emitters of CH4 from rice cultivation and livestock sector, it is also among the top countries which are important sources of abatement of CH4 emissions by 2030. India needs to raise its NDC ambition by including a target for mitigation of methane emission.

The postponement of COP-26 at Glasgow should give some legroom to the Koronivia Joint Work on Agriculture to address issues related to mitigation of methane emissions from agriculture and livestock sectors. Parties need to enhance their NDCs by including targets for methane mitigation. It’s time to act now before it is too late to achieve the Paris Agreement goal and the SDGs.

The author is a senior consultant, IRADe. Views are personal

Sustainability of Indian Agriculture - A Brief Commentary

Dr. Debesh Roy

The criticality of agriculture for sustainable and inclusive growth of the Indian economy can be gauged from the fact that, the sector provides employment to about 48.9 per cent of the total workforce in India, but contributes only 15.2 per cent to the country’s Gross Value Added (GVA). Indian agriculture continues to depend on the vagaries of nature. For instance, after two years of back-to-back poor monsoons and drought conditions in several parts of the country, agriculture in India picked up momentum during 2016-17 due to normal monsoon. Therefore, the overdependence of agriculture on monsoons needs to be reduced, with a view to achieving agricultural sustainability.

There are various other constraints and challenges that need to be addressed urgently at the policy, planning, technological, institutional, and operational levels, with a view to achieving sustainability of Indian agriculture.  About 85 per cent of operational holdings in the country are in the small and marginal categories, and the average size of an operational holding is only 1.15 ha. Due to fragmentation and disorganisation, farmers face constraints in procuring inputs like seeds and fertilizers at reasonable prices, lack bargaining power in the market for realising better value for their produce, and have inadequate access to credit, technology and extension services.

Stagnation in productivity of agricultural crops has been observed in India, due to decline in farm size and income; depleting natural resource base; increasing input costs, and adverse economics of farming; deficiency of micronutrients in the soil and deteriorating soil health; inadequate post-harvest technology; uncertain market prospects; and high indebtedness of farmers. Capital formation is of critical importance for the sustainability of agricultural growth, and it is imperative to arrest the declining trend and increase investment in the sector, through both public and private investments.

 Climate change poses a daunting challenge to produce enough food for the increasing population in the face of decreasing resources. It is, therefore, imperative for the smallholder production system to adapt to climate change while making agriculture more sustainable and rural livelihoods more resilient. It is felt that reactive adaptations like improving the markets, changing agricultural policies, enhancing social protection and preparing for disasters have their limitations. Therefore, more adaptive improvements like Climate-Smart Agriculture (CSA) are required instead.

In a smallholder dominated agricultural production scenario, group approaches, viz. farmer producer organisations (FPOs)/ farmer producer companies (FPCs), farmers’ federations, etc.,  with a focus on diversified activities, viz., agricultural crops, horticulture, dairy, fisheries, bee-keeping and off-farm sector, could lead to profitable and sustainable agricultural production systems. This is possible through the development of efficient and inclusive agriculture value chains. Agricultural marketing reforms in the form of enactment of new model APMC act by states, and electronic National Agriculture Market (e-NAM) would be a win-win situation for farmers, traders, processors, retailers, and consumers. Agricultural policy also needs to focus on creating the right ecosystem for opening up of the export market for agricultural produce of small and marginal farmers.

Enabling environment for agricultural sustainability could be created through massive investment in irrigation, with a focus on water-use efficiency, and value chain infrastructure, easy availability of credit (especially investment credit), and risk mitigation through wider coverage and effective implementation of Pradhan Mantri Fasal Bima Yojana (PMFBY), and futures and options trading by FPOs in commodity markets. Effective and efficient implementation of these transformative strategies, could lead to sustainability of Indian agriculture, and facilitate the achievement of Government of India’s goal of “Doubling of farmers’ income by 2022”.

Agri-marketing Reforms - Some Thoughts

Introduction

Indian farmers especially the small, marginal and tenant farmers are the ones who are most affected by the lack of ability to market agricultural produce (low volume, lack of knowledge, cost of accessing markets and exploitation by the intermediates). Liberalization has ensured the achievement of market driven efficiencies and improvements in the industrial and services sectors, bypassing the agriculture sector.

