Time for PPPs in Agriculture

Ch. Hira Singh Wholesale Vegetable Market at New Sabzi Mandi, Azadpur, Delhi
Watching over pineapple fruit trucks.
Photo Credit: Melissa Cooperman / IFPRI

Indian agriculture has come a long way from its earlier image of being traditional, subsistence and non-commercial. With the increasing demand for value added and high-quality products, agriculture has been adopting commercially and economically viable agribusiness solutions. In the recent past, business and investment opportunities in this sector have suddenly jumped manifold. But the response from the private sector has been likewarm.

There is a pressing need to develop a structured approach for increasing the number of bankable agri-business and agri-infrastructure projects through private sector participation for better quality and improved services. Role of private sector is immense in reinvigorating agri-food sector. We have good record of public-private partnership (PPP) in infrastructure development such as highways, ports, power and other sectors. Unfortunately, agri-infrastructure development in PPP mode was not adapted and applied in agriculture sector with the same vigor as done for these sectors.

Engaging private sector in developing and managing agri-infrastructure will bring improved technologies, best practices in operations and generate rural employment. The partnership can emerge as an important tool to induce investment and capitalize on the synergies of public and private sector. While the government continues to lead and facilitate development of agriculture sector through its policies, the entry of the private sector will induce a fresh bouquet of ideas that when scaled up can emerge as mass development models for the agriculture sector. Drawing lessons from other sectors, we are proposing few areas for developing agri-infrastructure in PPP mode.

Wholesale market development: Agricultural markets in India are thinly distributed. Existing marketing is characterized as inefficient, fragmented and unorganized. Very few markets have been developed during the last three decades; most of these are concentrated only in well off areas. The time is apt for evolving mechanisms to develop wholesale markets in PPP mode in a similar pattern of constructing and managing national highways using BOT (built, operate and transfer) approach. A model concession agreement using viability gap funding mechanism should be created by central government with encouragement to state to implement the process as per specific needs of each states. 

Warehouse and cold storage development: High price volatility is one of the major reasons for agrarian distress. Prices crash in the event of high production. Warehouses and cold storages play an important role to stabilize prices and benefit farmers as well as consumers. Development of warehouses and cold storage offers enormous opportunity for public-private partnership. Non-availability of land and low scale of business are reported to be the major obstacles for private sector response in this sector. Panchayat land, uncultivated land, government land, including some of the railways land, may be allocated on a long-term lease with annual rent by inviting bids from private sector in OMDA (Operation, Management and Development Agreement) mode as has been done for airport development and management.

Agro-processing development: The agro-processing, especially of perishable commodities, has huge opportunities as their demand in domestic and global market is rising very fast. This sector must be harnessed to meet the future demands and reduce unaccounted losses of perishable commodities. The Ministry of Food Processing and Industries committed for continued emphasis on creation of world class infrastructure for growth of food processing sector through mega food parks and Integrated cold chains. Use of PPP model for achieving these objectives and developing processing plants and linking them with micro, small and medium enterprises (MSMEs) will boost agri-processing sector. This is a lesson to be drawn from successful PPP mode in constructing airports, providing numerous services, and linking operations by various airlines.

Canal irrigation development and management:  India has large network of major and minor canals and distributaries from various rivers. Roughly 40 per cent of all irrigated area is covered by canals. Huge investment has been made to develop reservoirs, canals and distributaries. The canal irrigation system in many parts of the country is reported to be underperforming with irrigation efficiency is mere 30 per cent. The PPP model can be extended to this sector on the lines of the power sector. At first level, the irrigation department, should take sole responsibility for developing and managing the water reservoirs. This way government will have control over water for irrigation. At second level, canal management and water delivery could be contracted out to the private sector based on the performance. The contract may include canal and distributary management, water pricing and promoting efficient -irrigation methods. This will incentivize for volumetric release of water at different stages from reservoir to the farmers and eventually improve water use efficiency.

Agriculture extension: Public agricultural extension system has significantly contributed in bringing green revolution in the country. But it is its efficiency and effectiveness are now being questioned.  At present, Krishi Vigyan Kendras (KVKs) and Agriculture Technology Management Agencies are the last mile connectivity for technology delivery. Some of the KVKs are also run by private sector but majority are with agricultural universities (AUs) and Indian Council of Agricultural Research (ICAR). The AUs, ICAR institutions and KVKs have good infrastructure with land and water resources; a part of that can be allocated on a medium to long term lease (7-10 years) to the private sector for demonstrating their best practices. Private sector and public research system can also jointly undertake research for demonstration purposes. The process can also be used to incentivize private sector to use their CSR funds.

Private sector will come at its own where there is commercial viability and profit can be generated. But above-mentioned areas may have less commercial viability but high economic benefits. Therefore, these are the areas for developing public-private partnership to re-energize agriculture sector. This could mark the beginning of the next revolution in agriculture – one that is driven by institutional and governance reforms implemented via social equity based PPP process. This will require a new thinking to evolve enabling policy environment to attract private sector in developing agri-infrastructure.

This article was originally published in Business Standard

P K Joshi is the director- South Asia, International Food Policy Research Institute. Tushar Pandey is the freelance consultant in PPP and social equity related policy analysis.



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