FARMERS TO AGRIPRENEURS

FARMERS TO AGRIPRENEURS

One of the aspirations of the country is to enter into “5 trillion Club”, a league which is dominated by only two countries, China and US. In doing so, India is poised to leave behind several EU countries including UK and France. It is worth mentioning that by 2033, China is poised to overtake US as the Top GDP Economy of the world while India will occupy the 3rd position leaving behind Japan and Germany.

But that is a long story.

Currently, the target is to reach the goal of USD 5 Trillion from the present position of USD 2.8 Trillion economy.

In order to achieve the same, different Pillars of Economy need to be shaken. The Service Sector is required to contribute close to 60% of the GDP while the balance 40% has to come from Manufacturing and Agricultural Sector

Agriculture Sector contributes close to 6 percent of total world's economic production. China is the largest contributor followed by India. China and India accounts for 19.49 and 7.39 percent of total global agricultural output. 

In India, agriculture constitutes the backbone of economy and employment. It contributes 44% of the total employment in the country (as per report from ILO) and 16% of total GDP of the country.

On a comparison with developed country, it can be seen that Indian Agricultural labor and their Output is among the lowest in the world. Contribution of Agricultural sector by developed economy (US, France, UK, Japan and Germany) is less than 2% while their contribution in Employment is also less than 5%.

Other than China (where GDP consist of 8.3% from Agriculture and employment is 27%) all developed economies have shifted their focus from labor intensive Agriculture to highly modernize methods of Agricultural process leading to better output

A closer look at the GDP pattern of top 10 economies reveals that concentration of GDP growth lies in Service sector

Even with reduced share of Agriculture in their GDP, developed economies are the largest Exporter of Foods to the world. The following table projects the export numbers

(India, Pakistan, Brazil and China all put together export close to 50% of Rice exported in world)

The above tables clearly indicates the following corollary

1.      All developed Economies have reduced percentage of Agricultural labour and most of them shifted to Service Sector where value addition in terms of Employee contribution is very high

2.      With heavy capital expenditure (and mechanization), productivity in agricultural sector has been increasing in Geometric proposition

3.      Developed Countries are more inclined to produced Cash Crops (Other than rice) which garner more returns

What is ailing Indian Agricultural Sector?

1.      Dependency

High dependency on monsoon. There is no measure to commodities water so that the same is available to Sectors at the time of need. Cemented Canals, linking of waterways, conservation of Rain water and logical distribution of the same at the time of need are some of the measures which can be adopted on war footing basis

2.      Risk distribution:

From Farm to Market, total risk is concentrated to Farmers. Post Farming season, the supply increased dramatically for a short period of time and in absence of storage facilities, inventories have to be cleared at throw away prices.

3.      Share in value addition:

While the risk is concentrated to farmers in the value chain, gain is not equally distributed across all the stakeholders. Pet attack, Crop loss, Transit losses, demand issues, low productivity etc are some of the risk which is not passed on to the Traders, Food processors, Middleman in the system

4.      Production and Supply mismatch:

While the Farmers are required to buy the raw materials and equipment at market price, the end products are either sold at MSP or below that. Govt does not allow direct access between Farmers and Food processors/Consumers and all deal has to be done through APMC. A vast majority of farmers are not able to get MSP due to supply chain issue and has to sale their proceeds at throw away prices. It is always in the interest of the Govt to keep the food prices low by tweaking the policy.

5.      Abysmal Record of FCI:

Apparently FCI set up to take care of the pricing issues have failed miserably. As per the parliamentary panel report submitted to Lok Sabha, FCI could not procured close to 70% of the Rice and Wheat produced by farmers in last 14 years. It means, the low end farmers were unable to get even the MSP as promised.

Lack of Infrastructure, unavailability of regulated markets for farmers, Poorly implemented APMC Act, Non adherence to Swaminathan Formula for pricing to farmers and total failure of APMC set up are few more reasons from the long list which can be attributed for the failure of the Agriculture system in India

What is to be done to increase Productivity and Income of farmers?

The easiest way for Govt to do is to waive Loan, provide subsidy on Electricity and increasing MSP. Believe me all the three reasons have failed miserably.

Loan waiver does not impact 80% of the farmers who are marginalized and are dependent on unconventional source of funding at exorbitant rate. Also, increasing MSP only provide relief to 30% of Farmers as FCI does not reaches to vast majority of farmers. Certain out of Box measures are required to uplift the farmers from their current stage

EVOLVE THE FARMERS TO AGRIPRENEURS

The situation of the farmers can only be improved provided PROFESSIONALISM is inculcated in the whole process of AGRICULTURE ECONOMY

1.      Increasing their bargaining power – Procurement Strategy

a.       Farming community has no control on procurement of raw Materials and Equipment while their sales price is totally controlled by APMC, FCI and Govt through various policies. Farmer should form association for increasing their bargaining power for procurement. Imagine a situation where thousands of Farmers approaches a Tractor Manufacturing Company for buying 500 Tractors at one go. This will give lot of impetus to the manufacturers to give bulk discount and enhanced services

2.      Cheap Financing

a.      Apart from reducing cost, the Association will be able to access cheap financing from different Financial Institution. With backing of so many farmers, the dependency on traditional method of raising funds can be discarded. Microfinance companies are more comfortable lending to groups as compared to individuals. Moreover, Group Lending will also help in spreading the risk.