About 30-40% of the value of agricultural/ horticultural produce in India is lost due to damage during transport, pilferages, perishable nature of the produce themselves and lack of adequate storage or agro-processing facilities. Given the large size of rural population engaged in agriculture and related sectors it is essential that market reform in this sector addresses the accrual of more value or benefits to farmers.

Agri-marketing Reforms

In India deregulation of domestic and external trade is expected to improve the incentives and structure of agriculture production and make it more competitive. The three components of this are an improvement of productive efficiency by ensuring the convergence of potential and realised output; an increase in agricultural exports and value added activities using agricultural produce; and finally, an improved access to domestic and international markets that are either tightly regulated or overly protected. Opening up the agriculture sector has the potential to transform subsistence agriculture to commercialised agriculture and to improve the living conditions of the rural community.

Organized marketing of agricultural commodities has been promoted in the country through a network of regulated markets to ensure reasonable gains to farmers and consumers by creating a market environment conducive for fair play of supply and demand. In order to bring about reforms in the sector, a model Agricultural Produce Marketing (Development and Regulation) (APMC) Act was prepared in 2003. 25 states and union territories have either amended their APMC Act or do not have APMC Act[1], but until the rules are framed as per the amendment, the ground reality does not change. Though the process of market reforms has been initiated by different state governments through amendments in the present APMC Act on the lines of Model Act, many of the states are yet to adopt the Model Act uniformly. The amendment in the APMC Act has paved the way for contract farming in a number of states although there is restriction in the lease period. Under the model law on contract farming, a farmer can lease out his land for a minimum of 11 and a maximum of 30 months. Currently, only Punjab, Haryana and Maharashtra allow farmers to lease land. Here too, farmers are now leasing out their land for short periods only, as they fear losing the right to their land if they lease it out for longer periods.

It is, therefore, necessary to complete the process of market reforms early in order to provide farmers an alternative competitive marketing channel for transaction of their agricultural produce at remunerative prices. Development of an agricultural marketing infrastructure is the foremost requirement for the growth of a comprehensive and integrated agricultural marketing system in the country. For the purpose, the Ministry of Agriculture is implementing demand-driven Plan schemes by providing assistance to entrepreneurs in the form of back-ended credit-linked subsidy, viz. the Grameen Bhandaran Yojana and Development/Strengthening of Agricultural Marketing Infrastructure, Grading and Standardization.

The storage capacities for buffer stocks are sufficient to store less than 30 million tonnes, while the actual needs is estimated to be more than 50 million tonnes. Therefore, there is an urgent need to increase storage capacities. Accordingly, the Union Budgets 2012-13 and 2013-14 announced the allocation of `5,000 crore each, for financing warehouses, cold storages, cold chains, and related infrastructure to state governments and state government owned corporations by NABARD, out of RIDF and the Warehouse Infrastructure Fund (WIF) (which also finances  private sector entities in addition to state governments and public sector entities).

Market Reforms: Commodity Exchange and Organised Retail

According to economists and market analysts worldwide there are two distinct benefits of commodity derivatives trading, viz. efficient price discovery and effective price signals. Further, commodity exchanges also provide a specialised risk management tool for the producers, traders and consumers encompassing the entire ecosystem. Other benefits of commodity exchanges include enhancing the country’s economic infrastructure, and setting up and implementing better regulatory standards.

The existence of a dynamic commodities exchange sensitises the complete commodities ecosystem and all other sectors of the economy to react to the price signals emanating from the primary commodities and plan economic activities or policy initiatives accordingly, thus ensuring better integration of the primary sector with all other sector of the economy. As a result the rural economy starts attracting new investments, which accelerate the development of strong forward and backward linkages. Vigorous commodity markets also promote a greater standardisation of commodities, trading practices, quality standards, warehousing, storage practices, etc.

The establishment of commodity exchanges, viz., MCX and NCDEX, has enabled  the entire ecosystem to participate in deciding the price of the relevant commodities, and markets have undergone a complete makeover in terms of their transparency and efficiency in functioning. Besides national integration, transparency and the future price signals provided by commodity exchanges also reduced the volatility in spot prices reducing losses to producers during times of over-supply, and reduce costs to consumers at times of increase demand. It is observed that price volatility reduced in the spot market after the introduction of MCX futures contracts. Besides reducing the volatility futures exchanges have also provided an effective tool for the management of risks for the entire ecosystem players by hedging and sharing their risk with other ecosystem players. Futures prices discovered in the markets have also helped producers (to plan in advance their production/ sowing decisions) and consumers (to plan their future consumption). Thus by streamlining the demand and supply, it helps the markets arrive at the true worth of commodities, which would reflect on their ‘scarcity value’

