Reforming agriculture

P R O F . ( D R . ) S A U R A B H A G A R W A L
P H D ( F M S , D E L H I U N I V E R S I T Y ) , M . P H I L . ( D S E ,
D U ) , M . C O M . ( D S E , D U ) , B . C O M . ( H ) ( S R C C ) , U G C
( N E T ) , A M T ( A I M A )
V I C E - C H A I R M A N & P R O F E S S O R O F F I N A N C E
I N D I A N I N S T I T U T E O F F I N A N C E ( W W W . I I F . E D U )
4 5 A , K N O W L E D G E P A R K I I I , G R E A T E R N O I D A ,
U T T A R P R A D E S H 2 0 1 3 0 8 , I N D I A
Reforming Agriculture: Policy
Issues and Perspectives

RA: Policy Issues and Perspectives
 Indian Agriculture has become more robust over the
past few years with record production of food grains
 India also prides itself of being one of the largest
producers in the world of rice, wheat, milk, fruits and
vegetables
 Then why is India home to a large population of
malnourished people?
 Is it because of threats like El Nino/cyclone or poor
efficiency of supply chain in agricultural
warehousing?

RA: Policy Issues and Perspectives
 The contribution of agriculture to our gross domestic
product (GDP) is constantly declining (i.e. declined from
15.2 percent in 2012 to current 13.9 percent in 2013)
 Despite the low contribution to our GDP approximately
55% of our population is engaged in agriculture
 This clearly shows a large proportion of our population
sharing a very low proportion of economic wealth
resulting in poor working and living conditions for a
large section of Indian farmers
 This is the main reason for currents shift from farm
employment to non-farm sectors even in rural areas
 This is also resulting in an exodus of individuals from
rural areas to urban centers

Current Scenario and Challenges
 Agriculture is growing averagely at the rate of 4%
 Some states like Madhya Pradesh have recorded a high
agricultural growth rate of 24.99% (in 2014)
 How to replicate the success story?
 How can States and the Centre come together to increase
agricultural production and productivity
 A number of steps have been taken including development
of farmer producer organizations (FPOs) for enabling
better market linkages for marginal farmers
 Funding is being given under many government schemes
including Rshtriya Krishi Vikas Yojana

 Attempts are also being made to have green revolution
in Eastern India through BGREI Scheme having an
outlay of Rs. 1000 crores
 Major issue that confront Indian agricultural scientist
is how to improve the yield levels of marginal
landholding throughout India
 A large number of small and marginal farms (1.16 ha)
limits the capability of farmers to access advancements
in research, gain access to credit, access to modern
inputs, appropriate technology and marketing systems
making them susceptible to agents of Agricultural
Produce Marketing Committee

 Direct selling through 'Rautu Bazar' or to super
markets directly may improve the situation of
farmers by eliminating the middleman or the agents
 The gross capital formation (GCF) is steadily
increasing and is dominated by investments by
private sector
 While public GCF is directed towards subsidies,
private GCF focusses on labour saving machinery for
irrigation and other purposes

 Advanced level of research is being carried by
institutions like ICAR to produce a variety of crops
suitable for different agro-ecological niches and last
year itself 104 varieties of various crops were
released
 Such breeder seeds are being produced in large
quantities for the benefits of farmers
 Attempts are also being made to develop high
quality seeds under various government schemes
and it is mooted to develop a Seed bank that can
keep a record of all possible cross-pollinated hybrid
crops.

 Soil quality is another issue affecting productivity in
agriculture
 Fertilizers are often used to improve the productivity
in agriculture
 Import of components used in creating fertilizers
limits its availability
 To overcome the problem associated with import
dependence of potassic (K) and phosphatic (P)
fertilizer, Indian companies are being given special
incentives for have joint ventures with international
companies to enable a long term supply of fertilizers
in India

 Mechanization and Technology improvement of
Indian Farm sector is another grey area requiring
significant focus of agricultural scientists
 While the level of mechanization in developed
countries is around 90 percent, our farms are
averagely mechanized around 25 percent only
 With rural youth increasingly leaving farm
employment, it is necessary to increase the level of
farm mechanization to prevent any fall in the level of
production

