L E A D P R E S E N T A T I O N

B Y

D R . K . G . K A R M A K A R

P R O F E S S O R , S P J I M R

2 5 T H O C T O B E R 2 0 1 3

AGRICORP- 2013 Financing Agriculture- Session V

INDIA’S WEALTH

50 A.D- 50% of Roman empire’s wealth to pay for Indian exports (Handlooms, Spices, Diamonds)

1575 A.D- 25% of World GDP contributed by India

2011 A.D- 54% population is BPL-MDP Index

Largest irrigated land-2nd largest arable land

Largest producer of wheat, milk, pulses, spices, tea

2nd largest producer of rice, fruits, vegetables, sugarcane

3rd largest producer of coarse grains, edible oilseeds, fish

110 Million farmers in 126 Agro-economic zones

Productivity/ PovertyP R O D U C E I N D I A N A V G . W O R L D A V G . B E S T A V G .

R I C E ( K G / H A C ) 3 3 7 0 4 3 0 9 9 7 3 1 - U A R

W H E A T ( K G / H A C ) 2 8 0 2 3 0 8 6 3 1 0 8 - U S A

C O R N ( K G / H A C ) 2 3 2 4 5 1 0 9 9 6 5 8 - U S A

M I L K ( K G / A N . / Y R . ) 1 1 4 5 2 3 0 9 1 0 6 8 6 - I S R

POVERTY DIMENSIONS - 2011 CENSUS

47 .2% -TVS, 41 .6%NO BATHS

63.2% -PHONES, 53.1% -NO TOILETS

44.8% -BICYCLES, 43.5% - NO HOME WATER TAPS

3.5% -CEMENT WALLS, 6 .3% HAVE PCS/LAPTOPS

3.1% -INTERNET, 4 .7% FOUR WHEELERS

The Need for ActionThe population of developing countries is expected to remain mostly rural until 2020. Most of the world’s poor are concentrated in rural areas, with livelihoods that are strongly linked to agriculture.

Innovations for Competitiveness and Efficiency

Innovations in farmer organizations that improve managerial skills in order to promote:

• Economies of scale and scope

• Strategic partnerships with suppliers and buyers to secure sales

• Specialized support services from private or public partners to comply with market requirements and facilitate finance

• Lobby for improved regulatory framework that enable investments in agriculture

Use of innovations for competitiveness and efficiency

Innovative ICT applications (e.g. the use of mobile phones) can reduce informational problems and transaction costs to service rural areas.

Mobile phone’s exponential growth in the developing world represents an opportunity for MFIs to service agriculture.

0

10

20

30

40

50

60

70

80

Africa Asia Latin America

2003

2008

Number of Subscriptions per 100 people (millions)

Innovative tailor-made strategies to enhance agricultural competitiveness require an integral view of agricultural value chains.

A diverse set of services and products can be designed for:

• Pre-harvest activities: e.g. input provision, updated market information, contract farming, forward contracts, insurance

• Post-harvest activities: e.g. warehouse receipts linked to loans, local value addition, improved marketing agreements, product bulking

