Let’s look at the entire value chain of the agriculture sector. First, ab initio there is the problem of small landholdings in India with 85% of the farmers possessing less than two hectares of land. This severely constrains achieving economies of scale. Further, many land-owners do not till their land and are detached from the rural economy while informal arrangements of land-leasing are used for such lands. This give rise to agency problem, as none of the parties is fully invested in the farming process. These twin problems of land holding can be resolved by Land records Digitisation & creating a regulatory framework for formalized land leasing so as to allow free flow of land capital.
Land records digitisation, an ambitious program launched in 2008 is still to gain traction. As of 2016, various factors are in place that can speed up the process viz. an indigenous IRNSS (Indian Regional Navigation Satellite System), a renewed Government push to connect rural India by ‘Bharat Net’, the JAM (Jan Dhan, Adhaar, Mobile) trinity and a veritable digital entrepreneurial ecosystem which is actively pursuing the white spaces in the agriculture sector. These factors when taken together, have the potential of completing the land records digitization program by 2020 with clear land ownership titles available on tap. With informational asymmetries reduced, time would be ripe to allow free flow of land capital.
Second, the agricultural production system is also up for a major overhaul till 2020. The delicate balance of fertilizers to be used for a particular crop is dependent upon the soil characteristics. The ‘Soil health card scheme’ of GOI is envisaged to create a digital ecosystem where each land-owner knows the characteristics of his land. As of 2016, 2 crore soil health cards have already been created. Tech start-ups are coming up in a big way in the space of pest & disease control, fertilizer and crop pattern mix to provide customized services based on the farmer’s needs. Further, big businesses like ITC and PepsiCo are also leveraging the same in their contract farming. Till 2020, the agriculture production is expected to become based on land & market characteristics instead of historical heuristics.
Third, the post production space is witnessing the maximum upheaval from all the three stake-holders viz. the farmers, government & businesses. The APMC act which mandates selling of the farm produce through mandated mandis is being rapidly dispensed by state governments, while the Central Government has initiated an ambitious project: ‘Electronic National Agricultural market’, a common nationwide electronic platform for buying & selling of farm produce. The Arhatiya system (informal usurious lending system to farmers, for farm produce in return) is also fading as more & more farmers are being brought in the formal financial system. It further received a setback with the recent demonetisation move of the government. Apps like RainbowAgri & MandiTrades provide farmers real time information while government is also creating multichannel approaches through its portal mkisan to eliminate information asymmetries. Moreover, Food processing industry is actively engaging with farmers through digital channels like e-choupal.
In a nutshell, digital interventions by government & businesses are making rapid strides in the entire agricultural sphere of the economy. We can realistically expect quite a few inefficiencies in the land leasing market, production space & the trading space to dissipate in next 5-6 years. As per government projections, farmers’ income are expected to double by 2020. At the same time, we need to know the limitations of the digital interventions. There are at best a method to bring in efficiency but not deliver fundamental changes. We still need massive investment in irrigation facilities, R&D and cold storage supply chain space as the Indian agriculture continues to witness lower yields (rice yield per hectare in India is 35% of China’s) and farm produce wastage (INR 133 billion worth of food & vegetables rot each year due to lack of cold storage facilities). It is hoped that the efficiencies delivered by the digital interventions would be the catalyst for spurring the growth in the entire agriculture space and thereby drive investment in irrigation facilities, R&D and supply chain.
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About the Author:
Aman Jindal, a Financial Economics enthusiast, is a FRM Part-II & CFA Level-I cleared student at IIM Kozhikode. An avid reader of English Classics, he loves having conversations on topics ranging from philosophy to politics.
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