India: The food Factory to the world

India: The food Factory to the world
Written on 22nd sep 2004 on my ecademy blog pages

India's future lies with Agriculture because of many reasons:
1. Oil will run out as a resource in the next 50 years. As the world moves closer and closer to this scenario, prices of oil will keep going up pricing out agriculture produce from North/South America and Europe to Asia because of the high cost of freights. Oil is the cheapest source of energy for transportation of produce by large ships. The west will face a double whammy of rising freight rates and declining subsidies. India has the advantage of doing railway rake shipments to many of the deficient countries in Asia. In future we will have rail shipments even into Asia has the largest population among continents and is the biggest importer of agriculture produce.
2. I see a kibbutz/contract farming like models evolving where India will become the food factory to at least ASIA if not the entire world. This scenario will play out exactly like the IT/BPO industry today. Farming will be outsourced to India for the same reasons that IT/BPO services are outsourced to India: 1. Global Markets 2. Lower costs of labour in India 3. Ability to deliver quality. India has no shortage of farm labour for the next 50 years with a very large population of people under the age of 35.3. India is has the largest landmass under irrigation in the World. India also has the largest arable landmass of any country. India also has very low productivity, which is a blessing in disguise and is probably the only large country where mere knowledge dissemination and plugging of extension gaps can lead to a doubling of food grain.

4. India's being a vegetarian country because of socio cultural and economic factors is also a blessing in disguise as it will be able to export its surpluses to countries like China, Middle East and South East Asia for food as well as feed purposes. Production of 1 tonne of meat requires anything between 2 and 5 kg of grain, oilseed meal etc which is the reason why Chinas grain consumption is double that of India even today.

5. The Indian farmer has a low aggregate means of support and is not heavily subsidized like his counterparts in the rest of the world. In stock markets terms, agriculture is in a down cycle now and the upcycle will coincide with the decline in the fortunes of the oil industry worldwide which in my opinion has already begun.For the above scenario to play out reduction of the government role in agriculture is very critical. If the government removes the policy bottle necks which obstruct the growth of the Agri food sector, India will become a global power in agriculture.

The following are some of the laws which need to be changed:
1. Allow Foreign Direct Investment into Retailing with the CAVEAT that the giants coming in should export 25 percent of their local turnover. This will bring the WALMARTS, Aholds, Tescoes and Carrefours of the world into India who would make investments in building supply chains and distribution systems for all produce including food and agriculture.

2. The APMC Act needs drastic revision and there should be complete waivers on mandi taxes for players making investments in rural supply chains on the lines of ITC Choupals and other initiatives.

3. Integrated Food Laws which will remove the multiplicity of agencies which regulate the food sector. Taxes on the food processing and agriculture sector needs to be rationalized to promote investment into agriculture and food processing.

4. Laws on land leasing/contract farming need to be simplified for bringing in power of scale to agriculture without affecting the titles or ownership of land.

5. Creation of a large network of volunteers within the agricultural sector who can then help complement the efforts of the Public and Private sector extension efforts. Organisations like Indian Society of Agribusiness Professionals are leading this effort. Private sector extension.

6. Supporting large number of private sector media and field based extension initiatives like Agriwatch.com. Growth of multiple players in this space is vital to the plugging the information asymmetries in this sector.