 A large number of irrigation projects are being
executed at an outlay of around Rs. 64,228 crores
through central loan assistance/grant under
Accelerated Irrigation Benefit Programme (AIBP)
 Yet only 45 per cent of the net cropped area is
irrigated
 Hence, it is important that indigenous measures like
creating local ponds and crop diversification may be
undertaken to prevent further lowering of water
table

 For policy responses in agriculture, it is
recommended that the water use should be made
more efficient and government support to use of
harmful inputs should be withdrawn
 Agricultural Credit of Rs. 7,30,765 Crores were
disbursed in 2012-13 at a nominal rate of 4 percent
 Small and marginal farmers could avail the benefit of
loans by use of kisan credit card
 However, a focus must be laid not only on disbursal
of loans but also educating farmers of the ills of
taking the loan

 To prevent any default on the part of the farmer,
crop insurance may be undertaken
 Crop insurance is being made more accessible by
making village panchayat as the insurance unit
 It is important that hedging of risks should be
permitted with the use of Weather Derivatives, a
concept largely unknown in India

 The price policy and tax structure has inevitably
done more harm than good to agriculture
 In a country that got free 67 years ago, our farmers
are still forced to sell their produce either to APMC
or at Minimum Support Price (MSP) or the price is
governed by some act like Essential Commodities
(EC) Act 1955
 Also, movement of agricultural produce from one
state to another is permitted under a much regulated
framework

 An attempt has to be made to realize that this is one
country and a farmer should be free to sell his
produce anywhere in India based on wherever he
would get the best possible price
 Attempts have been made in this regard and we
have recently seen development of e-mandi's in India
 Commodity Futures Market under the regulation of
Forward Markets Commission currently allows
trading in 46 out of 113 commodities that are notified
for commodity trading

 The trading takes place on 6 National Exchanges and
11 Commodity Specific Exchanges
 Agricultural Commodities constitute around 15.8
percent of the total turnover on these exchanges
 Amongst agricultural commodities, it is the food
items like soya oil, soyabean, chana, mustard seed
and coriander that are maximum traded contributing
around 55.56 percent to the total volume of
commodity futures trading
 Farmers can get better prices of produce in case we
are able to reduce the information asymmetry and
educate the farmers about cropping strategies

 Farmers can access information on spot prices of
around 1700 mandis that can be seen on
AGMARKNET
 Such a platform can certainly help in better price
discovery provided the government does not
intervene too much by imposing ban
 Such infrastructure may also be used for the benefit
of farmers for protecting them against risk of falling
prices.

 A large proportion our Agricultural produce gets
rotten away or is lost in pilferage
 To overcome this loss, Warehousing Development
and Regulatory Authority have been set up recently
to promote the infrastructure in warehousing in
India
 To facilitate liquidity amongst farmers on their
produce, a concept of Negotiable Warehousing
Receipts (NWRs) has also been developed

 In this a farmer can get loans from financial
institutions based on the quantum of agricultural
produce that is deposited by the farmer at registered
warehouse
 However, there remain huge infrastructure needs
that can store agricultural produce and issue such
NWRs
 It is also important to invite international
investments and technical assistance in areas like
packaging, storage, transportation, cold chain and
processing of agricultural produce

 Many initiatives by the government like creation of
mega food parks and cold chain infrastructure
require a greater push and financial support
 Trade policy in India has predominantly remained
ad-hoc without focus on economic rationales and
primarily motivated by political vote banks
 Attempts are needed to stabilize prices domestically
and follow a stable export policy to enable India
become one of the largest exporter of agricultural
produce

 This will not only bring valuable foreign exchange but also
improve the per capita income of farmers
 Kommerskollegium in his book on “Open for Business: A
Comparative Analysis of the Trade Policies of the European
Union (EU), the United States (US), Canada and Japan”
found that the tariffs for agricultural goods were more than
that for industrial goods
 US was found to be having lowest and least distorting tariff
structure
 Canada had a lot of difference between the maximum and
the minimum tariff
 EU was least transparent and Japan had unbounded tariff.

 The market access for agricultural goods was found
to be more unpredictable for the EU and the US and
most predictable for Canada
 As regards export subsidies, EU was the largest user
followed by US, Canada and finally Japan
 The farmers in Japan and EU were found to be
dependent on government for budgetary payments
and market price support
 On the other hand, US and Canadian farmers were
more dependent on the market

 US and Canada were found to be more open than EU
and Japan
 We may study the trade policies of US and Canada
and adapt their policies to suit indigenous needs of
our agricultural markets.