Development of organised retail, including FDI in retail, revolves round the idea of direct purchase of agricultural/ horticultural commodities from farmers, bypassing the APMC system. The farmers benefit from remunerative prices, while the retailers are able to cut down costs in the absence of middlemen, and are able to sell the commodities to customers at competitive rates. Organised retailers could use the services of federations of farmers’ clubs as aggregators of commodities, in order to ensure the effective functioning of the system. They could also enter into contract farming arrangements with farmers’ clubs/ farmers’ federations/ producer organisations/ JLGs. Further, they also need to invest in infrastructure along the value chain, viz, cold chains, warehouses, transport/ logistics, etc.

Collateral Financing

A warehouse accepts goods, verifies the grade and issues warehouse receipts to the depositor. Farmers can obtain warehouse receipts after delivering the products and use the same as collateral for short term borrowing from banks in order to get working capital, and sell the produce later when prices increase, thus maximising their profits. With commodity exchanges providing warehouse facilities, farmers can transport their produce to any suitable warehouse and convert it into a warehouse receipt. 

Developing an Agri-marketing system: Electronic Platform[2]

The benefit of subsidy schemes for construction of Godowns, Market Yards, Cold Storages and other Agri-Marketing Infrastructure, has flown to traders, agro-processors and private individuals. This has led to addition of more value to the owners of this infrastructure without concomitant value addition to the farmers. Given the large numbers engaged in agriculture and related systems it is essential that market reforms in this sector addresses the accrual of more value or benefits to farmers.

NABARD could contemplate the creation of a platform (as a subsidiary) for agri-marketing linking various farmer/ producer groups (PACS, Farmer Clubs, producer companies) to the bulk consumers (agro processing companies, retail majors, wholesalers) so as to ensure that value share in the hands of the farmer increases to a level of 60%-70% (from the present level of 20%-40%).

The project can be implemented in creeping manner with a pilot phase where not much investment is required except cost involved in travel / use of mobile phone and liaison with bulk buyers and groups of farmers to obtain information on products on offer for sale and tying them up with bulk buyers. During implementation phase investment would be needed in developing a website and hosting the same followed by marketing cost to enrol more and more bulk buyers into the system.

Logistics between buyers and sellers could be ensured through liaison with a network of transporters. A robust settlement process could be developed which can be triggered on-line with the availability of RTGS/NEFT or with third party payment gateways.

Given that the agri-GDP is around `10,00,000 crore, even 10% trade taking place through the website/ portal will ensure a turnover of  `1,00,000 crore approx and provide `2000 crore by way of commission.

The spin-off benefits from this system could be as follows

(i) Financing of storage infrastructure by NABARD can be undertaken to develop synergy with Agri-Marketing Electronic Platform.

(ii) Direct Financing of Agro-Processing companies for their production and expansion plans.

(iii) Financing of retail majors for short-term working capital

(iv) Ensure Green Development by matching buyers and sellers electronically with least geographical distance

(v)  Financing the producers wherever they group themselves into producer companies, as the marketing of the produce will act as effective collateral for the loans

Systemic benefits would include: (a) unleashing of forces for the other channels to provide improved margins to the farmers; (b) wastage of produce will be reduced due to reduced handling and direct delivery (just-in-time); (c) lack of transparency in the existing marketing channels will be laid bare; and (d) consumers will pay a lesser premium for inefficiencies of supply-chain.

Conclusion

Reform in agriculture marketing through scientific supply chain management is critical for increasing the value of agriculture produce, income of farmers and lower prices to consumers. Farmers' access to markets is hampered by poor roads, storage and market infrastructure, and excessive regulation.  It is, therefore, imperative that the APMC Acts are amended by states and mechanisms for linking wholesale processing, logistics and retailing with farm-production activities be developed so as to generate enhanced efficiency, and better farm prices.

(Views expressed by the author are personal)

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[1]States which amended APMC Act: Andhra Pradesh, Arunachal Pradesh, Assam, Chhattisgarh, Goa, Gujarat, HP, Karnataka, MP, Maharashtra, Nagaland, Odisha, Rajasthan, Sikkim and Tripura.

No amendment needed : Tamil Nadu

States with no APMC Act:  Bihar (abolished), Kerala, and most of the UTs.

