Public-private tie-ups are key to boosting agri infra

In the last one year, the new Government has injected different perspectives to many conventional models in which India operated. One of those has been the formation of a high-level committee for redefining the roles and functions of Food Corporation of India (FCI). The whole idea leads us to a very important subject on investment in agriculture value chain. Investment in agriculture value chain is extremely important to strengthen the link between the agriculture and the food processing sector.

Scope of investment in agriculture value chain covers investment in farms and in agriculture infrastructure that is competitive marketing platforms and modernised storages, and food processing centres. The immediate advantage of investment in agriculture infrastructure is reduction in losses and marketing costs, two crucial factors for ensuring higher remuneration for those dependent on agriculture for their livelihood.

The key challenges faced on the production side are shrinking land base, inadequate water resources, vagaries of nature, shortage of labour and increasing cost. As per census data 2011, small and marginal farmers account for 44.3 per cent of the total operational agricultural land holding.

The average land holding of individuals in the small and marginal farmer category is 1.42 hectares and 0.38 hectare respectively. Other challenges are low levels of farm mechanisation and average farm power availability.

Despite the challenges, there are few interesting advantages enjoyed by the supply side of Indian agriculture. As per the World Bank estimate, India has 60 per cent cultivable land, against the world average of 38 per cent. India enjoys the diversity of 20 agro climate zones, availability of 46 out of 60 soil types and round-the-year cultivation.

Consequently, it is the largest producer of cereals and milk, second largest producer of food and vegetable and figures among the top five producers of groundnut, tea, coffee, spices sugar and oil seeds. In addition, it is also the world’s largest producer of tractors. The constraints in Indian agriculture make it imperative to develop a production base that is characterised by high level of farm mechanisation to enhance productivity and strong contract farming infrastructure to aggregate fragmented resources.

Equally imperative is to protect the supply side output value with well developed agriculture infrastructure. Protection in the value of farm output is direct value enhancer for the farmer, especially the one with fragmented land holdings.

Large part of the agriculture supply chain infrastructure was historically managed by the Government. The Government provides for minimum support prices for various commodities to insulate the farmer from price fluctuations. The Central Warehousing Corporation along with the State Governments was instrumental in creating warehousing and cold storage capacity in the nation.

Through the Agricultural Produce Marketi Committee (APMC) promoted “Mandis”, the Government has facilitated the farmers to sell their produce and get an appropriate price.

Under this system, the farmers cannot sell outside the APMC mechanism.

The existing supply chain is limited by the “Mandi” coverage, large number of intermediaries, skewed information flow and above all inadequate storage infrastructure. Further, there is very low level of modernisation in storage and cluster-based food processing.

Recently, the Government took an initiative to delist fruits and vegetables from the APMC list. This means that the farmers can access the markets outside of APMC. Such pro-competitive market moves are a welcome policy change and can maximise economic value in a well developed agriculture infrastructure.

The current limitation of the existing agriculture infrastructure prompts a crying need for additional and faster development in the agriculture infrastructure space; one of the ways to achieve the same is increasing private sector participation.

Although private participation in agriculture infrastructure has shown growth, public sector still accounts for around 72 per cent of the agriculture warehousing capacity. Cleary, one requirement that stands out is need for more storage and near absence of modern storage. There is negligible private participation in “Mandis” and there are only four mega food parks in a country with a diverse agro map.

The recent announcements for developing steel silos in six locations, development of 17 Mega Food Parks (MFP) and 30 integrated cold chains have given a much need push for significant private participation. Major part of the investment is to be driven from the private partner.

In the last financial year, Madhya Pradesh Government has successfully awarded 10 projects for building modernised wheat storage silos. These projects received bidding interest from the major private players evidencing increasing interest in projects with longer payback period given the fixed revenue structure.

Government focus and private sector interest also opens opportunity for developing innovative long term (14 – 15 years) financing solutions for these projects.

The primary goal in development of agriculture infrastructure is to provide facilities along the value chain from the farm to table. It provides the much needed alternative platform to the farmers in the catchment areas to sell their produce. Such an infrastructure may also promote organised contract farming in the catchment areas.

Other important tangible benefits include well developed post harvest and processing infrastructure thereby reduction of wastages, market driven price realization for the farmers, capacity building for food processing and direct and indirect employment creation opportunities. With the well directed effort by current Government on partnership with private firms for developments, the food processing map of India may significantly improve ultimately benefiting the entire value chain in the agriculture space.

Foodgrains wastage due to inadequate systems and storage mechanisms is a perennial subject of debate across sections of the agriculture value chain and otherwise. Post harvest losses are estimated at 8 to 18 per cent of total fruits and vegetables produced.

The participation of the private sector in building the nation’s dry warehousing, modern steel silos and cold storage capacities will have a direct economic impact to the farmer and society by reduction in losses of agriculture produce.

The government has played a vital role of aggregating private investment with announcements of various policy level decisions and projects. The government is also redefining existing private partnership models to increase private interest. In addition to the existing capacity building projects, newer concepts such as mini food parks, development of private “Mandis” and providing electronic trading platforms at existing government “Mandis” are few models which can act as significant value enhancers.

Given the supply side strengths, development projects in agriculture infrastructure will certainly strengthen the prospects for India to transform into a food processing power hub. The overall development will in turn create larger livelihood opportunities and benefit the ultimate bottom of the pyramid in the agriculture value chain.

(The writer is Managing Director and CEO of YES Bank)