Use of Innovations for Competitiveness and Efficiency

• No liquidity problems

• Inputs available from eKutir

• Quality service and de-risking done

• Better Portfolio Management

• Enhanced Productivity

• More Income

Farmers

• Good Market & Captive Customers

• Value added services• Less Risk and more

Income• Less transaction

costs • More products with

credit from input suppliers

eKutir entrepreneurs

• No credit transactions by farmers for inputs

• Instant Payment to Farmers

• No liquidity crunch

Local Traders

• Less Risk and Transaction costs

• Outsourcing of Banking operations to eKutir

• More market access

Banks /MFIs

• Assured quality of farm produce

• Captive Farmer groups• Adherence to GAP

standards

AgriProcessors

• Benefits from inputs and outputs

• Better Productivity• Enhanced Incomes

A Happy

eKutir Farmer

Post Intervention

Phase

Present Credit Arrangements

• Credit is inadequate• Credit not given in

time• Banks perceived as

alien organisations• MFI’s only

concentrate on credit disbursal

Farmers

• Farm Credit - a risky Portfolio

• Small and Marginal Farmers are Non bankable

• Lack of concern for food security

• No value added services offered

Banks & MFIs

• Money lenders –Last resort

• No increase in productivity

• No increase in income

• Cycle of perpetual poverty

Impoverished Farmers

Harvesting Management

Tool

Marketing Management

Tool

Farmers Advisory Tool

• Registration of the Farmer• Registration of different

buyers

• Registration of Farmer• Registration of

Traders/Buyers• Commission on marketing

from the Farmers

• Registration of the Farmer for advisory

• Registration of different advisors

De-Risking the Small-Holder Farmer

Crop Planning Tool

Farmer Risk Analysis Tool

Farmers Financial Tool

• Registration Charges from the farmer for giving objective advisory

• Charges from other farmers

• Registration Charges• Charges from the

Bank/FIs for giving risk analysis Report

• Registration of the Farmer

• Commission from banks for cost of financial transaction

De-Risking the Small-Holder Farmer

Soil Nutrient Management

Tool

Seed Selection Tool

Pest & Disease Management

Tool

• Registration of the farmer• Registration Charges from the

Fertliser /Soil Nutrient Vendors

• Commission/Profit for selling nutrients/supplying nutrients

• Registration of the Farmer• Seed Vendors’ Registration• Commission on selling seeds

• Registration of Farmers• Registration of Vendors• Commission on selling of

pesticides

De-Risking the Small-Holder Farmer

Exporters / Wholesalers

Processors

Local Traders & Processors

Producer Groups

Farmers

Input Suppliers

Banks

Non-bankFinancial Institutions

Private Investors& Funds

Cooperatives / Associations

Local MFIs / Community Orgs

Financial Service

InstitutionsValue Chain Actors

Product Flows

Financial Flows

Technical Training

Support

Services

Business Training

SpecializedServices

Certification/Grades

Using the Value Chain for Financing Agriculture

INTEGRATED Agriculture Model

INCREASE PRODUCT

PRODUCTIVITY DEVELOPMENT

ADEQUATE + TIMELY KNOW-HOW

REPAYMENT + FEEDBACK

SECURITY

ASSURED QUALITY

PRICE PRODUCE

HI - TECH INPUTS

CREDIT

MARKETS

R & D/AGRONOMY

SUPPORT

Climate Water

Soil Labour

RURAL INFRASTRUCTURE GAPS

25.3 Million Acres of Cultivable Farm Depend on Monsoons for Water

55067 Rural Habitations have no Access to Safe Drinking Water

66802 Rural Lack Roads and 1.46 Lakh Kms. of All-Weather Roads needed soon

23 Million Rural Households in 1.25 LakhVillages have no Electricity

66822 Villages have no Telephone Connectivity

QUALITY RURAL INFRASTRUCTURE NEEDS

District/Block Infrastructure Plans

Rural Service Providers

Cost Recovery and Disputes Resolution

Appropriate Technologies and Innovations

Visionary Leadership for Economic Opportunities Leading to Rural Employment and Economic Revival

Improvement in Rural Services Leads to Social and Economic Empowerment

Enhance Economic/Physical/Electrical/Knowledge Connectivity as Per PURA norms

WAREHOUSE LOGISTICS

Food/Groceries account for 54% of retail trade

Entry of FDI in Retail Marketing revives farmers’ hopes Domestic market needs, reduce export trade volumes

Thailand, Costa Rica, Viet Nam, Philippines have organised production supply chains for Exports

Rs. 58000 crore post-harvest losses in India due to:

Poor quality infrastructure, inefficiency, short shelf-life, lack of warehouses/ pre-cooling chambers/reefer vans/zero-energy chambers, poor transportation, lack of markets, roads/bridges, cold storages and A/C Tech.

POST-HARVEST TECHNOLOGY NEEDS

Entire Focus on Pre-harvest technologies to boost Production ignoring Infrastructure and post-harvest.

India is 2nd largest producer of Fruits/Veg. but annually 30% lost due to supply chain gaps.

Continued wastage and lack of processing leads to lower prices, impoverishment and even suicides

Urgent need for electricity with constant supply load factor, market connectivity, warehouses and limited agro-processing facilities for farmers

Existing agricultural subsidies like free electricity, subsidised diesel, fertilisers, water, largely wasted

Farmers need timely credit, quality inputs w/o controls

NEED FOR IMPROVED /QUALITY LOGISTICS

New service providers, technology upgrading, innovative processes to improve rural logistics

Reduction in logistics costs estimated at 13-14% of GDP, is urgently needed

Logistics costs high due to inefficiencies, low truck speeds, high turnaround times, supply chain gaps.

Poor packaging and distribution networks, cold storage/warehousing sector problems need study.