APMC Act Partially amended : Chandigarh (CF and private mandis), Punjab and Haryana (only CF) and Delhi

APMC Act amendment under consideration: Jharkhand, Uttarakhand, UP, West Bengal, J&K, Meghalaya and Mizoram

[2] I sincerely thank Mr. S.Padmanabhan, CGM, NABARD, for sharing his ideas. 

Towards Sustainable Agriculture

Towards Sustainable Agriculture

Dr. Debesh Roy

According to Dr. M.S.Swaminathan a new vision for agriculture should aim to spread happiness among farm and rural families. He is of the view that Bio-happiness through the conversion of our bio-resources into wealth meaningful to our rural families should be the goal of our national policy for farmers. Focus on post-harvest technology, agro-processing and value addition to primary produce, could enable the achievement of sustainable agricultural development. Further, in the long run, yield and quality breakthroughs in major crops are possible through genomics and gene pyramiding.

The National Commission on Farmers (2006) had made the following recommendations for a Five Point Action Plan to rejuvenate Indian agriculture:

(i)                 Conservation and enhancement of soil health.

(ii)               Harvesting, storage and efficient use of rainwater, as well as the conjunctive use of different water sources.

(iii)             Pro-small farmer credit an insurance system.

(iv)             Environmentally friendly technologies and appropriate inputs.

(v)               Assured and remunerative marketing.

The relatively weak supply responses to price hikes in agricultural commodities, especially food articles, in the recent past, has raised the issue of efficient supply chain management and need for sustained levels of growth in agriculture and allied sectors. Investment in rural infrastructure, in the form of irrigation, roads, bridges, market yard/ market complex/ rural mall (e.g. ITC’s Choupal Sagar), warehousing, cold chain, and power transmission infrastructure, could lead to a rapid and sustainable growth in agricultural production and productivity.  Most important, the APMC Act needs to be amended by all States, to enable farmers to sell their produce at the right price at the market of their choice. Thus, the choice before the nation is to invest more in agriculture and allied sectors with the right strategies, policies, and interventions. This is also a ‘necessary’ condition for ‘inclusive growth’ and for ensuring that the benefits of growth reach a larger number of people.

Over the past few years, several discerning changes have been observed in rural India, which will go a long way in redefining agriculture and would also have a significant impact on the investment credit requirements for primary production, areas of diversified activities, trends in value addition and supply chains. While the face of traditional on-farm activities has altered significantly since the onset of the Green Revolution, some of the basic features of this remarkable change relate to (a) an increasing number of small and marginal farmers with progressive decline in average size of holding; (b) increased usage of high yielding varieties of seeds, quality inputs and modern equipment necessitating higher investment credit; (c) deceleration in rate of growth in production of food crops particularly in agriculturally advanced states like Punjab; (d) limited progress in technology adoption especially in rain-fed areas. The diversified and new farm activities observed are: (a) an increased trend towards commercial and horticulture crops but with almost imperfect markets for these crops; (b) greater importance to food cash crops like sugarcane, oilseeds, spices and condiments, fruits and vegetables, etc.; (c) emergence of hi-tech agriculture and organic farming; (d) a shift towards market-led demand-led agricultural production; (e) a significant increase in the share of output of allied sectors viz., dairy, poultry and fisheries and horticulture crops in the agricultural GDP.  Concomitantly, there has been an emergence of new post-harvest activities, viz. (a) food processing; (b) storages, godowns, market yards and activities related to grading and certification; (c) increasing importance of services sector in rural areas. Reform in agricultural marketing is long overdue as APMC Act restricts the sale of produce outside market yards. Such restrictive provisions need to be removed.

Evergreen Revolution

Dr. Swaminathan mooted the idea of an ‘Evergreen Revolution’. This implies not just increase in crop yield but also productivity without social or ecological damage. Professor Swaminathan had demonstrated that there was a need for agricultural renewal which would address the aspects of soil health, irrigation and water supply, technology transfer from ‘lab to land’ in post-harvest phases, and market advice to farmers. In this context, there is a need for doubling food production in the country, with a special focus on increasing the output of fruits and vegetables.

