Dr. P K Joshi, Director-South Asia, International Food Policy Research Institute(IFPRI) presented on “Financing Agri-value Chain Development In India – Constraints and Opportunities” at the 27th National Conference on Agricultural Marketing organized by University of Agricultural Sciences, Department of Agricultural Economics, Dharwad

1. Financing Agri-value Chain Development in
India – Constraints and Opportunities
P K Joshi
International Food Policy Research Institute
South Asia Regional Office, Pusa, New Delhi 110 012
India
E-mail: p.joshi@cgiar.org

2. Coverage
1.
2.
3.
4.
5.
6.
Problems of agricultural marketing in India
Evolution of agri-value chain development
and its financing in India
Illustration of few value chains
Benefits of modern value chains to producers
Constraints in financing agriculture and value
chains
Opportunities and way forward

3. I
Problems of Agricultural Marketing

4. Low market development

5. Key problems in agricultural marketing

Dominance of smallholders and small marketable
surplus




Dominance of informal sector in marketing



Small quantity of marketable surplus
High marketing and transactions cost
Low bargaining power (traders’ exploitation)
Low producers’ share in retail prices (30-50%)
Lack of price discovery mehanism
Fragmented supply chain



Adds to inefficiency in agricultural marketing
Multiple and exploitative intermediaries
Low producers’ share in retail prices (30-50%)

6. ……. problems in agricultural marketing

Inadequate markets and marketing infrastructure





Perishable nature of high-value commodities


Inadequate market yards; storage, warehouses, cold
chains; refrigerated vans
Huge wastage of agri-commodity, especially perishable
commodities (30-60%)
Limited packaging, branding and certification
Limited access to market information
High risk (production & marketing: 60-70%)
Food safety issue


Unable to comply due to lack of information
Pesticide residue

7. Growing demand for agri-commodities

Increasing demand for agricultural commodities


Changing consumption basket from cereals to highvalue & processed commodities



Rising income, growing urbanization, unfolding globalization,
changing tastes and preferences
Not only among rich & urban consumers but poor and rural
consumers
Demand of food grains increased by 10% and of high-value
commodities much faster: milk 30%; vegetables 50%; meat,
eggs & fish 100%; fruits 163%
Growing and promising trade of agri-commodities

Europe, Middle East and USA

8. II
Evolution of Value Chains and Financing
in India

9. Current popular supply chain in India
Farmer
Consolidator
Consumer
Trader
Commission
Agent
Retailer
Wholesaler
• Unorganized, fragmented and inefficient
• High transaction costs and high losses
• Low processing and poor food safety concerns

10. Supply chain financing approaches (source: KIT & IIRP
2010)
A. Chain liquidity
B. Agriculture finance

11. (c) Value chain financing

One or more financial
institutions are engaged






Product flow
Finance flow
Information flow
Technology flow
Risk management
Actors





Farmer
Traders
Processors
Exporters
Retailers

12. Key instruments of value chain financing

Financing for buying inputs


Financing for creating assets





Land development, polyhouse development, machine, irrigation
management (drip, sprinkler, micro-irrigation)
Cold storage, warehouse, chilling plants, processing plant, animals
Financing for risk mitigation


Planting material, Chemicals, feed, chicks, packaging material
Insurance for production and transportation
Agricultural commodity futures
Warehouse receipts
Commodity futures market

Price discovery and price risk management

13. Agricultural financing in India
• Nearly half of the farmers have no
access to credit
• 27% have access to formal sources
• Those have no access; 88% are
marginal farmers
Agricultural credit in India, Rs billion
Year
Supply
Demand
Gap, %
2002-03
2562
2665
4.0
2003-04
3004
3260
8.5
2004-05
3583
3811
6.4
2006-07
4411
4944
12.1
2006-07
5361
6745
25.8
2007-08
5817
7741
33.1

14. Sector-wise credit in India
•
•
•
•
Growth in agriculture &
allied credit
• 6.1% in 2011-12
• 7.5% in 2012-13
Processing sector has
16% share in total
agricultural credit
Growth in processing
sector credit
• 18.3% in 2011-12
• 7.6% in 2012-13
Micro-financing has
limited share

