Something fresh for the farm

Something fresh for the farm

A lot is riding on the new agricultural export policy expected to be announced soon. Prime Minister Narendra Modi has set an ambitious target of tripling annual agri-exports to $100 billion by 2025. A bigger historic success would be the new policy’s ability to revolutionise the participation of 98 million smallholder farmers, especially from the poorest states, who have the biggest stake in the business.

Though agriculture production has transformed under the Green, Pink, Yellow, Blue and White Revolutions, the economic disparities are wide. In 2015-16, small and marginal farmers (with less than 2 hectares of land) earned ₹29,132 annually from cultivation, while large farmers (with more than 5 hectares of land) earned 17 times more, according to the National Sample Survey Office’s (NSSO) 70th Round data.

The regional disparities are equally stark. Farming families earned on average₹96,703 that year. But Bihar and Odisha farmers were behind by 54% and 34.5% respectively.

Export could be the fastest way to reduce these disparities. Today, half of India’s agri-export basket comprises marine products ($5.8 billion), meat ($4 billion) and rice ($6 billion). The states with the heaviest concentration of small and marginal farmers — Bihar, Odisha, Jharkhand, West Bengal and (eastern) Uttar Pradesh — have a natural advantage in all three, besides pulses, oilseeds, potato, and fruit such as mango and litchi.

So, how do smallholder farmers from these relatively weaker agricultural market ecosystems become trade-ready? Technology provides half the answer.

There are digital tools to undertake farm traceability, price and quality transparency, aggregation, logistics coordination, storage and direct payments. Other building blocks such as farmer collectives, doorstep banking, information and communication technology (ICT), e-commerce platforms, business services, technical expertise in quality management, and road and rail infrastructure are strengthening. Together, they make it possible to build a supply chain for, say, Odisha’s Kandhamal turmeric that will soon get a Geographical Identification (GI) tag and is grown by 50% farmers in the district. In theory.

The other half of the answer lies with exporters. Large exporters are the real gatekeepers to the world market. Farmer participation is a function of buyer procurement decisions rather than the market choices of smallholders. But only a few exporters — mostly in horticulture — have understood that direct purchase improves security of supply, quality standards and price stability. Most exporters sit at the top of a longwinding chain of intermediaries that starts with the local trader, ginner or miller who buys from farmers, or in the mandi.

These small- and medium-scale ‘middlemen’, however, are financially weak and lack the technology, value addition, resources and business skills to survive a hyper-competitive export market. When they go under, farmers are left in a lurch.

The new export policy should, therefore, impact on three fronts. One, prioritise the digital infrastructure necessary for connecting smallholder farmers to exporters in the least developed states. According to the Internet and Mobile Association of India, mobile internet penetration in rural India remains at 18%. In addition, electricity and communications networks need strengthening. Second, the policy should rope in state governments for accelerating technical and business expertise among small and medium enterprise (SME) trader exporters — ‘the missing middle’ — through industry bodies and addressing the high cost of finance. SMEs in food and agriculture sector will grow annually only by 2% till 2020, compared to 20% in electronics, according to a 2014 KPMG study.

Finally, the policy must encourage export from the 100 aspirational districts identified by the NITI (National Institution for Transforming India) Aayog. This can be accomplished through public-private partnership (PPP) and incentives linked to business models that make it easier for smallholders and SMEs to become suppliers without raising transaction costs. Thus, they can become stronger negotiators through skills development, collective bargaining, and access to market information and financial services. Value chain collaboration, transparency in pricing mechanisms and risk-sharing should also be promoted.

Policy reform in contract farming, market yard sales, farmer collectives, microfinance, commercial arbitration, goods and services tax (GST), land lease and ICT has improved ease of doing agri-business. Since multinational exporters are procuring from smallholders in Africa, South America and Southeast Asia, these policy reforms can enable them to deploy the same business models in India.

Smallholder farmers are rural entrepreneurs seeking business opportunity. They have the power to push guar exports to $4 billion and cotton exports to $10 billion on their own might. Bihar’s corn belt doubled production within six years on the back of exports.

For blockbuster success, besides the technicalities of cultivation, they need greater capacities to handle, manage and engage with the global marketplace. Accomplishing this with bold strokes and imagination must be the real ambition of new inclusive agricultural export policy.