The term “Green Revolution”, coined by Dr. William Gaud of the US Department of Agriculture in 1968, has come to be associated not only with higher production through enhanced productivity but also with several negative ecological and social consequences. There is also frequent reference to the “fatigue of the green revolution”, due to stagnation in yield levels and to a larger quantity of nutrients required to produce the same yield as in the early 1970s. Experts such as Lester Brown of the Worldwatch Institute have been warning about an impending global food crisis due to increasing population, increasing purchasing power leading to the consumption of animal products, increasing damage to the ecological foundations of agriculture, declining per capita availability of land and water, and the absence of technologies that can further enhance the yield potential of major food crops.

Dr. Swaminathan believes that India is now in a position to launch an evergreen revolution that can help increase yield, income and livelihoods per unit of land and water, if we bring about a paradigm shift in our agricultural research and development strategies. The green revolution was triggered by the genetic manipulation of yields in crops such as rice, wheat and maize. The evergreen revolution will be triggered by farming systems that can help produce more from the available land, water and labour resources without either ecological or social harm.

Dr. Swaminathan has emphasised the need for developing technology and public policy for and evergreen revolution designed to improve the productivity of crops in perpetuity without associated ecological harm. According to him “the evergreen revolution is based on an appropriate blend of different approaches to sustainable agriculture such as organic farming, green agriculture, eco-agriculture and agriculture based on effective micro-organisms.” While organic farming excludes the use of mineral fertilisers, chemical pesticides and genetically modified crops, the green agriculture practised widely in China is based on the principles of integrated pest and nutrient management and integrated natural resources conservation and enhancement. Swaminathan supports the need to promote green agriculture which allows the use of the minimum essential mineral fertilisers and chemical pesticides in both rain-fed and irrigated areas.

Further, there is need to create opportunity for assured and remunerative marketing for dry-land farm products like pulses, oilseeds, vegetables, fruits, milk and meat. Dr. Swaminathan  has also suggested the inclusion of jowar, bajra, ragi, millet, sorghum, pulses and other nutritious cereals in the public distribution system. Accordingly, this will help to enhance nutrition security and the productivity and economic sustainability of improved dry-land agriculture. “Coarse grains” should be re-designated as “nutritious grains” since they are rich in nutrients.

The Eastern and North Eastern regions of India offer large untapped potential for agriculture production. The Indo-Gangetic plains can become the major breadbasket of India through a synergetic mix of technology, services and public policies.  ‘Bringing Green Revolution to Eastern India’, initiated in 2010-11, intends to address the constraints limiting the productivity of 'rice based cropping systems' in eastern India comprising seven states, viz. Assam, Bihar, Chhattisgarh, Jharkhand, Odisha, Eastern Uttar Pradesh, and West Bengal. ` 400 crore each was allocated for the programme during 2010-11 and 2011-12 and of `1,000 crore during 2012-13.

 Dr. Swaminathan argues that progress can be achieved if we shift our mindset from a commodity-centred approach to an entire cropping or farming system based on an integrated natural resources management strategy. The future belongs to small farm families taking to precision agriculture, involving the use of the right inputs at the right time and in the right way. Biotechnology will play an important role in all the following six major components of integrated natural resources management and precision farming: (a) integrated gene management; (b) efficient water management; (c) integrated nutrient supply; (d) soil health care; (e) integrated pest management; and (f) efficient post-harvest management. Eco technology-based precision farming can help cut costs, enhance marketable surplus and eliminate ecological risks. This, according to Dr. Swaminathan is the pathway to an evergreen revolution in small farm agriculture.

Technology for Sustainable Agriculture

There is no option except to produce more food and other commodities under conditions of diminishing per capita arable land and irrigation water resources. Hence, we must harness the best in frontier technologies and integrate them with traditional wisdom and thereby launch an eco-technology movement.

Productivity of land is influenced in part by the nature of physical environment (climate, soils and irrigation) and in part by the varieties and agronomic practices used in cultivation of crops. Prof. A.Vaidyanathan makes a basic distinction between biochemical elements of technology (embodied in irrigation, genetic potential of seeds, chemical fertilisers, and plant protection) used for crop husbandry and those (basically the kinds of equipment and the motive power used for operating them) used for conduct of various agricultural operations. The latter do not affect yields so much as the source of energy for performing them. It is, therefore, more meaningful to view yields as a function of biochemical factors.

Changes in biophysical technology, contribute to growth of agricultural production by increasing cropping intensity, shifting to higher value crops, and raising crop yields. Combinations of improved seeds (especially composite and hybrid high yielding varieties), irrigation and fertilizers have synergies that have the potential to make a bigger impact on yields than their individual effects and increase higher productivity per unit of water and nutrients. According to Prof. Vaidyanathan, under favourable conditions, this reduces costs and increases private returns to farmers.

