Strengthening of the Indian Agriculture & development of Value Chain Financing and PPP model. By Keerti Rikhari INTRODUCTION In the current era where the Indian economy is struggling to fulfill the food requirements of its people. After 68 years of independence we are still unable to fulfill basic food requirements to our people and we have endless reasons for this insufficiency, to blame some are weather conditions, unorganized farm sector, lack of updated methods of production and technological advancement, low levels of investment more emphasis on manufacturing and service sector, as the GDP contribution from agriculture is negligible; but the ground reality is that how rich or poor we are? Or how advance we become? How technically we are sound at the end day, Reality is that we need food to eat, the basic necessity of life, a matter which should have been given much more importance as compared to other luxuries and necessities of our civilized lives. Moreover the big divide between rich & poor and the inflationary pressures makes it impossible to provide 100% food security for the Indian population. Its high time that we should start working in being food sufficient and explore agricultural sector as a major GDP contributor, by introducing Agriculture Value Chain Financing (AVCF) and Public Private Partnership (PPP). OBJECTIVES OF THE STUDY To study contribution of Value Chain Financing (VCF) in growth of agricultural sector. To understand how Value Chain Financing will increase the contribution of agricultural sector in GDP of India. To analyse how Public Private Partnership (PPP) can be effective in agriculture based VCF. To find accelerators in making India sufficient in its food security needs. To find ways to help and promote growth of small farmers. CHALLENGES FOR AGRICULTURAL GROWTH INDIA- 2025. Agriculture Based Problems Post-Harvest Losses The Food and Agricultural Organization ranks South Asia as the most malnourished and food insecure region in the world. Despite being a large producer, most food grains go to waste due to poor storage and transport conditions. Low Productivity - low per hectare productivity than in other regions. This translates into lower incomes for farmers and disproportionate use of cultivable land. Lack of Quality Standards - overuse of fertilizers and over extraction of groundwater are major issues. The absence and poor implementation of internationally recognized By Ms. Keer Rikhari Assistant Professor Dr. MPS Group of Instuons
Transcript
Strengthening of the Indian Agriculture & development of Value Chain Financing and PPP model.
By Keerti RikhariINTRODUCTION
In the current era where the Indian economy is struggling to fulfill the food requirements of its people. After 68 years of independence we are still unable to fulfill basic food requirements to our people and we have endless reasons for this insufficiency, to blame some are weather conditions, unorganized farm sector, lack of updated methods of production and technological advancement, low levels of investment more emphasis on manufacturing and service sector, as the GDP contribution from agriculture is negligible; but the ground reality is that how rich or poor we are? Or how advance we become? How technically we are sound at the end day, Reality is that we need food to eat, the basic necessity of life, a matter which should have been given much more importance as compared to other luxuries and necessities of our civilized lives.
Moreover the big divide between rich & poor and the inflationary pressures makes it impossible to provide 100% food security for the Indian population. Its high time that we should start working in being food sufficient and explore agricultural sector as a major GDP contributor, by introducing Agriculture Value Chain Financing (AVCF) and Public Private Partnership (PPP).
OBJECTIVES OF THE STUDY
To study contribution of Value Chain Financing (VCF) in growth of agricultural sector. To understand how Value Chain Financing will increase the contribution of agricultural
sector in GDP of India. To analyse how Public Private Partnership (PPP) can be effective in agriculture based
VCF. To find accelerators in making India sufficient in its food security needs. To find ways to help and promote growth of small farmers.
CHALLENGES FOR AGRICULTURAL GROWTH INDIA- 2025.
Agriculture Based Problems Post-Harvest Losses The Food and Agricultural Organization ranks South Asia as the
most malnourished and food insecure region in the world. Despite being a large producer, most food grains go to waste due to poor storage and
transport conditions. Low Productivity - low per hectare productivity than in other regions. This translates into
lower incomes for farmers and disproportionate use of cultivable land. Lack of Quality Standards - overuse of fertilizers and over extraction of groundwater are
major issues. The absence and poor implementation of internationally recognized
ByMs. Keerti Rikhari
Assistant ProfessorDr. MPS Group of Institutions
standards and certification systems results in high rejection rates in international markets.