Continued wastages at different stages of the food supply chain need to be analysed to reduce waste.

WASTAGES IN FOOD SUPPLY CHAIN

Producers

RAIN

CONSTRAINTS

HEAT

HUMIDITY

CONTAMINATION

Pre-Process

Broken Grain, ExcessiveDehulling,Trimming

Transport

Spillage, Bruising, Breakage, Leakage

StorageInsects, Moulds Bacteria, RodentsBirds, Sprouting,

RancidityOver-ripening

ProcessingInefficiency, Excessive Peeling, Polishing,Trimming

Marketing

Unsafe foods Quality Losses

Customers

GAP ANALYSIS IN WAREHOUSE STORAGES

Year Storage Req. Availability Gap in lakh MT

2007-08 1075.8 653.6 422.1

2008-09 1119.0 677.5 441.5

2009-10 1155.5 693.4 462.1

2010-11 1204.1 725.0 479.1

2011-12 1198.0 761.0 437.0

2012-13 1228.0 802.0 426.0

2013-14 1240.9 848.6 392.3

2014-15 1217.6 901.6 316.0

NEED FOR LICENSED WAREHOUSES

Indian farmers realise 30-35% of produce value as compared to 65-70% by developed nation farmers

Lack of negotiable warehouse receipt system especially for agricultural commodities was felt

Lack of modern warehouses and cold storages felt

Lack of rural infrastructure a major hindrance to rural farmer prosperity as also APMC Acts

Warehouse receipts can be a prime trade tool and can help farmers access finance more easily

Allows banks to improve lending quality as loans are against goods deposited in warehouses

STEPPING UP WAREHOUSING CAPACITY

In view of record food grains production and Govt. purchases, all States need to rapidly expand warehouse capacity to avoid wastage in food grains

The National Food Security Bill is expected to be approved by Parliament requiring huge increases in warehouse capacity and stop leakages in PDS

While the National Warehousing Act was passed in 2007, the Warehousing Development and Regulatory Authority was set up only in October 2010.

Rural economy benefits with agri-business impacts for banks, traders, State/Central Government etc.

RAPID CREATION OF RURAL WAREHOUSES

CISS Rural Godown Schemes of MOA,GOI thru’ banks and for cooperatives thru’ NCDC

Constr. Rural Godowns under FCI Scheme, MF&CS

Constr. Rural Godowns under Agri Mkt Infr Scheme of MOA. All schemes benefit big business

Urgent need for setting up small rural godowns(100 -2000 Mt capacity) to benefit smallholder farmers

Creation of small low-cost godowns by individual farmers or by Farmers Clubs, JLGs, NGO’s on jt. basis would enhance holding capacity of smallholder farmers and ensure better financial margins

STIMULATING WAREHOUSE CREATION

Creating Special Fund to provide low-cost funds to banks for on-lending, leading warehousing capacity

Need for a Fast-track Project for new Warehouses on PPP mode in partnership with FCI/CWC/SWCs with low-cost funding support

Urgent need for creation of warehousing capacity both by smallholder farmers and entrepreneurs

Difficult for Central/State Governments to provide funds at concessional rates to banks unless concessional refinance is provided with institutional tie-ups.

STRATEGIES AND SYSTEMS

Follow best practices like multi/relay cropping and commercial agriculture

Adapting technology and blending mechanisationwith manual labour

Need for drip irrigation, polyphone cultivation for water conservation

Scientific Techniques for cultivation of foundation/breeder seeds

Greenhouse cultivation and plant tissue culture

ADDITIONAL FARM INCOME AND DE-RISKING

Diversification into Dairy, Animal Husbandry and Fisheries Sectors

Eco-tourism initiativesOrganic Farming (Dabholkar’s LEISA

Method) Small Warehouses at PACS and PanchayatsWeather-based Crop Insurance and

Subsidised Crop Insurance Extensive use of warehouse receipts by small

holder farmers.

SYSTEMS IMPROVEMENT AND INNOVATIONS

Farmers Clubs and Farmers Associations

JLGs/SHGs and other microfinance instruments

Improved Gobar Gas Plants, Solar Lamps, Bio Digesters

Forestry Models for Saline/Submerged/Waste lands

Healthcare/Livelihoods/Education Facilities in Rural Areas

Chip-based Kisan Credit Cards and Mobile Banking

Better Advisory and Accounting systems for Farmers

(eKutir Model or Shiroli-Khurd Model)

Namaste and Thank You