Raising Farmer Incomes through Value Addition to Wheat

Wheat Products Promotion Society of India organized a webinar last month, and this is a gist of what I spoke on the subject:

First principles of value addition

When there’s a gap between consumer needs and farmer’s production, one has to bridge it through value addition. Broadly, there are four gaps, offering four types of value addition opportunities. 

1. What product does the consumer want? The Form.
2. Where does the consumer want it? The Place.
3. When does the consumer want it? The Time.
4. How does the consumer want it produced? The Process.

The Form

Besides the basic wheat, products can be classified in two segments: 

1. Products from Milling – Basic Chakki Atta as a wholesome staple, a key source of energy & nutrition; Versatile Maida & Other Flours for different end uses in cooking at homes, industrial and specialty bakery
2. Products from Extraction – Starch, Gluten Protein, Germ Oil, Vitamins, Minerals, Omega Fatty Acids etc. used in many industries like food, pharmaceuticals, nutraceuticals, textiles, paper, skincare etc.

We are still at a nascent stage in India in many products, so there is plenty of headroom.

In normal course, the value so added is retained by the processors and brand marketers, because the farm end is commoditized. For ploughing back a larger share of this value added, farmers have to push what’s called the “Value Offer Point (VOP)” downstream along the chain.

VOP can be pushed by using one or more of the three levers, (1) variety, (2) growing practices, (3) post-harvest practices.

India grows a large range of wheat varieties, but they often get comingled along the outdated supply chain system. The identity of the varieties must be preserved until the consumption point for the value to be captured. Also, the growing and post-harvest practices must ensure cleaner & consistent quality of wheat that improves the yield or enhances the manufacturability in the mills and subsequent processing.

This is easier said than done, because the wheat production is primarily driven by the Minimum Support Price (MSP) based Public Procurement System. Consequently, barring a few pockets, majority of the farmers focus on producing “fair average quality” wheat.

On the other hand, it is important for the industry to work in partnership with farmers to influence the farming practices and the logistics. The new farm laws, when they see the light of the day, will enable such a partnership.

The Place & The Time

Wheat is produced in about 25% of India’s districts (largely north and central) but is consumed across the length & breadth of the country. Therefore needs to be transported from production to consumption centers.

Wheat is a Rabi crop in India and harvested in less than three months from mid March to mid June, but is consumed round the year. Therefore needs to be carried for twelve months.

Value along these two dimensions of place and time is often added by the traders and the arbitrage pocketed by them.

Farmers can push the VOP by enhancing their holding power through three levers, (1) expanding the near-farm storage capacity, (2) increasing the post-harvest financing facility to be able to hold, and (3) accessing the commodity derivative markets for hedging the price risk inherent in long holding.

The recent One Nation One Price OMSS (Open Market Sales Scheme) that fixed one price across the country and through the year is adversely impacting the farmer.

While the scheme is attractive from the perspective of a consumer and processor in the non-wheat-growing region, it puts a cap on the in-season prices of wheat in the growing region, as the trade stays out of buying & holding because it is not economical.

The Process

This is a new fourth vector of value addition, arising from the demands of the more conscious consumer looking for food produced more sustainably. Based on the water consumed in production, the carbon foot print along the chain, the way waste generated in the process is managed etc.  

The challenges of this dimension are also similar to the first one, given the need for traceability.

Conclusion

There’s plenty of scope for value addition along all the four dimensions and for ploughing a fair share of such value to the farmer, but there are two imperatives for this potential to be realized:

1. Policy should not distort markets
2. Industry and farmers must work in partnership

Agriculture: Twenty Years from Now...

Following is a summary of my remarks in an “Agri Panel” at the Global Entrepreneurship Summit earlier today, in response to the question, “What do you think will be game-changing about how we think about agriculture, twenty years from now?”

Soon after the panel moderator sent me this very interesting question a couple of days ago, the first thing I did was to post this question on Twitter, Facebook, and LinkedIn to crowdsource thoughts from my friends. There were nearly two hundred unique responses! They added up to twenty pages of text, without counting the number of pages in the links I received. Overwhelming, isn’t it?

All I am doing now is to simply synthesize those inputs and share with you J

The future of any system is shaped the current aspirations of the key stakeholders. Let’s take a look at the aspirations of the consumers, producers and the society at large…

Consumers want sufficient quantity of food (because we would be nearly nine billion by then, and on average richer than today), that is tasty (although, a friend did say in lighter vein, “since we will have nano-bots in our blood streams, and since our memories could be uploaded on to cloud, maybe we don’t need food and therefore no agriculture; we probably just need some electricity, or batteries, or just a few hours of exposure to sun ;-), is safe (you are all consumers here, don’t you agree that harmful chemicals in food is your topmost concern?), nutritious (scientists say that most of the world is suffering from invisible hunger), and all of these at reasonable prices!     

Farmers want higher incomes (as you know, per capita income of farmers around the world, especially in emerging economies, is far lower than the general per capita) with lower risk (weather and disease related production risks, price volatility). Their labour deserves more dignity (as it is, hardly any youth from the next generation wants to be a farmer) and they deserve better quality life (as in, the conveniences and comforts that are common in urban settings).  