Dr. Swaminathan has emphasised that frontier technologies like biotechnology, information and communication technology (ICT), renewable energy technologies, space applications and nanotechnology provide uncommon opportunities for launching an evergreen revolution capable of improving productivity in perpetuity without ecological harm.

NABARD has been supporting various on-field projects for promoting sustainable agriculture practices. As per rough estimates, about 60 per cent of the water used in agriculture in the country is consumed by paddy alone. System of Rice Intensification (SRI), a combination of simple agronomic and management practices, addresses the issue of improving productivity of rice without compromising the sustainability of natural resource i.e., water. NABARD has extended support for project under SRI on a pilot basis. The project is being implemented in an area of 36,935 ha. covering 1.42 lakh farmers in 2,380 villages across 13 States.  Assistance of `3.88 crore was disbursed for the project during 2012-13.

NABARD launched ‘Pilot Project on augmenting productivity of lead crops/activities through sustainable agricultural practices’ in 2009-10. The project aims at increasing income of farmers by improving productivity of lead crops/activities through adoption of appropriate technologies, reduction of costs and getting better prices of the produce by way of value addition. The selection of lead crops/activities usually three to four in number are based on location specific, local resources and demand-driven factors. The project is being implemented under cluster approach covering four to six clusters of five villages each per State, proliferating to 600-900 villages at the national level. A total of 58 clusters, comprising 393 villages were sanctioned at the national level.  An amount of `4.83 crore was disbursed for the project during 2012-13.

Research Strategy

The application of advances in the basic sciences and generic technologies to meet the specific requirements of agriculture and allied activities calls for considerable research. The public research system in India, comprising national level research institutions like IARI, ICRISAT, agricultural universities and a network of research stations, has played a major role in this process. Besides varietal improvement of several important crops, the work of these research institutions covers techniques for prevention and control of pests and diseases, agronomic practices for getting optimum results from the use of inputs (including fertilizers), management of land, water and forests, and increasing the productivity of animal husbandry.

The private sector, especially large multinational agri-business corporations, have traditionally been the key player in research for technology and product development in chemical fertilizers and a wide variety of other agrochemicals as well as all types of agricultural machinery. In recent times, they have become increasingly active in conducting/ sponsoring research for development and distribution of high-yielding seeds (especially hybrids and those genetically modified) for several crops.

According to Dr. Swaminathan the research strategy should be pro-nature and pro-small farmer oriented. He opines that in case of Bt Cotton, public good institutions should concentrate on developing varieties rather than hybrids, so that farmers can keep their own seeds. He argues that as 80 per cent of the seeds used in agriculture come from farmer seed systems, these will have to be strengthened and supported through infrastructure for community managed seed villages and seed technology training centres. He has also urged  Krishi Vigyan Kendras to organise ‘lab to land’ demonstrations in the area of post-harvest technology, agro-processing and value addition to primary products.

In the changing agricultural environment, Research and Development (R&D) in agriculture needs to be demand driven, with involvement of farmers in technology development. While the public sector could play a catalytic role, the entire R&D process could be made more pluralistic by involving public, private farmers’ organizations, and the voluntary sector. In this context, the corporate sector can play a prominent role in funding R&D and transfer of technology from ‘lab to land’, as part of an integrated contract farming model. There is a need to refocus R&D agenda from crop centric research in irrigated areas to location specific cropping systems in dry lands, hills and tribal areas. Greater attention needs to be directed towards horticulture crops which are land and water saving. Efforts may also be made for harnessing remote sensing technologies to optimize application of inputs and exploring areas in emerging capital-intensive biotechnology. There is a need to upscale water saving agronomic and management practices like SRI and energy saving irrigation methods (drip and sprinkler) to increase agriculture productivity.  Major, medium and minor irrigation projects sanctioned should also have a component of R&D. NABARD and banks need to collaborate with agriculture universities, Krishi Vigyan Kendras, etc. to help farmers improve and diversify farm produce. NABARD has also been advocating the need for banks to focus on financing Area Development Projects in agriculture and allied activities for intensified area development, leading to rapid capital formation.