IT IS WORTH MENTIONING THAT WITH HIGH BASE, ASSOCIATION CAN GO FOR REVERSE BIDDING FOR PROCURING RAW MATERIALS, EQUIPMENT AND ALSO FUNDING. SUCH HIGH BASE WILL ATTRACT LOT OF POTENTIAL BIDDERS NOT ONLY FROM INDIA BUT ALSO INTERNATIONALLY AND HAS THE POTENTIAL OF CUTTING DOWN THE COST.

PRECONDITION OF MAKING PAYMENT BASED ON CROP RELAISATION WILL HELP IN SPREADING RISK. THE POTENTIAL BIDDERS WILL ALSO HAVE THEIR NECK IN THE GAME AND WILL PROVIDE ALL THE RELEVANT INPUTS TO ENSURE SUCCESS OF FARMING

3.      Art of Selling

It is common sense that selling value added products will always lead to increamental realization. Why to sale mangoes when you can processed the pulp to make Aachar, juices and Chutney.

Let me give you an example. Currently Farmers are selling DHAN (rice with Puff) and the realization is pathetically low. If Rice processing unit can be set up (by association of Farmers), the same DHAN can be converted into Rice. The puff generated can be used as Raw material for generating Rice Bran oil and the remaining can be sold as Food for animals. In numbers, the value addition created is as per following

Option A

a.      A quintal (100 kg) of DHAN can be sold at Rs 1400

Option B  

a.      A quintal of DHAN is converted into 0.6 Quintal Rice of Rice and can be sold at Rs 1800

b.      40 Kg of left over puff can generate close 8 Kg of oil which can be sold Rs 400

c.       Balance 32 Kg of remnants can be sold as Food for Animals at close to Rs 600

Thus it can be seen that Value addition can enhance the total productivity of the Output. Off course, it requires putting up of Rice mill which can only be possible by conglomeration.

4.      Product differentiation     

Most of the Farmers in the country go for rice cultivation. Rice requires huge quantum of water and can only yield one crop in a year. Instead of the same, crop pattern should be shifted to fruits, Flowers, Masala, Vanilla or even Eucalyptus

The advantage with Fruits is you can simultaneously plant so many orchids (of different Fruits and flowers) and can earn income throughout the year. Fruits have great Export potential.

Along with that, Farmers can rear Goat, Sheep and hen simultaneously. Goat/Sheep can provide excellent manure and use of urea can be reduced/avoided. Similarly, Fish/Prawn rearing can be done in the pond till the time water is required to be utilized for farming

5.      Risk diversification

A large set of farmers can utlise their resources for building Storage facilities. This will give them upper hand in negotiation as they will not be forced to sale the crops immediately after the season.

With Storage facility, Crop Monetization will be easy, as they can take loan against their Inventories in the lean period for using in next venture. The inventories can be converted into Bonds and can be floated in the market as a tradable commodity

6.      Cutting down the Middleman

The purpose for which APMC were set has failed thoroughly. Farmers are not aware of the tricks used by traders in the APMC market during bargaining. Also, they are not equipped to deal the cartelization which is formed at such places and are forced to sale their proceeds at throw away prices.

Instead of that, direct selling to end users should be encouraged. In case of Association, they can directly ask Food processing industry to Bid for the products. With online facility, bidding can be open to all the buyers of the globe. This will entail very good price for the farmers. Moreover, with Storage facility in place, Bidding can be done during lean season, depending upon the demand garnering much better price

7.      Support System         

The huge Farmer base at one place will help them in getting a cheap and variety of Insurance both for their products and life. Moreover, Natural insurance (among themselves ) will also help them in time of distress. As a big community, if any area faces drought or any other issue, the same can be supported by other group of Association

8.      Buying Vs leasing

Equipment are used for a particular period. The rest of the time they remain idle. Instead of buying , they can be leased for the same period there by savings a lot on capital cost. If the model of leasing is presented to Manufacturers, they will try to De risk their manufacturing by leasing the Equipment out to different area so that Capex is apportioned as per the need    

9.      Quick Exit from the trade

Like all other business, Farmers are forced to continue into their trade even of it is a negative return for them. Land laws are governed by State and there are strict rules for selling them and converting the Land for other purpose other than Agriculture.

Some of the Draconian State Rules includes sale of Agricultural land only to farmers. Some States allow sale of Agricultural land for Non Agricultural purpose, provided no Agricultural activities has been carried on for 10 years. Apart from that , there are ceiling on Holding of Land in different states.

Almost all States rule out un hindrance transfer of Agricultural land for Non Agricultural purpose

PIO/Foreigners cannot buy Agricultural land at all

A normal businessman can use his resources for product diversifying, changing Business modalities and adopting other strategies for success. Same is not available to farmer currently.  

10.  Partnership – Between Entrapeauner and Farmer

The current practice MSP has to be done away with. Creating meaningful partnership between Industry and farmers should be encouraged. For example, Petroleum industry should tie up with Jatropha farmers and should provide all help and support in return to uplifting their product. With Industry backing for upliftment of end products and support, farmers will be able to raise fund and do farming.

Such partnership should be encouraged for different type of Food/Fruits/Flower based industry

The above means will go in a long way to increase the productivity of Farmers. Offcourse, there are other means where support from Govt in form of policies will be of great help including modernization, Fiscal support, Subsidy and DBT. Also , Govt should encourage Start up in farming to provide all the necessary support