Vulnerability to Climate Change According to Maplecroft’s Climate Change Vulnerability Index 2014, three of six countries in South Asia - Bangladesh, India and Nepal - are facing extreme risks from the impacts of climate change.
Financial and Technological Problems Bankers will lend only if it makes sense to lend. There is a need to make lending to farmers a sensible proposition. In addition to these, infrastructure is inadequate, technology is not fully employed and
information is asymmetric. There is not enough data to manage risks. Financial position of lenders is always impaired.
SOLUTIONS TO OVERCOME THE PROBLEMS
Agricultural development has the potential to enhance food security, create opportunities, and raise incomes for the world’s poor, many of whom live in rural farm communities. The key focus areas this are:-
Promoting Sustainability – Increasing production using fewer resources and reducing impact on the
environment Improving energy and water efficiency
Increasing Productivity Building skills and providing better seeds and inputs Helping farmers adopt modern agricultural practices
Facilitating Access to Markets Helping farmers meet the quantity and quality requirements of larger markets Strengthening storage and warehousing infrastructure to reduce field-to-market
losses. Enabling Access to Finance
Facilitating development and availability of appropriate financial products such as weather based insurance to cover risks
Building capacity of financial institutions to cater to the needs of small farmers
TOOLS FOR AGRICULTURAL GROWTH –INDIA 2025
Agriculture Value Chain Financing (AVCF) Public Private Partnership Model (PPP
ByMs. Keerti Rikhari
Assistant ProfessorDr. MPS Group of Institutions
Agriculture Value Chain Financing (AVCF)
Food Sufficiency & Agriculture Growth- India 2025
Public Private Partnership Model(PPP)
CONCEPT OF VALUE CHAIN FINANCINGA value chain consists of a series of activities that add value to a final product, beginning
with the production, continuing with the processing or elaborating of the final product, and ending with the marketing and sale to the consumer or end user. The inter-dependent linkages of the chain and the security of a market-driven demand for the final product can provide suppliers, producers, processors and marketing companies with more secure access to procurement and sale of products. This reduces costs and risks of doing business and improves access to finance as well as other services needed by those within the value chain.
DEFINITION VALUE CHAIN FINANCING
Value Chain System Range of activities to turn a product in a form that is sold and consumed. The process aims to deliver maximum value at the least possible costs. In agriculture, the range of activities starting from production to manufacturing and
marketing until the product reaches the consumers is important.
Value chain finance is defined as the flows of funds to and among the various links within a value chain. Value chain finance is a comprehensive approach which looks not only at the direct borrower but rather analyzes the value chain and those within it, and their linkages in order to best structure financing according to those needs. The linkages also allow financing to flow up and down the chain. For example, inputs can be provided to farmers and repaid directly from the sale of the product without having to go through a traditional loans process.
Numerous financial instruments have been adapted or developed to use in financing value chains. These include various trade finance instruments, warehouse receipts, factoring, etc. and risk mitigation products related to the product such as forward contracts and guarantees.
Understanding the conditions under which value chain finance works or doesn't work is useful for governments and donors as well as for lenders, agribusinesses and producer organizations interested in improving the supply of and access to finance for rural producers.
INSTRUMENT TO PROMOTE AGRICULTURE VALUE CHAIN FINANCE (AVCF)
First and foremost, AVCF is an approach to financing. It uses an understanding of production, value-added and marketing processes to determine the financial needs of actors in the chain and how best to provide financing to those involved. Many diverse and innovative financial instruments may be applied or adapted to meet specific financial needs. Commodities and cash-flow projections can be used to secure financing and reduce risk.
Categories of Financial Instrument Commonly used in Agriculture Value Chain Finance
A. Product Financing
ByMs. Keerti Rikhari
Assistant ProfessorDr. MPS Group of Institutions
1. Trader credit 2. Input supplier credit 3. Marketing company credit4. Lead firm financing
These instruments can be used alone, but it is more common to use several of them within a value chain. Most of them are used in many types of finance; they are not exclusive to AVCF. However, while such instruments as factoring may be common in commerce or manufacturing, their application to agricultural financing is often new and unfamiliar.
