A PPP In Agriculture?

Led by changing consumer demand preferences on account of rising incomes and changes in the demand pattern of household food basket in both urban and rural India, the agriculture produce landscape is undergoing a significant and rapid change. Concern for food safety, traceability and assured year-round availability of quality agri produce at reasonable prices are demands which have emerged at the top of the supply chain. Organised retail (though as yet only 3 per cent of the total retail market) is doubling its share every three years or so and is likely to play an increasingly important role in influencing the nature of agricultural markets in the coming decade. A game changer on the horizon is the proposed national food security legislation, which will require the sourcing of huge volumes of food from domestic producers. Traditional production and supply arrangements are unlikely to prove adequate in meeting the challenges posed by these two major developments.

Agriculture GDP is heavily weighted in favour of high value produce (horticulture, animal husbandry, dairy, poultry and fish products); as much as 75 per cent of agri GDP value today is contributed by these products. Moreover, the growth rate of horticulture and allied sectors is significantly higher than the growth rate in the crops sector. Both the Planning Commission and the Ministry of Agriculture are convinced that the only way India can achieve a 4 per cent growth rate in agriculture is by laying greater emphasis on the allied sectors.

Recent evidence suggests that this segment is increasingly favoured by small and marginal producers as it is labour intensive, offers quicker returns and can engage a higher proportion of women (especially dairy activities). Thus, there appears to be immense potential to leverage high returns from non-cereal sub-sectors, especially for small producers. This fits well with the XII Plan’s vision for “faster and more inclusive growth” and creative and collaborative effort can result in this vision being translated into reality.

However, several hurdles need to be overcome to reach these highly desirable goals. For one, 83 per cent of land holdings in the country are now marginal or small and unless there is an urgent intervention in aggregating producers through farmers’ institutions, we are unlikely to achieve scale in production and leverage it to the advantage of all stakeholders, especially primary producers. The fragmented agricultural marketing value chain and the large number of intermediaries are another major constraint, leading to wastage, low returns to producers and volatility in availability and prices at the consumer end. Estimates of the wastage of perishable such as fruits and vegetables range from 18 to 40 per cent but they are undeniably too high and penalise both producers and consumers. This calls for intervention—both in the institutional and the technology domains. Thus, while cold chain infrastructure and logistics is required to ensure that the produce does not lose its value, the larger question is: will the produce be aggregated by the farmers themselves, or by intermediaries. When both go together, the net outcome is an integrated value chain that ensures a virtuous cycle for all stakeholders.

The example of AMUL in milk demonstrates the benefits of value chain integration in agricultural produce. Yet, an efficient supply chain for cereals, perishables and other high-value agricultural produce is unlikely to materialise unless there is parallel investment in aggregating farmers and farm produce at the bottom end, and strong and direct linkages are created between producers and market players, both for retailing raw produce and processed food.

Finally, the growing demand for quality agricultural products creates an opportunity to reduce risk in agriculture through the integration of producers on the one hand and retailers and processors on the other. While production and price risks are the most obvious areas of attention, the potential to create partnerships between farmers’ groups and market players also opens up better links with input suppliers, financial institutions and research bodies. This convergence can lead to better targeting of government expenditures on agricultural subsidies and achieve better outcomes for public policy. Overall, a collaborative effort between the government, farmers and corporates in agriculture is likely to raise the rate of agricultural GDP growth, thereby directly impacting rural poverty.

All this is fine, but how does one go about it. The DAC’s flagship programme offers a way out. In the above scenario, Rashtriya Krishi Vikas Yojana (RKVY) is likely to be a major window of funding during the XII Plan to support integrated agriculture and allied sector projects. However, there are challenges of limitation of technical, administrative and financial capacity at the state level to absorb the growing level of funding support under RKVY. Project monitoring and assessing project outcomes are also areas requiring strengthening. Lastly, the short-term nature of most RKVY interventions in the XI Plan raises questions about the long-term impact and sustainability of these investments.

The Public Private Partnership in Agricultural Development (PPPIAD) has been conceived of as an additional channel of investments under RKVY, using the technical and managerial capabilities of the private sector in combination with public funding, to achieve integrated and sustainable outcomes. Together the state government and the corporate can identify a cluster, the produce and the farmers group engaged in the production of the commodity. The corporate takes the responsibility of providing technical inputs and an assured market, and the government provides the infrastructure and the funds for the technical inputs for which the farmer was entitled in any case. In other words, the state agrees to utilise the services of the corporate for provisioning ‘inputs’, and securing an assured market for the producer. The response from both the corporate and the state governments has been positive—and once a few pilots have been successfully tried out, the model can be rolled out on a pan-India basis.

 By Sanjeev Chopra

(An IAS Officer, the author is Joint Secretary & Mission Director, National Horticulture Mission, Government of India. The views expressed are personal.)