Tuesday, 1 May 2012

Indian Agriculture: Value Creation Opportunities

Earlier today, I spoke on the subject at a Conference in Delhi. In essence, this is what I said: 

India has successfully transitioned out of an era of food shortages, with the help of giant strides taken by Indian agriculture over years.

With the increasing per capita incomes and growing awareness, today’s consumers are seeking better quality and more variety in their food products. They prefer products that offer convenience while buying and using. Food safety is another area of concern. Much like the agricultural production system responded to the growing demand in the past, there is an opportunity for the agri-business system to respond and deliver these requirements to the consumer.

Besides adding value through conventional processing and packaging, today’s agri-businesses can also explore a number of additional sources of value creation.  For example, 

Supply Chain Management: Through supply chains that preserve product identity from farm gates to the retail shelves, or even better, supply chains that trace products to farm practices, product integrity can be maintained and safety can be assured.
Backward Integration: Through tighter integration of production systems into their value chains, agri-businesses can transmit demand signals to the farmers, transfer modern crop management technologies, coordinate delivery of farm inputs, and share production & market risk with the farmers; this will help produce crops and varieties more sharply aligned with the market demands.   
Risk Management: Through new market based risk management institutions such as Commodity Derivative Markets (Futures & Options) and Weather Based Crop Insurance Products, the production and market risk inherent in agriculture can be transferred into the broader marketplace for more effective management.

These steps will deliver value to the consumers, improve farm profitability and create sustainable opportunities for the enterprises that connect the consumers with farmers.

On its part, the Government must facilitate this transition by reforming the currently restrictive agricultural laws such as Agricultural Produce Marketing Act, Essential Commodities Act and Forward Contracts Regulation Act.    


  1. Supply Chain Management and Backward Integration are good ideas. But the question is of development and implementation of "practical processes" to make those theories into practical realities and make every one involved (farmer, consumer, business man) as the winner.
    A.N. Rao

    1. Of course, Mr Rao. Value of any idea is derived only when it is implemented.

      There are several initiatives around the country, where these ideas are indeed implemented.

  2. Sir, wanted to know.. How would Commodity Derivative Markets (Futures & Options)help a farmer in risk management..

    Also, if you have any article on NCDEX(commodity exchange) and its impact on the farmer, can u plz share with me. I have been tracking the commodities especially chana and ref soya oil. There seems to be absolutely no logic to how the prices are sky rocketing.

    1. Yesu: Please see http://www.scribd.com/doc/36579494/Reaching-Commodity-Derivatives-to-Farmers-May-2006 for a presentation on how commodity derivative markets can help farmers manage their price risk.

      Of course, the contract design, the effectiveness of regulations and the compliance surveillance are key to the success of these markets and in ensuring that they truly reflect the physical market realities.

  3. thnx for the link sir..

  4. Annayya - what about measures to prevent all the food wastage by FCI? I am sure if we improve there, we can feed significantly higher number of people. I am sure this is not within the purview of "agriculture" itself, but can businesses influence the government to make some reforms here? Any value creation opportunities there?

    1. You are right, Divya! That's a lot of value left on the table...

      FCI does have a scheme for Private Sector to build and operate storages for FCI's usage. See this http://fciweb.nic.in/storages/index Efficiencies can improve further, if the entire supply chain management is outsourced to the private sector rather than just the storages.

      In the long run, the best solution is to transfer food subsidies directly to the low-income consumers (in the form of Conditional Cash Transfers, or Entitlement Vouchers), which they could use across any food store, based on price & quality. This, of course, requires evolution of the general ecosystem a bit more.

      Reforms along this line are very much on the Government's agenda. Not sure of the timelines though...

  5. Dear SivaKumarji,

    In fact the higher inflation makes up the higher valuations but to be frank neither the farmer at farm gate nor the consumer ultimate is really benefit-ted.

    It is still a great irony that while we are boasting of a highly improved ABSCM in our country ,most of the farmers ( atleast > 85%) are not at all reaping even marginal benefits and rather under severe monetary stress fleeing the villages for petty manual jobs.

    Not critical, but very much sure that this country is severely plagued by the myopic and very cynical approach of State polity and highly self centered corporate entities who neither extend the real market wisdom nor the perfect marketing land scape.

    Do you agree Sir?

    Govinda Rao
    Formerly GM-Agri Business
    Heritage Foods India ltd