15. Financing cold storage & processing


Cold storage and processing are the key areas for financing
Source of financing





National Bank for Agriculture & Rural Development
National Cooperative Development Corporation
Nationalized and private banks
FDI in processing
Processing

12% interest of US$ 150,000 for 5 years repayment



Washing, grading & peeling of fruits
Juice extraction and filtration
Standardization and packaging

16. Cold storage, their numbers and capacity
Commodity
Nos. Share in Share in
Nos, % capacity,

Cold chain logistics
%

Potatoes
3,023
56.1
76.9

F & Veg
158
2.9
0.5

Meat &
fish
482
8.9
0.8

Milk +
products
191
Others
87
1.6
0.1

Multipurpose
1,445
26.8
21.4

Total
5,386
100.0
100.0

3.5
0.3

Constraints

95% of cold storage capacity is with private
sector; co-op has 4% only
Pre-cooling facilities
Cold storage
Refrigerated carriers
Packaging
Warehousing
Erratic power supply
Uncertain market
Uncertain policies

17. Modern Terminal market


Producer/farmers and their associations
Collection centers Direct selling



Modern infrastructure facilities



Electronic auction
Processors; exporters; wholesaler/trader/retail chain operators
Storage; cold storage; temperature control warehouses; ripening
chambers
Washing; grading; storing; weighing; quality testing
Services available


Banking institutions
Settlement of payment; advisory on inputs; prices; transport;
packaging

18. Foreign direct investment (FDI)
• Agro-processing
•
– 100 percent in equity
• Seed development and
production
• Single brand retail
– 100%
• Multi-brand retail
– 51%
• Conditions for FDI in multibrand retail:
– 50 % in backend
– 30% procurement from SMEs
•
Food sector received only 3.3%
of the gross FDI flow in India
between 2000 and 2010
Seed sector
– Cargill, Syngenta, Monsanto
•
Processing sector
– Britannia; Nestle; Kellogg; PepsiCo.,
Perry, etc.
•
Major players in back-end
– Wal-Mart cash & carry
– Metro cash & carry
•
Food service restaurants (single
brand FDI)
– KFC; Pizza Hut; Dominoes;
McDonald’s etc

19. FDI inflow between 2000 and 2013 in food and
agriculture US$ million)

20. Agri-export zone: 60 in 20 states
Jammu & Kashmir: Apples, walnuts
Uttar Pradesh: Basmati rice, potatoes, mangoes,
vegetables
Uttaranchal: Basmati rice, aromatic & medicinal plants
Sikkim: Flowers, Cherry pepper
Himachal Pradesh: Apples
Punjab: Basmati Rice, vegetables
Rajasthan: Coriander, cumin
Assam: Ginger
Tripura: Organic Pineapple
West Bengal: Pineapple, litchi, Darjeeling
tea, vegetables
Gujarat: Mangoes, vegetables, sesame seeds
Bihar: Lychee, Vegetables and honey
Maharashtra: Grapes, Grape wine, mangoes, flowers,
onion
Orissa: Ginger and turmeric
Madhya Pradesh: Onions, garlic, seed spices, lentils
Karnataka: Gherkins, rose, onions, flowers, vanilla
Tamil Nadu: Flowers, mangoes, cashew nuts
Andhra Pradesh: vegetables, mango pulp, grapes,
gherkins

21. PPP initiative in Maharashtra
Crop
Private sector
Farmers covered
Maize
Monsento, Pioneer, Vankys
6,000
Soya
ADM
63,750
Pulses
Rallies India
64,500
Cotton
Nuziveedu Seeds
3,423
Onion
Jain Irrigation system
3,423
Tomato
Hindustan Lever
Potato
PepsiCo
Grapes
Mahendra
Sugarcane
12 sugar factories
618
1,207
200
1,200