WHY THERE IS A NEED FOR AGRICULTURE VALUE CHAIN FINANCING?
Agricultural value chain finance offers an opportunity to reduce cost and risk in financing, and reach out to small hold farmers. For financial institutions, value chain finance creates the impetus to look beyond the direct recipient of finance to better understand the competitiveness and risks in the sector as a whole and to craft products that best fit the needs of the businesses in the chain.
Value chain finance offers an opportunity to expand the financing opportunities for agriculture, improve efficiency and repayments in financing, and consolidate value chain linkages among participants in the chain. Understanding value chain finance can improve the overall effectiveness of those providing and requiring agricultural financing. It can improve the quality and efficiency of financing agricultural chains by:
1. Identifying financing needs for strengthening the chain; 2. Tailoring financial products to fit the needs of the participants in the chain; 3. Reducing financial transaction costs through direct discount repayments and delivery of
financial services; and 4. Using value chain linkages and knowledge of the chain to mitigate risks of the chain and
its partners.
ByMs. Keerti Rikhari
Assistant ProfessorDr. MPS Group of Institutions
As agriculture & agribusiness modernize with increased integration & interdependent relationships, the opportunity & the need for value chain finance becomes increasingly relevant.
PUBLIC PRIVATE PARTNERSHIP (PPP) MODEL
Public-private partnership (PPP) is a funding model for a public infrastructure project such as a new telecommunications system, airport or power plant. The public partner is represented by the government at a local, state and/or national level. The private partner can be a privately-owned business, public corporation or consortium of businesses with a specific area of expertise.PPP is a broad term that can be applied to anything from a simple, short term management contract (with or without investment requirements) to a long-term contract that includes funding, planning, building, operation, maintenance and divestiture. PPP arrangements are useful for large projects that require highly-skilled workers and a significant cash outlay to get started. They are also useful in countries that require the state to legally own any infrastructure that serves the public.
PPP MODEL – FUTURE OF INDIA’S AGRICULTURE GROWTH
A public-private partnership is a contractual agreement between a public agency (federal, state or local) and a private sector entity.
Each party shares 4 R’s1. Risks 3. Resource 2. Reward 4. Responsibility
3 WAYS IN WHICH PPP MODEL CAN BOOST INDIAN AGRICULTURE Investing in smarter value chains Building farmer resilience to environmental shocks Improving access to credit, technology and markets
PPPs in e-Agriculture are generally found at the community level where the strengths of the public and private sectors complement each other in providing information and advisory services
ByMs. Keerti Rikhari
Assistant ProfessorDr. MPS Group of Institutions
that address the needs of farmers and rural communities. The public sector’s mandate for provision of information and services can be best achieved through harnessing the potential of the private sector to add local context in a commercial environment.
PROJECTS UNDERTAKEN UNDER PPP MODEL
1. Project Golden Ray -PPP between the Government of Rajasthan and MIL which aims at improving economic self-sufficiency of tribal maize farmers by enhancing maize yields and incomes in five districts; Banswara, Dungarpur, Udaipur, Pratapgarh and Sirohi.
2. e-Choupal - (run by ITC, a private sector entity) shows how mutual cooperation between
ITC, rural entrepreneurs, state agricultural universities and the Indian government's extension machinery has served to boost the farmer's expertise and day-to-day awareness of what needs to be done to cope with myriad agricultural needs.
3. Project Management Agency (PMA): - Small Farmer’s Agri-business Consortium (SFAC), an organization promoted by Ministry of Agriculture, Govt. of India has appointed AFC as a Project Management Agency for Publicity and Awareness Building Plan to support Venture Capital Assistance Scheme (VCAS) during XII Five Year Plan(2012-2017). To promote organic farming, AFC India Limited has been given the opportunity to implement the organic farming project named as “Adoption and Certification of Organic Management System with online Traceability for Facilitation Domestic Retail Chains and Export in Gujarat, Chhattisgarh, Orissa and Haryana”.