Society at large would like agriculture to conserve natural resources (water and top soil, for example) and where possible, actually renew them. Agriculture needs to be resilient to climate change (the summer rains and warm winters, extreme climate episodes like heavy downpours on one hand and droughts on the other, etc), and again, where possible, positively impact climate change (sequester carbon, minimize greenhouse gas emissions etc).

An interplay of these different - at times conflicting - aspirations gives rise to three distinct scenarios, all of which will co-exist in twenty years. Let me label them: Farms as Factories, Homes as Farms, and Back to Basics!

Farms as Factories: By using the metaphor of factories, all I am saying is that the consistent quality of output will be produced, crop after crop, by leveraging the evolving technologies – both farming (like seed, nutrients, farm-equipment, agronomy practices etc) and digital (IoT, block chain, hyper-spectral imaging, GPS / GIS etc). A friend called them, “hardware, software, and liveware”). Another friend went to the extent of visualising a self-managing seed! These seeds will analyse the experienced conditions like soil, weather, water etc and invoke the necessary embedded features that would maximize the yield and quality. This may sound like fantasy today, but those of you who are familiar with experiments on seeds with multiple layers of coating in the past may very well say this could be a reality in twenty years!

Homes as Farms: I am sure, you have heard of vertical farming, balcony farming, kitchen gardens and such other names. Once supply chains are established to supply DIY-type mini production units, seeds, nutrients etc to the households, this phenomenon will expand more rapidly. This food is safe without any doubt in the consumer mind, and zero carbon miles! Business Models are also in the works for another kind of service. If you are not adventurous enough to grow crops in your backyard yourself, you can simply let out the space to Service Providers who can grow crops on a BOO model. Besides experts growing the crops in this model, a colony-level kitchen garden is more optimal than a household level garden. And a third model, which is not a ‘home-as-farm’ strictly speaking, is a partnership between a group of, say, five thousand, consumers and a community of, say, five hundred farmers. I know of several such partnerships across cities, built as WhatsApp Groups integrating even the e-commerce functionality.       

Back to Basics: Much of today’s ills of agriculture are due to chemical-intensive mono-cropping paradigm. A more sustainable future scenario would be an integrated farming system consisting of polyculture, permaculture, organic compost, bee-keeping, animal husbandry, renewable energy. In fact, I already see some farms where solar energy brings larger revenue than the conventional crops.  

As the panel went forward, there were other questions, but for now I am wrapping up this post without covering them.

As always, comments are most welcome J This is a live and lively topic! 

Union Budget 2015: Agriculture

“By the time of the 75^th year of Indian independence, …India (has to) become a prosperous country and a responsible global power… Madam Speaker, I am mindful of the five major challenges I have to reckon with. Firstly, Agricultural incomes are under stress…” said the Finance Minister in his speech today.

His response to this rightly identified foremost challenge is embedded in three policy statements made in the budget, two sets of budget allocations, and some hope.

The Policy Statements:

1.      “I intend this year to work with the States, in NITI, for the creation of a Unified National Agriculture Market”, promised the FM. Such a unified market has the potential to transfer a larger share of the consumer price to the farmer. When the Economic Survey asserts, “If persuasion fails, it may be necessary to see what center can do, taking account of the allocation of subjects under the Constitution of India”, one sees some hope in converting this potential into reality.

2.      “I propose to merge the Forward Markets Commission with SEBI to strengthen regulation of commodity forward markets”, said the FM. Hopefully, this will ensure dusting the Parliamentary Standing Committee’s Report on the Forward Contracts (Regulation) Amendment Bill 2010, and introduction of Options and other forward looking instruments.

3.      “We need to cut the subsidies leakages, not subsidies themselves” declared the FM. Indeed subsidies are needed for the poor; what we need is a well-targeted system for subsidy delivery. For, these leakages distort the market and act as disincentive to private investments in the sector. As much as 42% of the grain distributed in the Public Distribution System leaks back into the open market per a study. The JAM trinity can help in Direct Transfer of such Benefits, minimize distortion and nurture vibrant markets.

The Budget Allocations:

1.      Rs 100,000 Crores is allocated to Rural Infrastructure Development Fund, and various Long & Short Term Rural Credit Funds. This will surely raise the investment capacity of the farmer and step up the Gross Capital Formation in the sector, besides expanding the much-needed rural infrastructure.  

2.      Funds already allocated to the ‘Deen Dayal Upadhyay Gramin Kaushal Yojana’ and the Scholarships and Loans promised under the ‘Pradhan Mantri Vidya Lakshmi Karyakram’, will enhance the employability of rural youth in non-farm jobs. This will improve the ratio of arable land available per agri worker, which is otherwise deteriorating to unviable and unsustainable levels.

The Hope:

The Economic Survey reiterated the importance of agricultural research, extension, irrigation, mechanisation etc as the key drivers of growth of the sector. Hopefully, the funds allotted under different Government schemes, such as Rashtriya Krishi Vikas Yojana, the National Food Security Mission, the Mission for Integrated Development of Horticulture, the Soil Health Card Scheme, the Pradhan Mantri Krishi Sinchayee Yojana etc, are channeled to appropriately technologise our farming to deal with the extreme weather variations which have now become the norm. Many of these schemes have been folded into the new Krishionnati Yojana, and the funding has been curtailed, with the FM expressing hope that the States will put in the required money from the higher allocations they now have from the 14th Finance Commission formula. I hope that hope is not belied...

It’s only then that the Amrut Mahotsav of our independence will be sweet!