Irrigation

There are three ways in which irrigation impacts agricultural production, viz. it increases cropping intensity; brings about changes in crop patterns; and in combination with improved varieties and more intensive fertilizer use, increases individual crop yields. Prof. Vaidyanathan has shown that irrigated crop yields are invariably higher, though in varying degrees, than yields of rain-fed crops. There is no significant trend in yields of unirrigated crops; but irrigated crop yields are rising, though at varying rates. In practically all states, most of the increase in production over the decades of the seventies and eighties has come from the expansion of irrigated area and increasing yields of these areas. Across rainfall-irrigation groups too, rates of change in yields show a significant positive correlation with irrigation and fertilizer use.

Prof. Vaidyanathan has indicated that output per ha of both irrigated and unirrigated crops is associated with higher levels of consumptive use of water. But the relation between consumptive use and output per unit of consumptive use is weak. Contrary to expectation, output per unit of consumptive use of irrigated crops is not significantly different from that of unirrigated crops in half the states. In the rest, output per unit of consumptive use in irrigated areas is higher than in the latter. But the difference is not striking. In all cases, the difference between irrigated and unirrigated yields per unit of consumptive use area is invariably less than in yields per ha.

Watershed Development

Watershed development has been conceived basically as a strategy for protecting the livelihoods of people inhabiting in the fragile ecosystems experiencing soil erosion and moisture stress. The aim has been to ensure the availability of drinking water, fuel wood, and fodder and raise income and employment of farmers and landless labourers through improvements in agricultural production and productivity.

The experience from the ongoing watershed development programme for drought proofing of rain-fed agriculture by conserving land and water resources was encouraging. The single most important factor accounting for the positive impact of this programme is community participation and decentralization of programme administration. This encouraging experience points to the large potential for extending such participatory programmes under government sponsorship.

Rain-fed areas are particularly prone to year-to-year fluctuations of production and degradation of environmental resources. Concerted efforts are needed to rejuvenate their natural resource base as also to stabilise and augment the income sources of farm households. The experience of NABARD in participatory investments with community based watershed development projects in dry land areas under the Watershed Development Fund has shown that watershed projects, when designed, implemented and maintained through community participation and voluntary community labour, are better executed in terms of technical parameters and lead to substantial downstream benefits for all participants. Similarly, Watershed Development Projects implemented by NABARD under Indo-German Watershed Development Programme in water scarce districts of Maharashtra can be replicated in other states having similar environment.

NABARD anchors four programmes viz., (i) Participatory Watershed Development Programme under Watershed Development Fund (WDF) in 15 States,(ii) Prime Minister’s Relief package for distressed districts in four States,(iii) Integrated Watershed Development Programme(IWDP) in Bihar and(iv) Indo-German Watershed Development Programme (IGWDP) in Maharashtra, Andhra Pradesh, Gujarat and Rajasthan. These four programmes cover an area of around 17.8 lakh has successful partnership based on strong commitment by state and agencies, community leaders and local people at all the stages of implementation of the programme.

Significantly, the Integrated Watershed Development initiative of ITC has helped create freshwater potential covering over 1,16,000 hectares in water-stressed areas.  Based on a participatory approach, the programme facilitates building, reviving and maintaining water harvesting structures as well as management of water resources to reverse land degradation, provide critical irrigation and increase agricultural productivity.  HUL is another company which is implementing a Water Conservation and Harvesting project with two major objectives, viz. (a) to reduce water consumption in its own operations and regenerate sub-soil water tables at its own sites through the principles of 5Rs viz. Reduce, Reuse, Recycle, Recover and Renew; and (b) help adjacent villages to implement appropriate models of watershed development. Similarly, Reliance Rural Development Trust (RRDT) promoted by RIL has been constructing check-dams for conserving water and to raise water tables of the surrounding areas. These initiatives by the corporate sector could be synergized by dovetailing them with programmes promoted/ implemented by government departments/agencies and NABARD.

Given the necessary shift in the policy framework in respect of agricultural research, extension and supply of inputs like seeds, infrastructure development, and price and credit policies, dry land areas hold considerable promise for development of agriculture. Consumer demand is shifting fast towards water-saving enterprises like dairying, animal husbandry, horticulture, and floriculture in which rain-fed areas have a comparative advantage. Also, such products have good potential for export. Agro-processing, therefore, holds great promise in dry land areas. All of this combined can be expected to provide the necessary incentives for the conservation of natural resources and indeed for easing pressure on such resources. Watershed development can certainly become more manageable under such a scenario.