4. Maharashtra government has initiated a Private-Public Partnership (PPP) for Integrated Agriculture Development (PPP-IAD) project under the World Economic Forum’s (WEF) “New Agriculture Initiative”. The idea is to create a value-chain in agriculture by involving corporates that will work with farmers’ groups or associations from production to marketing stage. 22 companies, 12 of them private sugar mills, have been selected and have agreed to partner with such group in everything — from inputs and processing to marketing. They will be working in seven categories of produces — sugar, cotton, oilseed, pulses, fruits, vegetables and poultry.
ByMs. Keerti Rikhari
Assistant ProfessorDr. MPS Group of Institutions
Growth Drivers of Indian Agriculture
Demand-side Drivers Supply-side Drivers Policy Support Population and income
growth Increasing Exports Favourable
demographics
Hybrid and genetically modified seeds
Mechanisation Irrigational facilities Green Revolution in
Northern and Eastern hilly areas
Growing institutional credit
Increasing minimum support price (MSP)
Introduction of new schemes
Opening up of exports of wheat and rice
Government Schemes and fund allocation in Finance Budget 2016 – A major foot step in achieving the agriculture mission India 2025
1. Allocation for Agriculture and Farmers’ welfare is ` 35,984 crore.2. ‘Pradhan Mantri Krishi Sinchai Yojana’ to be implemented in mission mode 28.5 lakh
hectares will be brought under irrigation. 3. Soil Health Card scheme will cover all 14 crore farm holdings by March 2017. 4. 2,000 model retail outlets of Fertilizer companies will be provided with soil and seed
testing facilities during the next three years5. Promote organic farming through ‘Parmparagat Krishi Vikas Yojana’ and 'Organic Value
Chain Development in North East Region'.6. Unified Agricultural Marketing ePlatform to provide a common e- market platform for
wholesale markets 7. Allocation under Prime Minister Fasal Bima Yojana Rs 5,500 crore.
ByMs. Keerti Rikhari
Assistant ProfessorDr. MPS Group of Institutions
8. Rs 850 crore for four dairying projects - ‘Pashudhan Sanjivani’, ‘Nakul Swasthya Patra’, ‘E-Pashudhan Haat’ and National Genomic Centre for indigenous breeds.
9. Implementation of 89 irrigation projects under AIBP, which are languishing for a long time, will be fast tracked
10. A dedicated Long Term Irrigation Fund will be created in NABARD with an initial corpus of about ` 20,000 crore
11. Programme for sustainable management of ground water resources with an estimated cost of ` 6,000 crore will be implemented through 3 multilateral funding
12. 5 lakh farm ponds and dug wells in rain fed areas and 10 lakh compost pits for production of organic manure will be taken up under MGNREGA
13. Allocation under PradhanMantri Gram SadakYojana increased to Rs 19,000 crore. Will connect remaining 65,000 eligible habitations by 2019.
14. To reduce the burden of loan repayment on farmers, a provision of Rs 15,000 crore has been made in the BE 2016-17 towards interest subvention
ByMs. Keerti Rikhari
Assistant ProfessorDr. MPS Group of Institutions
SUGGESTIONS
1. Promotion of Self Help Groups (SHG’s)Self Help Groups (SHG’s) in agriculture and its allied activities should be introduced in a similar way like the SwarnaJayanti Gram SwarojgarYojna was introduced for self-employment. Under this group loans could be given to farmers for agricultural activities, i.e. purchase of farm equipment’s etc. This would help in risk mitigation, better rate of debt repayment and more over an umbrella cover of security and assurance to individual farmers for loan liabilities.
2. Centralized Crop Data Management System (CDMS)A Centralized Crop Data Management System should be introduced. Focusing on the primary parameters like soil fertility and productivity, climatic condition, perishability factors, storage facilities, transportation availability, market demand and supply, consumption requirements in our country and export business requirements etc. should be considered based on that the farmers should be guided to grow crops which would help India in becoming food sufficient as well as it would lead to the economic empowerment of the Indian Farmers.