Transnational Corporations (TNC)
 Impact of TNC on environmental and social
concerns, land degradation, land tenure rights, food
security and protection of local people
 Transfer of technology, standards, skills and access
to credit and markets
 Issue of “land grab”
 Millennium Development Goals adopted by United
Nations
 Heavy investment in agriculture

Transnational Corporations
 To promote bio-fuel initiatives and growing
sugarcane, grains, oilseeds and jatropha in
developing countries
 Effect of TNCs on food crises, bio-fuels, water
resources, ecological balance, deforestation,
biodiversity, carbon emission etc.
 How to strategize agricultural production?
 Need for a multi-stakeholder mechanism
 How to have an integrated approach towards
agriculture, investment, infrastructure, competition,
trade and R&D?

 How to address the environmental and social
concerns that will arise from TNCs involvement?
 How can regional economic integration help in
boosting agricultural production?
 How to promote contractual linkages between TNCs
and local farmers?
 How to review the FDI entry regulations and land
use policies?
 What would be the priority areas for research and
development?
Transnational Corporations

Saurabh Agarwal, Warehousing and Financing Options
26
Overview
Warehousing Capacity Expansion: DHL Global Forwarding,
Future Group, Gati, Suri Agrofresh etc.
Setting up of Computer Controlled racked shelving (MJ
Logistics Services)
Setting of Agriculture Economic Zone along the lines of SEZs
enabling tax exemptions
650 crores allocated to National Cooperative Consumer’s
Federation of India (NCCF) for development of warehousing
facilities in 12 states/672 Crores given as subsidy under scheme
of construction/renovation of rural godowns.

27
235.13 (in lakh MT) of foodgrains with FCI (10/2010)
Storage
Better warehousing will enable better management of
Inflation
Political will for promoting warehousing infrastructure
Liberalised Scheme for hiring of warehouses (2010)
GOI unique Private Entrepreneur Guarantee Scheme (2010)
Guaranteed hiring of godowns
Income Tax Benefit u/s 35 AD
Foodgrains

28
FIFO Technology to be part of the Warehousing Policy
System of Containers marked with date of storage to
enable quick transportation and disaster management
In- Out Method of Storage
Storage

29
Y shaped Storage of
Food grains

30
How to Manage Warehouses
Adoption of EOQ Method to manage foodgrains
Quantity
Period
Maximum
Average
Minimum
Danger Zone

31
Warehouse Receipt Financing – Agricultural and Non
Agricultural Commodities
The negotiability of warehouse receipt
Registration and accreditation of warehouses intending to
issue negotiable warehouse receipts
System of quality certification and grading of commodities
How will the farmers and Financial Institutions Benefit
Postponement of sales beyond the harvest season
WRs are secure collateral for obtaining finance
 “price takers” to that of “price negotiators”
Is There a Downside for the Farmer?
Micro Economic Perspective

32
Warehousing Receipt Financing - Advancements
1% Loan Waiver on Loans Against Godown Receipts thereby
reducing the loan rates from 12-12.5% to 11-11.5%
Last year the concessional rate offered by SBI was 8%
 Full negotiability of receipts issued by registered warehouses
Registration of warehouses likely to become mandatory
Till date around 40 agri commodities notified including cash
crops, staple and coarse grain
Likely extension of loan waiver to food processing and
horticulture
51 warehouses registered by regulator as compared to 318
applications
Registered warehouses are located in Rajasthan, Tamil Nadu,
Andhra Pradesh and Madhya Pradesh

33
From Whom?
TQ, Tata Projects Limited, American Quality Assessors
(INDIA) Private Limited
Bureau Veritas Certification (INDIA)Private Limited
BSI Group India Private Limited
The National Productivity Council
 Indian Grain Storage Management and Research
Institute (IGMRI)
 National Cooperative Development Corporation
(NCDC)
 National Institute of Agricultural Marketing (NIAM)
Accreditation

34
Field warehousing involves a manufacturer making available a
portion of his property to the warehouse which may be
separated from the rest of the plant with the help of partitions
Advantages
1. The manufacturer benefits, as he can deposit the raw
material with the warehouse and in return get warehouse
receipts which can be further be used as a security for
securing a bank loan
2. The warehouses companies benefits by generation of
additional business without having to invest in land and
building
3. Banks will also have to think creatively of entering into this
new area of working capital financing
Field warehousing

