“Indian agriculture is growing at 3-3.5% annually but it has a potential to grow at 5%”
Agricultural expert and currently the Chairman of the Commission for Agricultural Costs and Prices (CACP), Dr Ashok Gulati has been closely associated with the Indian agricultural sector. CACP was set up in 1965 to advise the government on the pricing policy for major agricultural commodities and evolve a balance and integrated pricing structure keeping the conflicting interests of farmers and consumers in mind. Gulati spoke to www.indianagribusiness.com on a range of issues concerning this key sector of the Indian economy. Edited excerpts:
Q) In the last few years, India has emerged as the biggest producer of fruits and vegetables. How do you see the future of Indian agribusiness as demand for horticultural crops rise sharply along with growth in income?
An average household in the country spends almost half of its income on food. Food is not eaten raw — it undergoes basic rudimentary processing as wheat is processed into flour, paddy is processed into rice and then there are items that pass through a finer processing system, such as milk which is first processed, then pasteurized and lastly homogenized. Even fruits and vegetables have to undergo a lot of processing. The level of processing is very low in India, less than 5%, may be 3-4%, but in South East Asia, it is around 20-50%. Instead of going through a long chain, there should be a direct connection between the processor and the farmer. There is a need to organize a whole value chain. Cluster farmers into a farmer produce organizers as processing variety is very much different from the table variety produced on the farmer field as in mango, tomato, onion etc. Besides, there is around 25-30 wastage in the produce as being collected, transported, sold in the mandis in our country. We don’t have good logistics. If we can reduce this wastage to about 5%, we can build new logistics and give a better price to the farmers and at the same time offer products to the consumers at a lower price.
Q) Food inflation has been rising sharply during the last few months. How can it be controlled?
This year (2013) in July, vegetable inflation was 46% which is totally unacceptable. To tackle this problem, we need to compress the value chain. As said earlier, retailers or processors should go to the farmers directly. It means eliminating intermediaries who take high commissions and thus saving expenses on mandi, services, etc. There is a very good system in Indonesia where produce is collected in the village itself. They have clusters of 20-30 farmers and produce is brought to the lead farmer. They have a basic infrastructure in rural areas with a raised platform, cemented lobby, shelves and running water. The produce is collected in the village itself, then brought to the platform where it is washed under running water, dried under fans, graded by women, packaged and bar-coded so that the place of origin of a particular produce can be easily traced. This builds an efficient supply chain and allows value addition. It also creates employment in rural areas.
Q) What should the government do to promote private sector participation in food processing?
Firstly, we need to reform the Agricultural Produce Market Committee (APMC) system. Secondly, provide incentives to food processors and retailers to ensure backward linkages to the farmers. However, there should not be any compulsion on them. The government should put up 50% of the capital required to build the infrastructure. If government gives subsidies on drip irrigation or farm machinery, it should also develop basic infrastructure for aggregation of the produce as well as transportation. This will create employment in rural areas.
Q) The government has faced resistance in acquiring land in rural areas. At the same time, not much employment is being generated in agriculture. What is the way out? How do we generate employment in this sector?
About half of India’s workforce (52%) is engaged in the agriculture sector. With time, it will go down. So in the next two decades we need to invest in the rural areas because with investment, we can reduce wastages, create employment and add value to the produce. All these measures will bring prosperity to rural areas.
Q) What is the role of private sector in all this? What about the impact of the National Horticulture Mission?
Yes, all this has to be done by the private sector. The government needs to change its policies and give some incentives. The horticulture commission is doing this to some extent but much effort and money is going into increasing production of horticultural products only. Most of the schemes of the Indian government focuses on augmenting production and not much attention is given to processing, grading, retailing, export, etc. Production is increasing but much of the produce rots as there is no infrastructure for grading, storage or processing. Thus we are unable to add value to the produce and farmers too don’t gain much and instead prices of horticultural produce go up.
Q: What are the prospects for agricultural exports in the next 10 years?
In 2012-13, agricultural exports stood at $41 billion while agricultural imports were worth $20 billion, it means India is a net exporter of agricultural produce. India has been a net exporter of agricultural products for the last 20 years. If we look at agriculture sector contribution to country’s GDP (if we add export), it was only 5% in 1991 and today it is almost 20%. It means India’s agriculture integration with the global market has risen by four times but it is still below that of non-agriculture sector. Within the agriculture sector, the Indian economy is gradually integrating to the global agriculture scenario. We can make it more comparative as there is still scope to increase productivity, support the supply chain and ensure improved infrastructure. Not just for foodgrains, cotton and oilseed cakes but even for fruits and vegetables, exports are going up.
There are pockets which are facing distress but the sector as a whole is doing well. Indian agriculture is growing 3-3.5% annually but it has the potential to grow at 5%. If capital-output ratio is 4:1 and investment is 20% of agri-GDP, there should be 5% growth in agri-business. Investment is there and should give higher growth rate but certain other bottlenecks are holding it back. Access to markets is lacking, infrastructure investments by the state as well as the private sector is lacking and there are not adequate warehouses for storing wheat and rice. It will take 10-20 years to build improved infrastructure in rural areas to store our fruits and vegetables and develop processing and transportation in such a way that price stabilisation can be attempted.