Blessed by nature, India is the second largest, globally, in farm output. But a huge quantity of the produce remains unutilised due to improper collection mechanism, inadequate infrastructure and processing capacity. According to the official estimate, more than 70 per cent of our fruits and vegetables perish before being consumed. Although India is traditionally an agro-based and agro-dependent economy, the average per-hectare yield of agricultural and horticultural crops is lower than the global average. Farm technology that is used on Indian soil hasn't yet caught up with that used by some other countries.
BLEAK SCENARIO
Banks and financial institutions are not too enthusiastic to lend to farmers, who still depend on local money lenders, and get a raw deal in return, decade after decade. Rural moneybags now actually play different roles during different hours of the day and night, varying from that of a seller of farm inputs, buyer of farm produce, employer for non-agricultural tasks and, at times, even that of a local politician. As a result of this bleak scenario, most farmers are small and poor. But the chain of traders, right from the farm level agent, up to the wholesale market level merchant, doesn't share this poverty with the farmers. On the other end of the value chain is the consumer. She pays a price that is a multiple of what the grower receives. It is also much higher when compared, on the Purchasing Power Parity basis, with what her counterpart in a developed country pays. This is the current state of affairs of agriculture in India. How long should it continue?
Many of the economic ailments of the poorer countries have already disappeared, or are in the process of becoming extinct, as a result of the liberalisation, privatisation, and globalisation initiatives introduced 20 years ago. Telecommunication, construction, IT-enabled services and audio-visual transmission are shining examples of how India is competing with the developed countries. But agriculture has remained an untouchable fragmented sector. Too long, we have embraced the mantra of small is beautiful. The time has come to say size matters.
RAY OF HOPE
Foreign Direct Investment (FDI) in retail has the potential to give a ray of hope. It is a proven fact that reducing a value chain results in substantially lowering the gap between what the producer receives at one end and what the consumer ultimately pays at the other. However, some members in the middle part of the value chain will fade away. Some others won't, but will probably earn less than before. And at their cost, a new member, namely, a large, organised retailer, will enjoy long-term financial and strategic benefits.
Contrary to the clamour made by some political parties, unorganised retail will neither fade nor become unviable due to the diverse nature, habits and culture of Indian consumers, even in large cities. The main advantage of FDI in retail can be the much-desired and much-awaited reforms in the farm sector, if the Government and the international retailers play their cards sensibly. Due to direct collaboration with the farmer, correct marketable varieties in required quantities can be grown. Contract farming can give security and cash to farmers, and pull them away from the clutches of their multi-faced money lenders. If individual farmers are bundled together by a resourceful retailer, the group can enjoy economy of scale, modern farm technology, and assistance in capital investment to boost yields. In fact, modernisation has become essential because rural labour has been migrating to cities rapidly. Already, farm labour is either unavailable or too expensive.
Of course, there are serious riders. Retail houses under the FDI scheme must exhibit patience, customise their supply chain management models to suit tricky Indian conditions, and place long-term interest before short-term profits and quarterly results. Indian farmers have been conservative due to a variety of historical factors and socio-cultural traditions. And now, the younger of them, must fearlessly shed the negative attitude towards change, and participate wholeheartedly in the new process of market-driven and technology-based farming.
(The author is an independent management consulting professional.)