“One big problem affecting Indian agri-market is after 1960-70’s, we did little to change revolution and to improve infrastructure”
A key fallout of the India’s agricultural market system is declining competitiveness. This leads to increase in prices at the consumer level, without benefiting the farmer. Dr Ramesh Chand, director, the National Centre for Agricultural Economics and Policy Research (NCAP), spoke to Indianagribusiness.com on range of issues concerning agricultural marketing in the country.
Q: What is the potential of agri-processing in the country giving the fact that India is the biggest producer of many commodities?
A: Scope for agri-processing comes not because of biggest producer but primarily from increase in income and change in preferences of the consumers. As economy grows, income increases and life style changes, people like to have more and more of processed products for eating as people prefer breakfast cereals instead of paranthas and more.
Historically not only in India, even evidences from experience of developed world have shown that after sometime in second stage of agricultural growth, the opportunities for value addition are much higher in post harvest than in production. So unless we promote agro-processing and value addition in post harvest, we would not be able to harvest potential for such things. This is what is happening in our country. No doubt demand for value added products, processed products and quality products is rising but supply is not able to keep at such pace.
Look at the data on agro processing or food processing, you will be surprised by the number. The growth rate in out put of food processing sector is declining rather accelerating because having no facilitated environment for agro-processing and food processing. As a result, consumer demand, preferences for processed food/ products is being met more and more from import as imported juices, breakfast cereals etc. Thus the need to have facilitated environment where a processor can have direct contact with the farmer so that he can get variety/produce of his choice at the farmer field which is easy to process and amenable to processing.
No doubt, on demand side, there is very strong phase for processed and value added products but there is great need to do many things in the marketing, infrastructure front and linking processor department.
Q: What need to be done in agri-marketing front? Most of the states claim that model Agricultural Produce Market Committee (APMC) act being adapted but still there is no alternative for farmers besides going to APMC market. What should be focussed now and what to be done in next 5-10 years?
A: If we look at APMC act, changes at state level in most of the states has been done in very diluted manner. Most important provision under APMC act that affects linking of industry with producers or linking of processing with production is direct purchase by the processor or industry. Now unless we have clear guidelines on contract farming, this will not make much progress. If we look at contract farming, many states say that they allow contract farming but the conditionality attached to it are preventing big business to enter into this contract farming.
Q: In terms of food processing and agro processing marketing in Assam, Orissa and Bihar have not APMC market and these state are also the biggest producers of fruits and vegetables. Yet no private investment is coming and farmers are at mercy of middlemen.
A: These states have poor infrastructure but on APMC front there is not problem. Biggest problem is in terms of movement of produce, transport. If in Haryana, there is liberalised contract farming, the results are different from Bihar and Orissa. Similarly in Punjab, liberalisation of markets and contract farming will show different results because here, every village is connected to road, link roads are connected to highways at state and national level and also environment for industry is prevailing but in Bihar, there is different story as for buying of fresh produce, we have to go to Bhiar but for processing, need to go to Maharashtra which are thus linked with high transport and other costs that can not be justified. So many things need to be done by India in one or the other state but not in all such as transport bottlenecks, cold chain bottlenecks and movement of produce.
Q: What about prevailing higher mandi taxes? As taxes in Punjab and Haryana are the biggest in terms of agri produce, these are adversely impacting locals purchasers and food processing industries in these states.
A: Taxation in these states is quite high on cereals but not so high on fruits and vegetables. There are reasons attached to high taxation on cereals because Food Corporation of India procures all. Tax rates are very high but in case of agri, one can have much higher gains from revenue that is earned from value addition than the revenue one will forgo even if reduce the taxes.
Many researchers pleading for it that rationalise this taxation structure and this revenue consideration should not come in the way for progress of marketing. One big problem affecting Indian agri market is after 1960-70’s, we did little to change revolution and to improve infrastructure and to set up new type of institutions but have been focussing more on Minimum Support Price (MSP). The government is doing everything but did not allow market to play its role. One big example is of Essential Commodity Act. We revoke that act in 2003 but brought back in 2007. As a result, ten big private players who entered into agri-market, withdrew. Thus during 2006-07, when wheat prices went up, India was forced to import wheat from other countries. Partly it was strong competition between FCI and private players. In those 2 years, price of wheat received by the Uttar Pradesh farmers was higher than MSP which were neither before, nor after that. So these rules and regulations have to be uniform.