Sustainable Nutrition Security System

Swaminathan (2010) laid stress on the following major components of a sustainable nutrition security system: (i) reorganise the delivery of nutrition support on a lifecycle basis with the participation of local communities; (ii) eliminate micronutrient deficiency-induced hidden hunger through an integrated food-cum-fortification approach; (iii) to broaden the produce base; (iii) while we should certainly grow crops where we have both a domestic need and export possibility, we should not neglect crops which will provide the energy to farmers to grow other crops; (iv) promote community food and water banks operated by women’s self-help groups (SHGS) and encourage the growth of community managed water budgeting systems; (v) help small and marginal farmers to improve productivity, quality and profitability of farm enterprises and organise a rural non-farm livelihood initiative to  offer multiple sources of income; (vi) Introduce support systems to SHGs to make them economically and organisationally sustainable; (vii) enactment of National Food Security Act; (viii) Minimum Support Price (MSP) should be regarded as the bottom line for procurement both by government and private traders; (ix) Like in West Bengal and Karnataka the process of land reforms may be completed in other states; (x) As recommended by the National Commission on Farmers, there is a need to move towards an Indian single market.

Rural Infrastructure

It is widely acknowledged that lack of infrastructure is a major constraint for growth and poverty alleviation. Improvement in rural infrastructure is, therefore, crucial for broad-based inclusive growth of the economy and for bridging the rural-urban divide. All forms of infrastructure viz., power, rural roads,  irrigation projects, watershed development, warehouses, cold storages, market infrastructure, education and training institutions, hospitals and health care centres, among others, is vital for high growth rate of the rural economy and for reducing poverty.

In the past, the Indian farmer has suffered not only from the bias agriculture at the macroeconomic level and from domestic restrictions on marketing and processing, but also from poor infrastructure. The greatest challenge lies in reducing the transaction costs of the farmer by providing him with world class physical infrastructure. And for this there is to be increasing public investment. However, public investment has been falling over the past two decades (Hoda and Gulati, 2009). The main culprits are the increasing subsidies on fertilizers, irrigation and power and the high pay increases implemented under the Sixth Pay Commission.  During the past two decades, while public investment in infrastructure has fallen by about one-third, subsidies on agricultural inputs have risen four-fold in real terms (Hoda and Gulati, 2009).

Under RIDF, NABARD provides loans to State Governments for the creation of rural infrastructure, broadly under agriculture and related sectors, rural connectivity and social sector. Completed projects under RIDF have led to the realisation of economic and social benefits in terms of creation of additional irrigation potential; generation of additional employment for the rural people; contribution to the economic wealth of the country; all weather connectivity/ improved connectivity to villages and marketing centres; and improvements in quality of life through better facilities in education, health and drinking water supply. Such infrastructure facilities promise to improve the accessibility of the rural poor to banks, and also improve their savings habit and credit absorption capacity (Roy, 2011). Infrastructure requirements as identified and prioritized in the Potential Linked Credit Plans (PLPs) prepared by NABARD at the district level could help the state governments in identifying rural infrastructure projects, and enable banks to ensure credit support to farmers and rural entrepreneurs in the project areas. 

Banks could finance infrastructure projects like godowns, cold storage, minor irrigation, bulk milk coolers, refrigerated vans, food and agro-processing units etc., to producers’ organizations, Farmers Clubs, Farmers Club Federations, milk producing societies, and SHGs/ SHG Federations.  These could be profitable business opportunities for banks, because financing SHGs/ producers’ organizations/ Farmers Club federations, instead of individuals, reduces transaction costs. Further, group dynamics promotes sound financial management and also enables better management of assets created out of institutional credit.

Conclusion

            The Indian economy is critically dependent on the agriculture sector. But growth in terms of production and productivity has remained stagnant. Reforms in the agriculture sector have lagged behind the rest of the economy. However, several policy initiatives in the form of trade liberalisation, investment in capital formation and rural infrastructure, promotion of agricultural research, modernisation of farm practices, ushering in of an evergreen revolution, investment in irrigation and watershed development, environmental protection, market reforms (including amendment of APMC Act by states), futures trading in commodity markets, organised retail, financial inclusion, agriculture insurance, and promotion of food and nutrition security, through the convergence of the efforts of all stakeholders, and a participatory approach, could raise the growth trajectory of Indian agriculture. This could ensure the achievement of sustainable agriculture development.

(Views expressed by the author are personal)