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Agricultural Prosperity: Potential of Producer Companies in Modern India

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Last Updated on June 20, 2024 by Kanakkupillai

Indian farmers’ prosperity does not consist solely of money and wealth; they also require social recognition, minimum autonomy and environmental care. Agricultural performance was dismal during the interwar years. Food crop output stagnated while nonfood crops suffered greatly; it took years before active agriculture could emerge again.

Potential of Producer Companies

1. Productivity Growth

Indian agriculture is an integral component of its economy, employing 60 percent of India’s workforce and contributing 17 percent to GDP. But farmers face numerous hurdles that make life hard, including water shortages, unpredictable weather patterns, falling productivity, and fragmented land holdings. To combat these difficulties and sustain Indian agriculture, India must invest heavily in agricultural development initiatives – in which producer companies could play an instrumental role by supporting high-growth commodities and offering market-based incentives.

India boasts over 7,000 producer companies (PCs) — a new legal form of cooperative since 2003 — in addition to thousands of traditional cooperatives across agribusiness sectors. Producer company registrations have increased by over 80% since 2010, led by Maharashtra and Uttar Pradesh, which are the top states with significant registrations; other notable states with substantial PC registrations include Madhya Pradesh, Tamil Nadu, and Telangana.

PCs can facilitate various activities to boost productivity. For instance, by aggregating and trading grain, they can access better prices in markets otherwise inaccessible to small producers. Furthermore, this helps reduce transaction costs, manage risks more effectively, and facilitate farmer-to-farmer knowledge transfer for improved production and marketing practices.

Raising crop yields can help raise incomes and decrease poverty, with PCs providing farmers access to improved technology, credit and agricultural research – particularly on high-potential commodities. Unfortunately, however, a gap exists between government R&D funding allocation and actual private investment levels in this area, with private R&D providers increasing globally, providing opportunities to fill that void; however, policymakers must ensure they create an environment that supports innovation in agriculture.

An effective program that employs various approaches can result in a much more productive, competitive, and diverse agriculture sector. This may include supporting high-growth commodities like dairy – accounting for nearly one-quarter of agricultural GDP while providing income sources to 70 million rural households led by women – by addressing limitations like poor genetic quality cows, limited nutrition or inaccessible veterinary care services – this targeted initiative could increase milk production significantly while having a direct positive effect on poverty reduction.

2. Productivity Increases

India’s farmers have achieved remarkable progress in alleviating poverty. Yet, they must increase agricultural productivity to match China’s and other East Asian economies. To do this, rethinking farming techniques – including crop diversification and yield increases while simultaneously decreasing water usage and environmental damage.

Small and marginal farmers can increase agricultural production efficiency by pooling their land resources in producer companies, providing access to technology, modern inputs and financing. They could also access non-farm employment opportunities that improve farmers’ quality of life while simultaneously making them more productive (Harris et al. 2016).

However, many challenges remain, particularly within agriculture, such as increasing productivity to compete with global economies, decreasing consumer prices, and supporting increased farmer incomes. India’s legacy of extensive government involvement in agricultural marketing and rural credit has created costly trade restrictions domestically and abroad, impeding productivity growth.

Farmers must implement innovative technologies, like precision farming and agro-processing, to increase output, manage costs and adapt to climate challenges. They must be willing to try new crops or production systems, conserve natural resources, develop better practices that enhance product quality, protect their environments and maintain healthy soils – which is crucial for their families’ well-being and livelihoods (Harris et al. 2016).

Producer companies can play an essential role in meeting these challenges and creating a prosperous future for Indian farmers. Producer companies provide better market access, lower transaction costs, training on technology and business skills development for farmers, and promotion and provision of agri-business services for small and marginal farmers, such as risk management, market intelligence, financial inclusion and insurance services.

Recent government schemes encouraging the formation of producer companies have led to an explosion of new producer company registrations, leading to numerous organisational structures being deployed by them – some more effective than others at reaching desired outcomes (Kanitkar 2016). Successful structures foster member-centric aggregation, value addition and risk reduction (Kanitkar 2016).

3. Increased Incomes

Apart from increasing productivity, agribusiness must assist farmers in raising their incomes – an uphill struggle given many farmers live below the poverty lines, particularly in India, where average annual farmer earnings fall under $10,000 (Singh 2018).

Historically, farmers were just one stakeholder in an agricultural value chain focused on mandis – local markets where farmers sold their produce. Today, however, an increasing number of companies are shifting focus onto farmers within their value chains, including buying and processing produce directly from them and providing essential farm inputs such as seeds and fertilisers to these same farmers. Some firms even specialise in creating farmer-centric technology and business models!

Farmers need access to products, market information, and financial services to increase their incomes. Therefore, supply chains must incorporate backwards by connecting farmers directly with buyers – many agtechs and producer companies are trying this model by engaging local entrepreneurs as middlemen; it reduces costs related to physical infrastructure investments while providing last-mile delivery within villages – for instance, ITC uses their e-Choupal platform directly connect with farmers while procuring their produce directly from farms.

Studies have illustrated the potential of producer companies to help farmers increase their incomes. Out of 174 studies conducted, 58% indicated an improvement in farmer-owners incomes participating in FOs that focused on crop production without membership restrictions, while only 15% saw such improvements (Fig. 3b).

