Risks And Opportunities:
Challenges Impacting Agriculture & Agri Business
Agriculture is the main source of livelihood in rural India, which is home to 75% of the nation’s poor. Though it provides livelihoods to more than half of India’s workforce, the sector contributes to less than one-fifth of the country’s GDP. The per capita income of farmers is a fraction of the national average. Such low incomes are a result of a deteriorating natural resource base, disconnected value chains, fragmented landholdings, weak infrastructure, inadequate knowledge and multiple intermediaries. A majority of the farmers are trapped in a vicious cycle of low productivity and low investments.
Though technological solutions can be found to address the challenges of low productivity, the critical problem lies in making the farmer capable of implementing them. Transfer of technology, including know how and information, customisation and capacity building are crucial in empowering the farmer to raise productivity and adopt sustainable agricultural practices. Given the complexity of geographical spread, diversity of crops and the large number of farmers involved in agriculture, innovative models of engagement are essential to ensure robust sustainable agricultural practices as well as avenues for livelihood creation.
Such innovation need to address some of the inherent conflicts in the agricultural sector. Some of the conflicts that need to be resolved are as follows:
- Food vs fuel/fibre/fodder: Competing land usage
- Today’s vs tomorrow’s income: Building capacity to enhance risk appetite to invest for long-term benefits
- Consumer vs farmer: Producing what the consumer demands vs consuming what the farmer produces
- Market vs government: Well-meaning government interventions that may lead to market distortions
In the modern context, the private sector can play a vital and complementary role in ensuring an increase in agricultural productivity. Investments by large agri businesses can ensure coordination of the availability of inputs, facilitation of finance for crops and capital investments and augmentation of resources. This will enable the delivery of customised extension services to improve productivity through technology, regenerate and enrich land fertility, enable better usage of scarce water resources and adopt best practices in crop management.
Apart from the lack of fiscal incentives, sizeable investments are today unviable for large agri businesses due to constraints like non-implementation of the ‘Model APMC’ Act recommended by the Centre. The Act facilitates a direct interface between farmers and agri businesses and helps in reducing transaction costs. There is also a lack of cohesiveness in licenses required for agri input sales. For instance, each input like seeds, nutrients, and crop protection chemicals is governed by a separate Act, making it cumbersome especially for companies working across geographies.
In addition, the Essential Commodities Act imposes an undue burden as it restricts volumes that agri businesses can buy or stock, besides transportation and exports, further affecting the viability of agri businesses. Similar limitations are also imposed by the Forward Contracts (Regulation) Act. While it is acknowledged that strong regulation is necessary to curb excessive speculation, the Act doesn’t allow sufficient flexibility for genuine players and deprives them of critical risk management tools, such as options.
ITC operates across the agri value chain of 13 crops and is present in 17 states with substantial investments in resource intensive models that entail heavy capital infrastructure. These agri value chains that have empowered over 4 million farmers have been severely constrained by such restrictive regulations that do not distinguish between genuine agri businesses and unscrupulous hoarders.
Policy reforms in the agriculture sector need to cognise for several conflicting needs mentioned above that impact the value chain from the farmer to consumer.
There is also need for an enabling policy framework that boosts the provision of rural infrastructure so that wastage can be eliminated and farmers can receive better returns.
ITC has empowered farmers and forged strong relationships with rural communities to enable sustainable sourcing solutions for over several decades. Recognising that poverty in rural India is primarily a result of the poor capacity of farmers in terms of lack of access to knowledge, information, price discovery, quality agricultural inputs and markets, the Company has devised unique business models for agri sourcing that not only support sustainable agriculture but also contribute to substantial livelihood creation for inclusive development. In addition, ITC’s Social Investments Programmes, including integrated watershed development, support the adoption of sustainable agricultural practices.
ITC’s e-Choupal network, which leverages information technology to empower farmers, is a rich repertoire of agri-based interventions and not only addresses the core needs of farmers in terms of infrastructure, connectivity, price discovery and market access, but also provides a significant boost to farm productivity through extension services and research-based agri-inputs. Initiatives like the ‘Choupal Pradarshan Khet’ bring suitable agricultural best practices to farmers and have demonstrated significant productivity gains. These interventions have helped transform village communities into vibrant economic organisations by enhancing incomes and co-creating markets. ITC’s e-Choupals serve 40,000 villages and 4 million farmers, making it the world’s largest rural digital infrastructure.
ITC will continue to engage with policy makers through industry associations, organisations and other appropriate forums for enabling a balanced and pragmatic policy framework that not only removes restrictive conditions on the efficient functioning of agri businesses but also facilitates the establishment of market-based institutions that can raise agricultural productivity and optimise transaction costs across the value chain.