Q: What should state and centre do giving the fact that India produces enough for all except oilseeds and pulses to an extent. During next 5-6 years, what should be the role the centre government and state governments to improve conditions of Indian farmers?
A: In case of marketing, need for multipurpose strategy as single strategy will not work. First thing is need to create environment which attract private sector to agri market. The problem with agri-markets is that they are crowded with small holders or arthias who compete with each other. One arthia for every 5000 farmers is sufficient to run his business but there is one for every 50 so to have his income, they like to have high charges. As we see in Maharashtra, we can stock pulses not more than 1200-1500 tonnes.
Thus if we don’t allow contract farming, have stock limits and essential commodity act, then private sector/modern capital hesitate to enter into markets and traditional capital keep on dominating. Secondly, unless we compress the chain, 6-7 transactions would be keep on taking place between a producer and a consumer which involve high cost and margins. These transactions can be reduced to three as so many inter-mediaries are not required. So we need to compress the chain. Third is creating of new type of institutions like producers’ company. We are a country of small producers and the farmers need to come together as one farmer may not be finding it economical to do many things. We have producer company act but has not shown good results. So unless we do some landholding, involve some extension agency, agricultural financial agency as NABARD and let people form producers’ company as Amul, cant get good results.
We need private players, producer organisations, new kind of institutions and strengthening of our public organisation such as as NABARD at national level and state level institutions such as MARKFED in Haryana. We need to revitalise those organisations. FCI must learn to operate alongside many private sectors.
Q: Since last few years, India has become biggest exporter of rice and other agricultural commodities as meat. Has private sector is more focused on export?
A: We are at first number in export of meat leaving behind Brazil, Australia, USA. In case of meat and guargum, there is minimum government intervention. Informal markets are operating which have their own problems but positive sides also and no regulation comes in their way. If a man buys and sells meat, there is no regulation. Regulation is needed in some cases but it is always better to have a facilitated regulation or not have a regulation than obstructive one.
Basmati rice is a high value crop and export is rising as some technological factor is there but non-basmati rice is driven by support from the government. Private sector finds it profitable but may not be from nation point of view.
I have proved in my paper that India is not inefficient producer in most of agri- commodities but inefficient supplier of those commodities i.e. lacking in marketing as transport cost of taking cereals by road to port in western Indian or southern India is 3-4 times than bringing from some other country. For example, taking wheat from Uttar Pradesh to southern states of India is much costlier than bringing from Australia or USA. Thus we are not inefficient producers but inefficient in marketing, transport, processing etc. we are small players, do not have full go stations from southern India to northern India because of many restrictions.
Q: It means we need to invest more in logistics, marketing etc as in last couple of years, more focus was on production than marketing.
A: If look at no of regulated markets, it has not even grown by 1 % in last 8-10 years whereas production has gone by 3 % so there is problem in infrastructure. We need to have complete change in policies and I would say that our policy on marketing is stuck in satisfying the interest groups, producers by giving higher MSP, consumers by giving food subsidies and middleman by preventing competition. We need to come out of this triangle.
Q: How do you forsee Indian agriculture sector in next 5-10 years?
A: Giving the potential in our country, if we look at yield level, it is low comparable to available technology and to yield in other countries. In next 5-10 years, India is not going to face any problem but should not think merely in term of feeding but in maximising/optimising our gains. I feel real challenge is that how make income of farmers, their growth at much higher rate. I feel that in another 10 years, production will continue to increase at growth rate of more than 3% but need to ensure that post harvest value addition must grow at double the rate of production and growth. That is what is needed and is possible. Right now production is not a problem. There is a need to make producer a partner in that because his income cane be increased more through that route than through increase in production.