3. Ensure Market Demand for Crops With the help of (CDMS) crop demands can be analyzed and loans can be made available for crops with reliable buyers that have already been contracted. Thus enabling the smooth demand and supply system in the market, this would surely help in curbing the inflationary conditions.
4. Introduction of Agricultural Insurance - Umbrella cover for crops.An Umbrella Insurance cover for crops should be introduced in the policies and procedures for value chain financing this would help in controlling farmers financial loss due to bad weather conditions. (Allocation under Prime Minister Fasal Bima Yojana Rs 5,500 crore in FY 16-17.)
5. Encourage Farmers to Diversify CropsCrop diversification helps ensure that small farmers will not become dependent on a single crop. It also encourages commercial production beyond the traditional crops they grow to feed their families moreover it would also increase the productivity of the soil.
6. Monitor Crop PerformanceAgricultural loan officers and other technical assistance providers visit the farmers throughout the growing season to provide technical support and monitor production.
7. Agro- biodiversity Preservation & Sustainable water management systemConcrete steps should be taken so that soil nutrient value & Agro- biodiversity is not compromised as at times natural resources are exploited to its extreme to gain commercial profits
8. Livelihood DiversificationIn India mainly there are two agricultural seasons i.e the rabi and the kharif crop season, so agriculture unemployment is at its peak during non agricultural seasons, govt. should promote diversification in livelihood of the farmers so that they have other sources of income during non agriculture season as well as when there is crop failure.
ByMs. Keerti Rikhari
Assistant ProfessorDr. MPS Group of Institutions
9. Creating and supporting Farmer GroupsSmall farmer group should be encouraged to be formed in alignment with the Panchayati Raj System, so that region specific and climatic condition based crop management can be implemented
CONCLUSIONIndia being a mixed economy, therefore Public Private Partnership (PPP) should be introduced for betterment of agricultural sector and people involved in agricultural activities, in value chain agriculture. A program based on PPP and AVCF should be implemented which will provide a platform to pool financial resources of private players and promote welfare and prosperity of farmers. This would contribute to India’s food sufficiency, GDP growth and would leading India to become a major food supplier and other agro based products for the international market.
Slowly and steadily India will surely become a superpower by 2025.
ByMs. Keerti Rikhari
Assistant ProfessorDr. MPS Group of Institutions
REFERENCES
1. Calvin Miller, “Agricultural value chain finance strategy and design Technical Note” available at http :// www.ifad.org/ruralfinance/pub/valuechain.pdf ( accessed Feb 19, 2016).
2. “Agriculture value chain” available at https:// en.wikipedia.org/wiki/Agricultural_value_chain ( accessed Feb 15, 2016).
3. FAO Website >Agriculture finance and investment>Value Chain Financingavailable at http://www.fao.org/ag/ags/agricultural-finance-and-investment/value-chain-finance/en/ (accessed Feb 15, 2016).
4. Calvin Miller and Linda Jones, FAO “Agricultural Value Chain Finance”.available at http://www.fao.org/docrep/017/i0846e/i0846e.pdf (accessed Feb 16, 2016).
5. AFC India Limited Website http://afcindia.org.in/ (accessed Feb 19, 2016)
6. India Brand Equity Foundation “ Indian Industry an Overview”available at http:// www.ibef.org/industry/agriculture-india.aspx (accessed Feb 19, 2016)
7. Budget 2016: “Allocation for education, agriculture, health and other sectors”. available at http://indianexpress.com/photos/business-gallery/budget-2016-arun-jaitley-education-jobs-agriculture-health-rural/10 / (accessed Feb 17, 2016)
8. Edmore Mangoti, Right to Food Coordinator, ActionAid South Africa, “Climate Resilient Sustainable Agriculture Experiences from ActionAid and its partners”.available at http://www.actionaid.org/sites/files/actionaid/exhibition_document_-_ final_draft.pdf (accessed Feb 18, 2016)
9. International Finance Cooperation, World bank Group “Stories of Impact Agribusiness- Opportunities abound in South Asia”, available at http://www.ifc.org/wps/wcm/connect/3e4a7f804384194eaacfba869243d457/Agribusiness.pdf?MOD=AJPERES (accessed Feb 19, 2016)
