Innovative ways to increase farm income

Indian agriculture is at a crossroads, with a number of challenges and enormous opportunities. The key challenges are small and declining landholdings, price volatility and climate risks. Growing demand for food in the domestic and global markets offers huge opportunities. The question is, how can we harness opportunities and overcome constraints to raise farmer incomes, especially small and marginal farmers? As many as 86% of the holdings in India are small and marginal, with less than 2 hectares of land. Several new programmes and schemes have been launched by the government to increase farm income. There are several mega flagship programmes, including the Pradhan Mantri Krishi Sinchayee Yojana, Soil Health Card scheme and Pradhan Mantri Fasal Bima Yojana. This year, the Union budget has also fulfilled a long-standing demand of farmers to fix minimum support prices at 50% above production cost. All these programmes will enhance farmer incomes if implemented effectively.

Photo: Ramesh Pathania/Mint

However, it appears that the implementation part is on a business-as-usual basis. As usual, control is with the government rather than focusing on effective engagement of the private sector. To accomplish the expected benefits, especially for small farmers, there is a need to develop innovative institutional arrangements for converging investment, aggregating production and consolidating markets. We are proposing a few “business-not-as-usual” areas to develop institutional arrangements so that small farmers can participate in these programmes and share the benefits of emerging opportunities.

The foremost requirement is investment in activities which create productive assets. The agriculture sector needs huge investment to transform and become more attractive and remunerative. Research reveals that compared to other sectors, investment in agriculture contributes more to reducing poverty. This is because the majority of the population lives in rural areas and is dependent on agriculture.

The last three Union budgets had various programmes to step up investment in the agriculture sector. However, more is needed to make it efficient, competitive and sustainable. There are three possible options to supplement government investment: (1) Converge various region-wise government schemes into one umbrella programme. This will check duplication of efforts and reduce administrative costs. (2) More incentives may be given to corporate social responsibility (CSR) initiatives for agricultural development schemes. Many corporate houses are already contributing in rural areas but the amount is meagre in the agriculture sector. We may develop a kitty of CSR funds for agriculture by allocating a fraction of overall CSR spending by individual corporate houses for agricultural development. Corporate houses may be incentivised and recognized for their contributions. (3) Pilot public-private partnerships (PPPs) in developing agri-infrastructure. India has an excellent track record of PPPs in developing infrastructure, which benefits rural areas as well as the agriculture sector. However, we have not tried PPPs to create agri-infrastructure, such as agricultural markets, warehouses, cold storage, cold chains, irrigation delivery and extension services. These will supplement the government’s investment in agriculture. The government may also prioritize where more resources are to be allocated. For example, in commercial areas, the private sector is present and, therefore, the government may give low priority to such areas. In areas where agriculture is at a subsistence level, the government needs to accord high priority.

The role of start-ups offers huge potential in the agriculture sector that is yet to be harnessed. The prime minister has said that start-ups can establish laboratories for soil testing and food commodity certification. There are ample lucrative opportunities that may bring farmers and start-ups together to enhance farmer incomes. The government has launched the e-NAM platform in most mandis. However, these are mostly operated by traders, as the small and marginal farmers have a tiny marketable surplus. Also, they cannot participate in the existing available warehouses, cold storage, and futures market. Therefore, there is a need to create institutional arrangements that will aggregate their produce for marketing and storage. We can draw lessons from the stock market, where a small investor purchases mutual funds rather than going directly to the share market. The mutual funds are operated by professionals. We need professionals who can develop commodity and region-wise clusters of farmer groups for marketing, storage and participation in the futures market. These professionals can participate in e-NAM on behalf of farmers. Similarly, there are opportunities for start-ups for agri-packers and movers, door delivery of inputs, services and agro-advisory. A small farmers’ agribusiness consortia (SFAC) can take the lead in developing appropriate institutional arrangements to attract agribusiness start-ups for such initiatives, which will help smallholders to take advantage of government programmes.

It is, therefore, pertinent to develop innovative institutions in a new paradigm to increase farmer incomes. We need to take up some pilots that can be subsequently scaled up—depending on the lessons learnt—to cover the majority of smallholder farmers. Failing that, ongoing efforts will not yield the desired results.

P.K. Joshi is the Director-South Asia, International Food Policy Research Institute, New Delhi. This article was originally published in  liveMint

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