The agricultural value chain, its challenges and opportunities in India
The history of agriculture in India dates back to the Indus valley civilization and even before that in some places of Southern India. India ranks second worldwide in farm outputs. In India, 48% of 1.3 billion people depend on agriculture and India’s agricultural GDP stands at $396 billion as of 2018.
Agriculture value chain
The agriculture value chain concept has been used since the beginning of the millennium, although there is no universally accepted definition for the term. It normally refers to the whole range of goods and services necessary for an agricultural product to move from farm to its final customer. The World Bank’s definition of the term “value chain’’ describes the full range of value adding activities required to bring a product or service through the different phases of production, including procurement of raw materials and other inputs”.
Recent trends are prompting an increasingly urgent question around the sustainability of value creation in the future. The extreme weather volatility, growing food demand, and wide gap in the agriculture productivity between India and its peers in the region, and the need to manage food prices and import pulses to meet demand have all highlighted that India needs to rethink its approach [1].
In a significant mindset shift, the government’s focus is moving from increasing farm output to improving farmer incomes. It has set an aspiration to double farmers’ incomes by 2022 through the follow six key agendas [3]:
· Improvement in crop productivity.
· Improvement in livestock productivity.
· Resource use efficiency or saving in cost of production.
· Increase in cropping intensity.
· Diversification towards high value crops.
· Improvement in real prices received by farmers
This will enhance productivity and have multiplied effects on the larger ecosystem.
Challenges in the value chain
Indian farmers face multiple challenges, primary among these are excessive stress on land, water and soil health, lack of knowledge/information about high value/growth products, limited exposure to high productivity practices, weak market linkages, inefficient supply chains with high levels of food wastage, and an acute dependence on rainfall [1]. In order to create an income revolution in the agricultural sector we need to capture the entire value chain right from research to the stage where farmers are able to realise money in their pockets.
Some the key challenges in the upstream of agriculture value chain are:
1. Scarcity of resources — India’s farm resources like land, water, and soil health are hugely stressed. More than half the country faces water stress with withdrawals at 40 to 80 percent of available supply. The labour supply is stressed too; India’s labour market is making a natural structural transition from farm to non-farm jobs — agricultural jobs declined by 25 million between 2011 and 2015, while non-farm jobs rose by 33 million[1]. The rising wages for farm labor make it imperative to improve farm productivity through mechanisation and other measures.
2. Scope to improve yield — Indian crop yields are still significantly lower than other country averages. For example, the average rice yield in India is 3.6 ton/hectare compared to 6.7 ton/hectare in China, similarly Potato yield per hectare is 50% lower than that of US. This could improve by at least 40 to 70 percent with suitable interventions. If productivity does not improve, the country could fail to meet the projected food demand for 2025 and remain dependent on imports of rice, pulses, and Fruits & Vegetables (F&V). To meet the growing demand for pulses, India will need to import around 13 million to 17 million metric tons of pulses by 2025[1]. India would then constitute a very large percentage of global trade volumes in pulses.
Some the key challenges in the downstream of agriculture value chain are:
1. Multiple intermediaries and lack of transparency and traceability — Mandis and FPOs need digitisation to bring more transparency into transactions. Farmers need more sales channels. Data and market connect can empower each stakeholder. India ranks among the top 5 countries in food processing. By 2024, the sector will employ 9 mn and the organised sector has only 60% of the share[2]. Streamlining and traceability can improve farmer income and exports
2. Losses in the food chain — Around 60 percent of food loss and waste in India happens between the field and the end-consumer[1], and this is concentrated in a few crops especially F&V and cereals. Several challenges limit cold chain penetration and adoption — high cost of stable power supply, low capacity utilisation, and limited financing options. These challenges offer a significant opportunity to improve farmer incomes by addressing the storage and handling of food as well as creating market linkages to customers.
3. Trends in consumption moving towards F&V and pulses — Over time the Indian diet has seen significant shift towards higher protein intake. Increase in GDP per capita, changes customer preferences towards healthy foods, leading to increased consumption of proteins especially pulses. Overall the future demand will be driven by F&V and pulses, while wheat will only grow at population growth.This leads to an upstream impact on the type of crops the farmers are focusing on producing.
