There's business in farming: How companies gain from agri sector reforms

The recent farm law changes unshackle farmers from restrictions on when, where, and to whom to sell. Here's a look at where companies can find investment opportunities in agriculture

Recent legislation bring the free market to agriculture and allow private companies to bring productivity, employment and new technology to the sector. The private sector can now invest in modern agriculture trading platforms or set up post-harvest facilities like warehouses and cold storages. The reforms unshackle farmers from restrictions on when, where, and to whom to sell. They put create competition and pave the way for lower charges and better facilities for farmers. A special on where companies can find investment opportunities in agriculture.
 
The recent farm bills are perceived as most significant for the development of the agriculture sector. They prompt a shift away from the monopoly of mandis regulated by Agricultural Produce Market Committees (APMCs) to a more liberalised framework. However, the long-overdue reforms have become a subject of discourse though prominent economists and top agriculture technology companies have embraced them. The concept of a free market in agriculture will pave the way for corporate sector and make it more efficient. The emergence of private investment is expected to revamp the sector by driving productivity, adopting new technology, generating employment, increasing the value realisation, and lastly integrating supply chain “from farm to fork”. We identified three crucial areas where the investment by corporate sector could change the course of agriculture.

 
Firstly, there is a need to improve the existing underdeveloped marketing system for better access. It is widely believed that regulated wholesale mandis managed by APMCs lack infrastructure and are inadequate to cater to surplus production. The Dalwai committee report (2017) estimates that the country requires 10,130 agriculture markets based on population, production, and geographical area. Currently, there are 6,676 markets in the country and thereby have a space for additional 3,568 markets. With the passing of Farmers’ Produce Trade and Commerce (Promotion and Facilitation) FPTC Bill, barrier-free trade outside the physical premises of APMC markets is permitted. The legislation creates an opportunity for the private sector to intervene and invest in separate modernised trading platforms. Electronic trading platforms are also as crucial as physical trading platforms. The e-NAM created in 2015 by the government aims to connect all APMC mandis virtually. The objective was to facilitate price discovery through an electronic competitive bidding system with inter-mandi and inter-state participation of traders. However, the true potential of e-NAM scheme has not been tapped yet largely due to the presence of infrastructural gaps like inadequate access to continuous power and internet facilities in rural areas. The legal sanity of FTPC bill has opened new channels for private sector to invest in building robust electronic platforms by curtailing the loopholes of the present system. One such initiative is recently launched e-Kisan mandi of Pune. It will enable direct marketing of produce from farmer to consumer at minimal or no cost and provide prompt payment. The bills create a power of choice and promote more such innovative alternative marketing channels.

 

Farming for the consumer
 
The trading area defined in the FTPC bill also includes post-harvest facilities like warehouses and cold storages. Given that production cycle is limited to few months, ensuring round-the-clock supply requires sufficient inventories the whole year in cold storages and warehouses. Earlier, private players were reluctant to invest in post-harvest facilities due to abrupt stock limits imposed through Essential Commodities Act. The new bill on “Essential Commodities (Amendment)” will now envisage investment in storage and warehouses by the corporate sector.
 
A well-developed process of marketing along with informed cropping decisions by farmers can go a long way in reducing the price volatility and will enable transparent price discovery. Farmers often make their growing decisions based on price trends rather than demand. This often leads to a cobweb relationship with escalated prices in one season of a particular commodity resulting in large sowing of that commodity in the following year (influenced by previous year price). This then creates a glut in the market followed by a decline in prices and the same cycle continues. Currently, the Agmarknet portal of the government reports only the price and arrival data. Inclusion of commodity wise projected demand data in the same database will assist farmers in making appropriate cropping decisions. If the private sector plans to enter the agriculture sector, it needs to address the issue of ‘producing what the consumer’s wants’ by building a market intelligence framework.

 
Secondly, the FTPC bill will also enhance competition in the agriculture sector. The era of mandi-dominated system manifested in cartelisation of traders along with large incidence of intermediaries that charge high mandi fees. With the entrance of private players, it is plausible that existing mandis will reinvent themselves by reducing the prevalence of licence raj, loosen the entry barriers for the traders, lowering the market fees, and investing in modern facilities. Predominantly, the regulations will expand farmer’s choices and unshackle them from the restrictions on when, where, and to whom to sell. It will also put the incompetent player out of business and create competition, thereby, paving way for lower charges and better facilities for farmers.

 
Doubling farmers' income
 
Lastly, inclusion of corporate sector in agriculture through Contract Farming can be beneficial in multiple ways. The bill titled as “Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act 2020” provides a legal framework for framers to enter into contracts with private companies at a pre-agreed price for a pre-determined quantity (with specified quality standards). Contract farming is a familiar subject in India with its success stories from ITC e-choupal, PepsiCo, Ugar Sugar, to name a few. The concept has revolutionised the sector by providing them guaranteed sale and assured income, reducing the risk of production and marketing cost. It also provides technology dissemination and extension services. However, there are concerns over the limited spread of smallholder farmers in contract farming. The small growers are often not the preferred choice of suppliers by contracting agencies due to their limited use of resources, technology, and land. Hence, in order to make contract farming more inclusive, Farmer Producer Organisation (FPOs) can play a major role. Steps are already being taken to promote the creation of 10,000 FPOs, as announced in Union Budget 2020-21. With this, the government has created a formal entry mechanism for private players to collaborate more with FPOs and build trust among the farming community to augment their footprints in contract farming in India.

 
The recent reforms have created ample opportunities for private sector to invest and weed out long-pending issues in agriculture. The bills, if implemented as planned, will upgrade the marketing structure and boost the competition. Eventually, ushering of private investment is also expected to generate number of positive externalities in the agriculture sector which will also help in achieving government’s objective of doubling farmers' income.
 
The writers are with the NITI Aayog.