35
National Horticulture Mission (NHM) was launched in 2005-
06 for Fruits and Vegetables.
Results in 2010
Under the post harvest management component, 898 pack
houses, 46 cold storages, 14 refrigerated vans, 7 wholesale
markets and 45 rural markets have been set up
Requirement of adopting warehousing
Technology as adopted by Walmart etc.
Horticulture – Opportunities for PPP

36
Mr. Vishwas Kachare who in period of 30 years has been
able to shift from a small hut to a 40,000 sq ft farm house in
Telanwadi. Starting from 27 acres of barren land to his
current day orchids of more than 300 acres
Mother Dairy's Safal whereby sorting of fruits and
vegetables into different categories and packing is done with
the help of farmers have significantly reduced the time lag
and burden on existing cold chain infrastructure
Use of Global positioning system (GPS), better electronic
weighing systems, local language billing machines and
General Packet Radio Services (GPRS) for updating the
details on the central server - Krishnagiri district (Tamil
Nadu)
Innovative Case Studies

37
To provide information of
Accredited Warehouses
Availability of Warehouses
On time, On budget, Right Functionality
Serve Commodities Future Market and Spot Exchanges
The nationwide grid-computing initiative, Garuda, aggregates
supercomputing and storage resources nationwide, provides a
problem-solving environment, and enables collaborative R&D for
research and user community. Garuda connects 45 premier
institutions across17 cities.
Data Warehousing & Electronics and
information technology

38
Ports
Areas have been opened up to the private sector on BOT
basis
Areas opened up include construction of cargo-handling
berths and dry docks, container terminals and warehousing
facilities and ship-repair facilities.
Ports Warehousing – Investment Opportunities

39
 Introduced in 1997, under which food grains are procured and
distributed by the State Governments themselves
Advantages
 Wider coverage of farmers
 Higher Efficiency in the form of saved transportation and
reduced pilferage.
 Is successful for rice but not for wheat.
Questions
How can this be made efficient?
How can it be extended to other agricultural commodities and
non-agricultural commodities
Decentralized Procurement Scheme (DCP)

40
Financing
A. Domestic Financial Markets:
i. Equity finance
ii. Debt Finance
iii. Domestic Capital Market
iv. Financial Developmental Institutions
B. International Financial Markets:
i. Multilateral Institutions
ii. Export Credit Agencies (ECA)
iii. External Commercial Borrowing (ECB)
iv. Syndicated Loans
v. Private placement
vi. Global Depository Receipts (GDRs)
vii. Weather Derivatives & Hybrid Instruments

41
B. International Financial Markets:
viii. Private Equity
ix. Mergers and Acquisitions
Example: (5 deals in last month itself)
a. Warburg Pincus putting $100 million in Continental
Warehousing Corporation
b. Fidelity Growth Partners investing $13.5 million in
Transpole Logistics
c. Aqua Logistics taking over Nikkos Logistics
M&A activity centred around Freight Forwarding companies
Financing

42
C. Internal Resources
D. Public Private Partnership
E. Forward Need Financing
This will prevent cost of capital being added to cost of
food grains
Financing

43
Capital Structure Financing
- Domestic Financial Markets
1. Equity finance
2. Debt Finance
3. Domestic Capital Market
4. Financial Developmental
Institutions
1. International Financial Markets
2. Multilateral Institutions
3. External Commercial
Borrowing (ECB)
4. Syndicated Loans
5. Private placement
6. Global Depository Receipts
(GDRs)
- Weather Derivatives & Hybrid
Instruments
- Internal Resources
-Public Private Partnership
- PE and M&A
Financing
Working Capital Financing
1. Field warehousing
2. Warehousing receipt
financing (WRF)
Financing by FCI/CWC
Forward Need Financing

