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VIEW: Agri Reforms for stable Agricultural Systems

VIEW: Agri Reforms for stable Agricultural Systems

VIEW: Agri Reforms for stable Agricultural Systems
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By CNBCTV18.com Contributor May 22, 2020 9:15:58 AM IST (Updated)

The recent fund allocation of Rs 1 lakh crore underpins the importance of infrastructural development in the agriculture sector and allied activities, especially in local supply systems.

Authored by: Ajay Kakra

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The measures announced by the Finance Minister under the Atmanirbhar Bharat Abhiyan have focused on three key Agri reforms and on boosting the agriculture and allied sector by strengthening its infrastructure and logistics.
Infrastructure is one of the five cornerstones of the Aatmnirbhar Bharat Abhiyan, which will rejuvenate India's agrarian economy. The recent fund allocation of Rs 1 lakh crore underpins the importance of infrastructural development in the agriculture sector and allied activities, especially in local supply systems.
This fund comes as a breather for the farmer producer organisations (FPOs), farmer cooperative societies, agri-entrepreneurs and startups which want to integrate and access these facilities within the vicinity of their farmgate and aggregation points.
In shorter supply chains, logistic costs dramatically come down, providing a direct benefit to the investing farmer. Secondly, the supply chain becomes more transparent and leaner, thus minimising leakages and other associated risks. Currently, around 80 percent farmers sell their produce to large consumptions centers within 500-600 kms of their locations.
One of the reasons for opting for a shorter supply chain is the non-availability of infrastructure and logistics support to reach distant markets. A box of apples from Himachal Pradesh will fetch 30-40 percent more premium in Mumbai or Bangalore during the apple season. However, due to factors like high market risk and lack of reliable trade facilitation systems, farmers do not directly sell to distant markets.
There is a greater need to create a better trade facilitation framework which can help farmers to make effective decisions for selling his produce and support during the entire transaction. Therefore, the need of the hour is to develop infrastructure, which will not only support the local supply systems but also help capitalise on high demand, high price markets at distant locations.
The announcement of Rs 10,000 crore funds for Food Micro Enterprises, which will benefit 2 lakh micro enterprises/ startups is a welcome step. This will strengthen the food micro-enterprises/startups who are facing multiple issues like limited access to capital, lean workforce, vulnerability to sudden market changes, low-risk appetite and high dependency on supply chains.
It is seen that as high as 70-80 percent of the startups/ FPO’s succumb market distortions during the first two years of their existence. This may be attributed to factors like high debtors, unsold inventories, sudden spikes in the raw material costs, delays in funding, lack of growth capital etc.
Only 20-30 percent who survive in these environments have a clear view of the markets, limited or no bad debts, shorter working capital cycle and very effective inventory management. Apart from these, the key factor enabling the success of these enterprises is the market connect and vision of the promoters.
With the COVID-19 crisis, consumers have now become even more conscious of food quality and food safety. This is opening new opportunities for innovative startups and unconventional business in the food sector. Consumers more than ever will rely on standardisation and uniformity in quality and service. Thus, enterprises oriented towards safer and high-quality food may gain importance.
Since we are adopting a cluster-based approach, it needs to be supported by an ecosystem of uninterrupted supply of raw materials, trained manpower, availability of packaging material and the essential utility services for it to be sustainable. What they also need is guidance and mentorship from industry experts who can help them ‘win’ in their first attempt. Further, cluster development also needs to be aligned with financial systems. The current financial system is oriented towards an individual or business type. However, if the clusters are to be holistically developed, we need to have targeted products for each identified cluster.
The formal financial system of banks and NBFC’s has to orient themselves towards this reality and develop specific products to support the enterprises working in these clusters. Further, transaction security also needs to be enabled for creating a healthy ecosystem for the new enterprises /FPO’s. Stringent regulations for monitoring financial transactions between buyers and sellers also need to be developed.
Providing an accessible platform for the sale of finished goods is equally important for micro-enterprises. E-trading infrastructure can play an important role here. With food safety now at the top of mind for consumers, digital platforms ensuring end-to-end traceability in the food value-chain and its adoption should be promoted by the government by incentivising the micro-enterprises to adopt them.
-Ajay Kakra is Leader – Food and Agriculture, PwC India. The views expressed are personal
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