If I were the Prime Minister of India

The opening up of the farm sector is partly responsible for the crisis amongst cotton growers but the crisis in the entire agriculture sector has emerged because of criminal under investment and utter neglect by policymakers. Farming is not remunerative and there is a crisis because of 1. low productivity, 2. poor water availability, 3. lack of credit, 4. low farmgate realizations, 5. lack of market intelligence and 6. lack of risk management tools. If I were the prime minister of India, I would do the following immediately to sort out the agrarian crisis in India:
Tackling exploitation: The central government should promulgate a “Prevention of Atrocities on Farmers and Farm Labourers Act” for addressing usurious moneylending and land grabbing. Under this act all land that has been grabbed by moneylenders in the last 10 years should revert back to the owners. Courts must be instructed to fast track cases instituted under this act.
Securitising moneylender assets: The central govt must instruct lead banks in all the districts through RBI to securities loans of legal moneylenders to farmers and take the asset pledged with moneylenders as their own security and reschedule the loan from the farmer as a loan to the bank. For people who are landless or who do not have assets, such loans must be taken over by banks or MFIs or co-operative banks on their books against the cash flows due to these people under the NREGP.
Medium Term Solutions for Credit: The central instruct all PSU and large private banks them to create 6000 odd Micro Finance Institutions under their tutelage at every tehsil in the country within six months. MFIs would lend to members and riskier classes which are outside the purview of the banking system today and who are serviced as well as exploited by money lenders.
Augmenting water availability and efficiency: The 400 odd pending projects round the country need around 1,50,000 crores to be invested to add 21 mha of irrigated land and the center should pick up 100 pct of this cost since the states are broke. Improve efficiency (from 30% to over 40%) of water use in irrigation requires quantum jumps in use of drip and sprinkler irrigation in India and for adoption the costs of these items have to be made far more cheaper than the levels existing today. Rainwater harvesting should be mandatory for all constructions in India.
Addressing Yields: Yields in India are stagnant for a decade now and the central government should give out Rs 200-300 crores(per crop) in grants in competitive bidding processes to public and private agencies who agree on milestones to bring out suitable seeds which would increase the yields to levels comparable in the western world.
Risk Management: The futures markets should be used by farmer groups like producer cos, co-ops and other associations to manage price risks on behalf of their individual members. The bill on warehouse receipt system which is with Parliament since a long time should be promulgated for deeper penetration.
Extension Education: The Central Government should build a 24 hour national channel for agriculture with feeds going to all narrowcasting LPTs of prasar Bharti. The Govt must contract out or build a countrywide network for primary research on scientific crop planting intention and subsequent crop surveys to provide accurate supply demand estimates all over the country.
Alternate Energy crops: The bottlenecks for rapid growth and expansion of acreage under biofuels crops are largely excise duties on biofuel, sales taxes, non availability of land for growing etc. These crops can bring millions of small holders or landless out of poverty and urgent steps need to be taken to kickstart this work.

Sunil

"Whether one-time settlement of loans will improve the situation of distressed farmers?".

"Whether one-time settlement of loans will improve the situation of distressed farmers?".

A majority of credit to distressed farmers would be non institutional and a debt waiver for the banking and financial systems would help score political brownie points but would not do much beyond that for the farmers but could end up making the managers running banking and financial system in the rural areas even more insensitive to the poor given the forced periodic dole outs. Secondly the stability of the financial system would be affected if these amounts become significant once the clamour for the same treatment escalates to all the regions of the country.

The following actions would help relieve distress:
1. Enact a law to give relief to farmers and tighten regulations on money lending, especially by private persons. Like tribals, there should be a blanket ban on transfer of land owned by BPL families.
2. Innovative use of MORD Schemes: For farmers in distress who owe money to moneylenders must be able to approach local banks (co-operative, private rural or nationalized) to get short term loans to pay off money lenders which can be set off against the amounts payable to such families under the NREGA
NREGA funds could be used for asset creation like in AP where they will be used for Jatropha plantations by BPL families. The skill development programmes of MORD which have had considerable success need to be driven down the the level of villages.
3. Medium Term Solutions for Credit: The central govt must instruct all PSU and large private banks them to create 5000 odd Micro Finance Institutions under their tutelage at every tehsil in the country for lending to BPL families.This should be accompanied by creation of SHG and SHG federations on the lines of the work done successfully in AP for ensuring linkages to markets and livelihood opportunities coupled with economies of scale in buying and selling of goods and services for and from the communities.
4. In the long run distress will be alleviated by huge public investments in irrigation, watershed, better quality inputs especially seeds, extension and farm advisory services, , livestock up-gradation and forest regeneration.

SunilKhairnar