Given the complexity of Indian agriculture no single policy change or technology shift will move the country towards its dual goals of raising income for smallholder farmers and continuing to strengthen the competitiveness of Indian agriculture.
Digital opportunities across the agricultural value chain
A large number of digital technologies have to be scaled up, some of which have been done already. For example, India has now rolled out one of the most efficient soil health management systems of any country. The sector is now looking forward to using a large number of digital technologies at the pre-production stage, in production and in the post production.
Some of the key opportunities that can create value and boost farmer income are:
1. Digital and analytics — Digitisation and analytics will play a critical role in building India’s farms of the future. Potential disruptions that could unlock value through the food chain are:
a. Precision farming including integrating field data, weather patterns to drive agronomic advice to farmers, and yield forecasting
b. Efficient farm lending with electronic applications, disbursal of loans, insurance payouts linked to weather, field data, Direct Benefits Transfer in agriculture
c. Centralised platform integrating farmers and wholesale markets, to provide timely information for price realisation
d. IoT-based advanced analytics in manufacturing plants to improve availability, throughput, and save costs
2. Financing and crop insurance — can help in strengthening the ecosystem
a. Provide innovative equipment — financing models to farmers through partnerships with manufacturers, weather forecast agencies, and digital partners.
b. Offer easy financing for FPOs for community infrastructure for storage and transportation.
c. Create digital ecosystems for financing and crop insurance.
3. Establishing market linkages between farmers and buyers — This will establish transparency in pricing and better value, especially for perishable products. It could also help to increase farmer incomes by at least 8 to 10 percent. In addition, it will enable the downstream players to source more effectively by eliminating intermediaries. Farmer–producer organisations (FPOs) are already aggregating supply and supporting farmers towards this goal.
4. Investing in cold-storage — Despite current challenges, this segment is expected to enjoy significant growth on the back of rising food demand, supply deficits, and improved market economics. The cold chain market is expected to double in size to reach $7 billion to $9 billion by end of 2020. Cold chain players could invest in alternate energy technologies like solar-powered systems, they can explore chemical treatments to extend the shelf-life of produce, set up pack houses, and reefer transport. They could also optimize the use of existing facilities by opening them up for multiple crops instead of a single crop or product.
5. Invest in F&V and pulses in to meet demand: These investments could unlock around $15 billion to $20 billion by 2025 and boost farmer income by 35 percent. The value chain of will grow disruptively, with demand concentrated in six crops — mango, tomato, potato, pomegranate, onion, and grapes. By 2025, these six crops will account for around 65 percent of the incremental produce value, through a combination of exports and food processing. In pulses, the demand will be driven by a need for packaged and branded pulses, fortified pulses, and the market for ready-to-eat snacks, which is growing at 20 percent CAGR [1].
The digital ecosystem in agriculture
The agritech stakeholder ecosystem is rapidly maturing. There are ~450 agritech start-ups in India and growing at 25% year on year. Every 9th agritech start-up in the world is from India. The is huge opportunity to target all the sections of the agriculture value chain[2]
1. Better access to inputs: Providing better access to agricultural inputs at their doorsteps, it helps farmers to understand the best input to increase yield and productivity
2. Financing: Farmer struggle to get finance, but agritech based start-ups helps such underserved community of farmers to get loans quickly
3. Digital Agriculture: Digital/ precision agriculture based business offer innovative technology solution to increase farm productivity and farming process efficiency
4. Improving the Supply chain: Market linkage provides a digital platform which connects farm output with customers.
5. Farming as a service: Offers affordable technology solutions for farmers by providing easy access to expensive equipment, converting the fixed costs to variable costs.
Several companies are using technology to disrupt existing models and directly reach farmers. GramworkX is one such company and we are seeking to unlock a large opportunity through digital and analytics. This company is born from the desire to be ready for an agricultural transformation which has its core values at poverty reduction, food security and improved nutrition.
Where GramworkX helps is precision farming including integrating field data, weather patterns to drive agronomic advice to farmers and yield forecasting. We are building smart products at affordable prices for the farmers for a sustainable tomorrow.
References:
1. Mckinsey report- Harvesting golden opportunities in Indian agriculture: From food security to farmers income security by 2025
2. NASSCOM — Agritech in India: Emerging Trends in 2019
3. Doubling the Farmers Income (DFI) — Volume 14