22. Emergence of innovative institutions:
contract farming, cooperatives, producers’ companies




Public sector initiatives
 State level Agro-industries
Corporation
Cooperative sector initiatives
 Dairy sector; Safal
 Mahagrapes; Mahabanana
Private sector initiatives
 ITC
 FieldFresh; Heritage
 Mahindra Subhlabh
 Nigger Agro; Goderej; Dabur
 Venketeshwar/Saguna/
Pioneer
Multi-national firms
 Nestle, Pepsi, Britannia, Perry





Opportunity for agri-input
services
 KHB (DCM Sriram group)
 Mahindra & Mahindra
Financial institutions
 Nationalized banks
 Private Banks
Rise of Retail Chains
 Reliance, Foodworld,
MORE
 Nilgiri, and many more…..
Cash & carry
 Walmart, Metro
Producers’ Companies
 Kaushalandera & ………

23. III
Some Illustrations of Improved Value Chains

24. Cooperative model: AMUL milk model

25. Private sector initiative: tomato & potato by PepsiCo
In potato, CPRI, Shimla is
providing technical support

26. Field Fresh Model for domestic and export
market (Bharati and Del Monte Pacific)

27. Value chain & financing cut flowers by Tanflora Corporation
Flowers exported
to Europe, Middle
& Far East,
Australia, Japan
25:75 sharing of
profit

28. Value chain & financing in poultry: Saguna

29. IV
Benefits of Modern Value Chain to
Farmers: Some Case Studies

30. Impact of improved value chain on farmers’
income (Birthal, et al 2007)
Net profit (Rs/t)
4500
3750
3000
3651
2250
1500
2255
1821
2003
750
0
1791
1007
Milk
Contract
Broilers
Non-contract
Vegetable

31. Farm-level production and transaction costs of
improved & traditional value chain (Birthal , et al 2007)
Milk
Vegetable
2500
80 00
70 00
1442
437
100
50 00
40 00
30 00
2000
5586
5728
Unit cost (Rs/t)
60 00
1500
35
1000
1485
1630
20 00
500
10 0 0
0
0
C o n tra c t
P ro d u c tio n
N o n - c o n tra c t
T ra n s a c tio n
Contract
Producti on
Non -contract
Transacti on

32. Incentives in Wal-Mart: Cash and Carry

Form self-help groups, work with civil society
organizations and appoint field agronomist

Provide expert advise
Soil testing and provide agri inputs
 Demonstrations in partnership with Bayer Crop
Science and seed companies
 Benefits




20-30% higher yields
7-8% higher prices, and 3-5% incentives on quality
Reduce marketing cost 10-15%

33. V
Constraints in Financing Farmers and
Value Chains

34. Problems in developing improved value chains

Breach of contract


Low bargaining power of smallholders


Restricts change in production portfolio
Dependency on the firm in the long-run


Low volume
Asset specialization


Producer or the firm (mainly on output prices & quality)
Access to market, information and technology
Monopsony in the long run

35. Major constraints of processing sector
(source: Kucjru, 2012)
• Low capacity utilization
• Poor recovery of the finished product from the raw
materials
• Problems of arranging adequate working capital
and its management
• Low product quality
• Unreliable assured power support

36. Constraints in financing improved value chain

Dominance of large number of small and unorganized
farmers

High transaction cost of the firm and financer


Unorganized and fragmented agri-marketing




Lead to inefficiencies and losses
Uncertainty of default repayment
Week legal framework
Unstable business environment


New pilot on how kirana shops can become bankers
Instable policy environment
Government policies

Strong bureaucracy, stringent regulations, political uncertainty

37. Drivers of value chain success (Source: Parthasarthy et al 2004)
Success relies on
road network and
urbanization
Page 37

38. VI
Way Forward

39. 5-point program

Consolidate producers, their production & produce


Develop markets and market infrastructure



Agriculture Produce Market Committee (APMC) Act is a major obstacle
Implementation of Model Market Act with caution
Create business-friendly environment



Improve existing markets, processing sector and develop new markets
Reform markets


Producers’ associations or cooperatives, self-help groups
Consistent and sustained policies
Incentives for financial institutions
Incentives for investment in rural infrastructure


Warehouses, chilling centers, ICT in agriculture
Develop road network; stable power supply (new sources such as solar)

40. Thank you
Thank you
Page 40