Indian Agriculture Supply Chain & Challenges

India is a country with 1.3 billon population and it has to struggle to feed entire population. Hunger has a back trace in India ranging from British regime’s infamous famine of Bengal to every year flood of Koshi region of Bihar.

Agriculture in India

India has a total land of area of 297319 thousands hectare of land area, out of which 179721 thausonds hectare is under cultivated. India is second largest agricultural land user in world after United States. Two third population of India is involved in agriculture for livelihood and is second largest gross agricultural producer in world. India is 7th largest agricultural product exporter in world and is largest producer of Banana, Mangoes, Guava, Lemon, Chili pepper, Ginger, Papaya, Okra and fabrics like Jute. India is second largest producer of Rice and wheat

India is second largest producer of dry fruits, root, tuber crops, pulses and textile raw material.

India’s cereal production

Challenges

Despite giving employment to around 60% of population, contribution of agriculture to GDP is limited to 17%. In 1947, contribution of agriculture to Indian economy was 43%. Even after producing largest amount of agriculral products, Indian farmers are earning an average of $1000 per annum. An Industry giving employment to such a large chunk of demography is crawling for sustainability and good profit margins is a matter of concern not only for Indian government but also for United nations and FAO(Food & Agricultural Organization). Consequences are sever for India not only in terms of economy but also in terms of nutrition. In 2019 India ranked 102 in Global Hunger Index. According to PHD Chamber of commerce report only 9.6% of children between the age of 6 months to 23 months get bare minimum nutrition and child wasting rate is approximately 20% in country.

Reasons

Lack of aggregated farming: Majority of farmers in India hold less than 1 hectare of land. Due to division of land and lack of land reforms after 1922, land size has reduced. This causes higher cost for carrying seeds, fertilizers, moving farming machines from one place to other. This increased the fixedcost/setup cost for agriculture and the edge of economies of scale is lost, slicing profit margins.

Traditional farming method: Farmers own small lands, due to which they don’t invest money in modern farming equipment. This makes farmers underutilize potential of land and makes crop vulnerable to climate, diseases and monsoon.

Govt. Policies: GDP of country is growing by 6 to 7 percent annually, however growth of agriculture is consistently below 3%. Land reformation acts of British era are still in practice and is resulting in higher non-productive cost. 

Chain : The major challenge is in supply chain of agribusiness in India. India loses 20% of its agricultural production due to improper logistics. Due to lack of reefer tracks and manual loading and unloading of agricultural produce this large chunk goes waste. The journey of products from farm to fork goes through a number of steps and at every stage, some wastage happens.

Influence of middle man: Most of the companies procure agricultural products through middle man. Their strong lobby and control over market separates famers from corporates and companies. There are multiple types of chains in agriculture market. Farmer to End consumer, Farmer to Govt. Agency to End Consumer, Farmer-Middleman- Govt. Agency-End Consumer, Farmer-middleman-wholesaler-retailer-end consumer and several more. This complexity of chain increases the price and slows down speed of product to market. Longer the product will be in market, higher will be pilferage and inventory holding cost, which finally adds to price.

Capacity: India has increased its agricultural production capacity from 51 Million Tons in 1951 to an estimated production of 284 Million tons in 2018. This drastic increase in capacity is commendable for sure, however our consumption of grains also increased in same proportion. With time rural infrastructure of Indian agriculture was not developed to provide proper support to this sudden increase in production capacity. The increase in net swon area in India kept increasing year after year but storage capacity and processing infrastructure has not been developed in same proportion. Every year food grains worth 14Billion dollars are wasted, out of which 84% is rice and 14% is wheat. According to FCI(Food corporation of India), agriculture sector is losing

India has only 91 Million tons of food storage capacity out of which 41% is owned by government agencies and rest is owned by private entrepreneurs. Here comes the main challenge for farmers. As most of the storage capacity is owned by non-farmers including FCI(Food corporation of India), CWC (Central Warehousing Corporation)and SWC(State warehousing Corporation), farmers lose the price deciding power and sell their harvest to earn money.  Warehousing capacity has regional imbalance. Most of the warehouses are built in production side, causing missed opportunity to fulfill the demand in consumption side due to longer lead time. Post GST warehouses are now being built irrespective of laws and regulations and will improve in upcoming years.

Coordination: This part of supply chain is most important for farmers as well as for food processing companies. United states processes 88% of their entire harvest, whereas India processes only 2 to 3% of its harvest. Processing with state of art technologies such as irradiation increases the shelf life of a product. To create a win-win situation for industries and farmers, both have to work together. Creating a cluster or cooperative of farmers in villages and aggregated farming backed by companies will reduce supply chain uncertainty for companies and will give a reliable market place to farmers. This immunity will help companies bring down the cost by eliminating middle man and will ensure a better price for harvesters. Minimum purchase guarantees to farmers with blanket order for the upcoming harvest season and can share risks to make agriculture agile. Negotiable Warehousing Space facility along with loan credit from banks against agricultural harvest stored in 3rd party warehouse is going to change entire market conditions very soon.

Competitiveness: This industry works on very thin margin and requires economies of scale to be globally competitive. To make this Industry competitive enough, India needs to work on overall cost of supply chain, so that margins could be increased. A business can’t be competitive enough, until it will be profitable and sustainable. Processed food is sold multiple folds higher then raw harvest. Food processing industry in India is growing by around 7% annually. India’s agricultural market place is regulated by APMC act. It is helping small farmers in selling their harvest at a minimum guaranteed price. Land consolidation is also in agenda of amended APMC act. Private ventures are also taking interest in consolidated farming. HLL’s initiative of Madhya Pradesh Contract farming is an experiment, which has proved the potential in agriculture industry. To make out products more credible in global market, India needs to focus on branding FSSAI and other certifications of quality.

Conclusion: In order to make India a prosperous economy, we have to make agriculture a money-making business. This can be done by strengthening supply chain infrastructure and culture. India as a country needs to work on following things

Transfer of information regarding climate, price, demand and market at right time with accuracy will help farmers and other chain partners in getting more profit and will reduce risks for every participant. IF required companies and farmers can share risks together. Improving coordination between producer and food industry, addition of value chain in Industry, increasing shelf life of produce using processes like irradiation, improved logistics infrastructure and glass box transparency in entire chain to track quality, status, value, availability and certification(Organic, Veg etc) will help reduce hiccups to sector.

Promoting contract farming to achieve economies of scale risk sharing by companies will give wings a business employing around 60% Indians.

By: Kaushal Kishore

[email protected]

Sources: Ministry of Agriculture website, Research Journal of social Science and Management, Website of FAO( Food & Agriculture Organization of United Nations)