44
Hi Tech Farming
Vikas Rai – Farm at Nihal Khera Village in Punjab Fazzilka
district
 90 HP John Deere air-conditioned tractor, which he bought
in 2009 for Rs.18 lakh
 Who rotates cotton and wheat on his 150 acres
 He is now set to spend Rs. 25 lakh on a seed driller and a
sprayer
 Even as neighbors opt for Rs. 60000 seed drills, Rai is going
to buy a Rs. 13 lakh Lemken, a German brand, after he sells
his wheat crop this April.
 On one acre of land for cotton sowing, he is using four
packets of 500 grams of hybrid seed, with the new machine,
he only needs to use one packet, costing Rs.900-950 and
yielding 15 quintals per acre

45
He’s targeting yields of 20quintals of wheat from an
acre
By using Lemken’s duck foot cultivator to prepare land
for sowing , he used 30% less diesel than his neighbors
at 4 liters an acre
Investing more than Rs.1crore on farm equipment
At 48 degrees Celsius in the firs week of May, it’s a joy
to cultivate land for cotton driving an AC tractor
He wears his best clothes when he goes to cultivate his
land, which only takes two hours unlike the previous
time of eight hours
Hi Tech Farming

46
 Sumanta Bisui, 30 – Owner Bisui Poultry
 Learnt Poulty farming at companies such as Chakra India,
Uma Kiran Industries and Sai Durga Industries
 Key Learning - “Keeping the feed cost under control is key to
profitability in poultry farming”
 Initial capital Rs.2crore from father and friend, Term loan of
Rs.4crore, Working capital of Rs.69lakh and Bought 56big
has of land in Nuniadihi
 Bisui Poultry has 90000 layers or chickens raised for their
eggs
 Orders are also coming from traders in Jharkhand
 e-commerce platform to market my eggs and chickens across
India
Poultry

47
 Jayawant Patil, 27, works in an information
technology company in Pune four days a week
 Part Time Organic Farmer
 Tending to his 2.5-acre farm about 80 km
away from Pune
 Started work on a website to connect organic
vegetable growers with customers
 To get first-hand experience to understand
these fully he got into organic farming
Organic Farming

48
 The organic certifying agency, said the companies
involved in organic farming are mostly export
oriented. “The first type is of the traditional farmer
practicing organic farming to earn their bread and
butter. The second type is the increasing breed of
urban farmers, who have turned to growing organic
food as a passion or liking,”
 Marketing is the biggest challenge
 The most effective marketing channel is digital.
Orders are processed through websites, voice SMSes
and e-mails
 Future Prospect for Development - Organic processed
fruits
Organic Farming

49
Aquaponics
 Vijayakumar Narayanan, 40, - returned to his native
village in Kerala two years ago after spending
20years in various jobs in India and the Gulf, he
wasn’t too sure about what to do
 Plunged into aquaponics - “Inspired from
hydroponics - Cultivation of plants without soil in
water often with the help of chemical nutrients”
 Aquaponics - Combination of aqua culture and
hydroponics and use water rich in fish waste to
cultivate plants
 This method is more organic in nature and doesn’t
involve the use of chemical nutrients

50
 Double guarantee for a farmer - income through
fish and vegetables
 Though Aquaponics was practiced by the Aztecs in
Mexico thousands of years ago
 The farmer can start with 500 kg of fish in a pond
with 10,000 litres of water in about half a cent in
the backyard. (1cent = 435sq ft.)
 The investment will be around Rs.40,000/- to
Rs.50000/-
 For commercial operations, a minimum of 4 cents is
needed, along with 5000 kg of fish and 50000 litres
of water and an investment of Rs.1.50-1.75lakh
Aquaponics

51
Aquaponics
 Investment can be recovered in the first six months
from the fish and vegetable harvests
 Plants are grown on sheets of gravel laid on the
banks of the pond
 Two pumps-one for blowing air into the pond and
the other for pumping water on the gravel where
plants are grown will have to be run continuously –
Electricity Cost
 Subsidy for the electricity charge from Fish Farmers
 Ammonia from the fish waste in the pond gets
converted into nitrites through bacterial action

52
Aquaponics
 Nitrates aid in plant development - Leafy vegetables
like broccoli, lettuce, spinach, palak, pudina are the
best, apart from tomato, lady’s finger and brinjal
 In six months, one can get three harvests of leafy
green vegetables
 Danger - The farmer needs to fear only airborne
pests since there’s no soil involved. These can be
dealt with using bio insecticides such as tobacco
juice
 A farmer can easily get an income of Rs.4lakh or
more a year

53
Thank You

Reforming agriculture

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