Seminar on Role of Private Sector in Agricultural Marketing
September 3, 2001 New Delhi

Policy, Legal and Institutional reforms : Role of private sector in agricultural marketing

Abstract

India's agricultural achievements since the Green revolution in the 1960s have been significant. Major improvements have occurred in productivity, land irrigation, seed quality and use of fertilizer. Fed by 50 million hectares of irrigated land, India's 182.7 million hectares for crop cultivation represents the largest acreage of cropland in the world. FAO figures indicate that India has around 11% of the world's land under agriculture. Agricultural production has grown at an average annual rate of around 3.5% over the last five years, outpacing annual population growth of about 1.9% and accounts for 20% of India's total exports.

But what will be the road ahead for India? The next step for the country will be to increase the level of forward integration in the agriculture sector and to develop the country's food processing capabilities. By establishing a significant food processing industry, the agricultural sector will have to continue its development and overcome its current inefficiencies, as a large and stable supply of raw material will be needed.

Today, the major bottlenecks confronting the agricultural sector in India include poor yields, lack of post-harvest infrastructure, poor utilization of land, low added value and poor quality of packaging and presentation. Of these, the most significant problem is the poor yield per hectare. In a country that needs to feed nearly a billion people, a mere percentage point change in yield will have a significant impact. Another major constraint is the fact that the agricultural sector in India consists mainly of smallholdings, with average farm size having fallen even further in recent years to a current estimated average size of 1-2 hectares.

Fortunately, steps are being taken to overcome these current problems. The growing awareness, in both the private and government sector, of distortions caused by current legislation should facilitate the process of the start of another revolution, the so-called Food Revolution. Future government policies will focus on further developing the food processing industry and to increase the efficiency of the agricultural sector.

Agricultural Policy and Development

• Rural Infrastructure development
• Domestic market reforms and trade liberalization
• Modernization of processing
• Institutionalization of sound quality control system - Establishment of Referral Labs
• Land reforms - Ceiling, Consolidation
• Agricultural Insurance
• Effective and extensive transfer of technology
• Market intelligence
• Increasing cropping intensity
• Inter-regional cooperation among SAARC. Indian Ocean Rim Countries
• Support to and coordination among Agricultural Export agencies like GOI, APEDA, MPEDA, NAFED, NHB, State Govt. Financial
• Strong IPR System
  

Research

• More investment in R & D and HRD
• Use of hybrids, biotechnology, farming system approach, ICT, other frontier sciences
• Resource based planning (land, water, biodiversity)
• Improving productivity and profitability through diversification, value adition and post-harvest management
• Effective R-E-F linkage
• Improved O&M Skills
• Public and Private sector interface
  

Impact of Globalization and Economic Reforms on Agriculture

• Increased commercialization of agricultural sector
• Diversification of crop mix
• Threats to food security - Balancing Domestic need vs trade compulsions
• Need for strong IPR system
• Higher and stable growth rate in agriculture
• Strong input delivery system
• Entry of private sector - Co-operation or Competition
• Change of research and education agenda
• Innovations in extension system
  

Socio- economic goals (%)

Food self - sufficiency                         25
Increase farm income                         25
Development regions                           6
Import substitutes                               3
Exportable commodities                       9
Environment                                       11
Other                                                  19
Total                                                 100

Policy Review

• Significant increase in food production.
• Better utilization and marketing of existing food supply through waste reduction and value addition.
• Facilitate development by improving testing environment.
• Explicit export potential.

Strategies for different commodities

Challenges of the Future

Renewed Government attention

• Objective of taskforce on food and agro industries
• Significant increase in food production.
• Better utilisation and marketing of existing food supply through waste reduction and value addition.
• Facilitate development by improving hosting environments.
• Exploit export potential.
  

Implementation of contract forming system

• Main bottlenecks in current supply chain system
• Unreliable supply of quality raw materials.
• Expensive transportation costs.
• Poor physical infrastructure.
• Support industries, like packaging, that are not internationally competitive.
• Lack of adequate cold storage facilities.
  

Increase demand for value added products

• Key drivers for increased demand in value added products.
• A growing consumer class.
• Changing lifestyles characterised by expanding urban populations, increasing numbers of nuclear families and dual income families.
• Changing attitudes & tastes with increasing modernisation and to a lesser extent, Westernisation of tastes, particularly with the younger generation who are increasingly impressionistic.
• Low penetration rates.
• Education on consumer to indicate benefits of processed food products.
• Ability to offset seasonal supply and demand effects in fresh products.

Stimulus by foreign investment

• Possible areas for improvement to increase investor interest
  • Revision of current food legislation
  • Reduction of certain taxes (e.g. on size of packaging, import of capital goods)
  • Improvement of infrastructure (e.g.cold storage, transportation)
  • Further deregulation and liberalisation of markets
    
    

The next step

• Main prospects for the medium term
  • Future agricultural reforms, particularly in the area of land ownership and contract farming
  • Increase in demand of primary processed products as well as branded consumer products
  • Further liberalisation of the market for (foreign) exporters
  • Slow change in traditional distribution methods, limited development of more modern distribution infrastructure, mainly in large cities
  • Increase in foreign investment by major international food companies looking to establish a presence for the medium to long term