Indian agriculture must look at next level of value addition

Santosh Sarangi, IAS Officer, observes that while private sector investment has come in for primary and secondary food products, players in the agriculture sector need to do a fair deal of research regarding the consumer tastes and preferences in different markets and inculcate a certain degree of technological know-how. Thus, investment in new variety of seeds, new agricultural technology like hydroponics, vertical farming, use of drones, artificial intelligence etc. will play a key role in future.

IBT: Recently, the government announced a slew of administrative reforms such as amendments to Essential Commodities Act, e-trading of produce, barrier-free interstate trade and legal framework to facilitate contract farming. What more can be done in order to address the three biggest challenges hampering the agriculture sector- supply chain, small farm size and price volatility?

Santosh Sarangi: The issue of supply chain can be addressed through massive infusion of both Government and private investment as well as higher focus on processing and value addition. Induction of a higher number of players in the logistics sector is also likely to make the supply chain more robust. With regard to small farm size, some efforts have been made at aggregation through formation of farmer producer organisations (FPOs).

This has shown mixed results. In some areas, farmers have been able to use the consolidated land parcels for a single crops to attain economy of scale. In other cases, farmers have focused on marketing of the produce. However, barring few success stories like “Sahayadri” in Maharashtra, the success rate of FPOs has not been very high.

The Government of India had suggested a model land leasing agreement to allow leasing out of land for scientific & commercial cultivation, without the land owners having to bother about security of ownership of land. With regard to price volatility and removal of information asymmetry, managing the supply and demand through an effective information dissemination system will be the key.

Successful operationalisation of National e-market has the potential to bring about price stability and better prices for farmers. Removal of multiple players in agriculture value-chain will result in bridging the gap between the farm gate price and the price paid by the consumer.

IBT: Agricultural infrastructure such as private mandis, storage warehouse, cold chain storage, food processing plants etc. is cited as one of the most important interventions for good price realisation by farmers; however, the private participation has remained low. How can the private players be encouraged to invest in these areas?

Santosh Sarangi: The recent initiatives of the Government to amend the Essential Commodities Act to ensure removal of stock limit will provide greater degree of reassurance to private investors, while taking decisions to invest in storage and warehousing infrastructure. The repeated invocation of stock limit was a major deterrent in private sector investment, as the uncertainty in the policy environment as to when the stock limit would be imposed on a commodity was creating confusion. The recent announcement of the Government to spent Rs. 1 lakh crore in creating cold chain and food processing infrastructure will definitely give a boost to this sector.

While private sector investment has come in for primary and secondary processing of food products, it is the next layer of value addition that we need to focus on. This would require a fair deal of market research regarding consumer tastes and preferences in different markets and certain degree of technological know-how. Thus, investment in new varieties of seeds, new agricultural technology like hydroponics, vertical farming, use of drones, artificial intelligence etc. will play a key role in future.

IBT: Price volatility is a key issue in horticulture crops in India such as onion and tomato. Production responds to prices with a lag, causing a recurring cycle of rise and fall in production (Cobweb phenomenon). What sort of interventions are needed to address the recurrence of such a cycle in India?

Santosh Sarangi: In the last 4 to 5 years, Government intervention to address price volatility in onion has been one of the highest. While some degree of success can be claimed, if one studies the price fluctuations, then there are reasons to believe that certain players can game the market to bring about such fluctuations. Bringing greater transparency in the onion marketing system, introducing pan-India auctions in the mandies of Lasalgaon, Pimpalgaon and Nasik, will go a long way in broad-basing the number of buyers and consequently, will eliminate a limited number of buyers who hold sway over the largest onion markets of the country.

There is also a huge difference between the wholesale prices in the mandis of Delhi, Mumbai and Kolkata and the prices paid by the consumers. Dissemination of information regarding mandi prices of a particular day in the electronic and social media will also make consumers aware regarding the huge mark up, which the retailers could be charging by taking advantage of lack of information with the consumers.

While onion and tomato price fluctuations have caused a lot of furore in the past, these can by no means be described as commodities essential for human survival. While Government needs to intervene in case of essential food grains to ensure that people do not suffer from pangs of hunger or starvation; for agricultural commodities which are not essential for human survival, Government intervention is not desirable and markets may be allowed to function autonomously.

However, in case of distortions in the market, the Government can chip in. So far as onion and tomato are concerned, there are a range of value added products (dehydrated onion, onion flakes, onion pastes, tomato puree etc.) that can be produced and sold during the lean production period.

IBT: The government has recently approved a Scheme for Formalisation of Micro Food Processing Enterprises (FME), which focuses on hyper localised food cluster system. What can be the advantages and challenges associated with this approach of development of food clusters?

Santosh Sarangi: The idea behind hyper localised food cluster system is a welcome proposition. There are a number of clusters in our country where a particular agricultural or horticultural produce is grown because of either agro-climatic reasons or economies of scale. Locating food processing centres in the identified clusters is likely to result in reduction in transportation costs and reducing the number of players between the farmer and the processor, resulting in better price realisation for the farmers. This would also enable the processors to invest in backward integration by creating the necessary storage and primary processing infrastructure in the production clusters. This is likely to be a game changer in bringing about the much needed investments in the rural food processing clusters.

One of the challenges that is likely in this approach is similar to the challenges that we had faced in the food parks. Many food parks came up in different locations with the ambitious goal of giving a boost to food processing. However, in many cases, private investment did not really flow into the food parks and instead, the food processing units came up as stand alone units. This indicates that private investors consider many other factors for setting up food processing units, other than availability of common facilities. However, a concerted effort in attracting private investment in food clusters is likely to be more successful than the food park experiment.

IBT: Agricultural exports are marred by non-tariff barriers faced by Indian agricultural products such as rejection due to tricyclozole pesticide MRL for basmati rice, high levels of aflatoxin, salmonella and pesticide residues for spices etc. The root cause for the issue is unscientific agricultural practices, which require a long-terms solution. What interventions can we make in the short term?

Santosh Sarangi: Any country which aspires to be a major agricultural exporter will have to fulfill sanitary and phyto-sanitary conditions set by the importing countries. While it is a fact that we have struggled with regard to maximum residue level, micro biological parameters in our food and marine exports, India is also a tremendous success story in overcoming the odds and creating the required ecosystem for good agriculture practices (GAP) for many products. The systems approach adopted for cultivation and export of grapes is one bright example.

Similarly, the efforts of the rice exporters association, APEDA and farmers in switching over to approved pesticides following the tricyclozole issue in European Union is also another good example of our resilience and determination to overcome such odds. However, the effort to maintain very high standards of quality regimen has to be a continuous endeavour. The efforts for good agriculture practice, good management practice, a stringent quality testing protocol and a robust lab network have to continue as the priority requirements to enable higher agriculture exports.

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Santosh Sarangi is an IAS officer. Views are personal