Producer companies can also increase farmers’ incomes by linking them with global value chains (GVCs), which combine credit, insurance and product markets into one seamless system. GVCs, however, only work if their lead firm can be profitable – for this to occur, they need their supply chains integrated and connected with those of other companies in the GVC.

With more than 80% of poor people residing in rural areas worldwide, agriculture’s productivity and incomes play a vital role in poverty reduction. There is plenty of potential growth within this sector: rising yields could double global food production while combatting malnutrition at scale if government authorities address barriers to farmers’ productivity and incomes properly.

4. Increased Welfare

Though agricultural productivity has increased worldwide, we still have not met our sustainable development goals, and many of the poor remain dependent on agriculture for their livelihoods. About 80% of those living in poverty live in rural areas, with most depending on agriculture for survival (see chart). While rising agricultural productivity in China and East Asia has resulted in impressive poverty reduction results, it has not had the same significant effect in Africa or South Asia, where many smallholder farmers exist.

Farming will only ever be successful through strategies that go beyond food production; to do this, they must take into account not only production needs but also the values, interests, and aspirations of farm families and rural stakeholders, such as social recognition and maintaining minimum levels of autonomy; environmental care will be key; increasing market access will facilitate value addition and non-farm incomes while also addressing constraints caused by interlocking factor and output markets compounded by lack of appropriate institutions or organizations can all play their part in helping farmers become prosperous.

One key strategy for accomplishing this goal will be the development of innovative agricultural technologies and production methods, including investments in agricultural research and development, as well as encouraging private sector participation to stimulate innovation in this area. Policy tools to support this include reducing restrictions on market participation, encouraging competition, and eliminating onerous regulations, all while striving to define “sustainable intensification”, or “SIA”, which entails increasing yields without adversely impacting the environment or necessitating more land cultivation.

An alternative approach is to facilitate the establishment of farmer-producer companies that combine professional management with cooperative principles that mandate ownership and participation by producers. Such firms will procure directly from farmers while providing inputs, services and access to markets – they could even serve as links between smallholder farmers and global retailers and intermediaries, creating greater market opportunities for smallholder farming communities.

At the core of it all lies an improved combination of productivity gains, reduced production costs, and increasing demand. If these gains can be combined with an enabling policy environment that facilitates farmer-producer companies, these returns could increase further.

Agricultural Prosperity in Modern India

Agriculture employs two-thirds of India’s working population. Unfortunately, mass production has led to environmental degradation and excessive use of chemical fertilizers in farming practices.

For farmers to become self-sufficient, productivity needs to increase significantly. One effective method of doing so is encouraging the cultivation of diverse and climate-appropriate crops and ensuring their timely availability.

1. Agricultural Productivity

India’s agricultural productivity remains a top concern. Nearly three-quarters of Indian families depend on agriculture as their source of livelihood, contributing significantly to food security. India saw rapid increases in grain production during the Green Revolution of the 1970s, which enabled it to achieve self-sufficiency and ward off famine; however, it has seen more moderate gains since then.

Low agricultural productivity can be attributed to family-based cultivation practices, land fragmentation, and lack of technical farming knowledge among farmers. Furthermore, India lacks cold storage facilities and efficient rural transport systems, which could prevent food spoilage, resulting in one of the world’s highest crop loss rates.

To increase productivity, the government must improve access to credit, technology and market connections; implement a land distribution policy; facilitate investing by farmers in agriculture; promote high-growth commodities like milk, fruits and vegetables; invest in agricultural research; and improve extension services for them.

2. Agricultural Employment

Low and middle-income countries tend to rely heavily on agriculture as their primary source of income. Yet, as countries become wealthier, the proportion of people working in agriculture decreases while more people find employment in industry and services.

India, however, has experienced limited nonfarming job growth, which creates enough new employment opportunities to accommodate its expanding working population. Furthermore, there are not enough skilled workers with sufficient credentials for higher-quality positions within its borders.

This presents a major challenge as creating enough jobs in high-end manufacturing, construction, and services requires workers with specific skill sets. But the world is changing fast; agriculture-tech firms have come up with tools that help farmers maximise productivity while increasing yields, while other firms use data analysis techniques to better understand farmers and offer tailored products at lower loan risks – ultimately, the goal is for farmers to maximise the use of their land by raising yields while shifting into more profitable activities.

3. Agricultural Inputs

India’s agricultural sector employs 60 per cent of its workforce and contributes 17 per cent of India’s gross domestic product, yet farmers continue to face many difficulties. Half do not possess basic farming equipment; three out of four farms may be exposed to damage caused by pests or climate; they face high credit risks when taking out loans; lending rates tend to be excessive when they take them out.

India’s agricultural development strategy centres around input subsidies (for fertilisers, water and power). These subsidies aim to increase yields while helping farmers sell more food products.

The Government has liberalised trade, investment and marketing restrictions and increased R&D spending. Yet R&D spending remains only a small proportion of GDP for impactful agricultural innovation. Diversifying output away from grains will facilitate faster economic growth while raising incomes; this includes encouraging the switch toward high-value crops like fruits and vegetables in areas with adequate irrigation systems.

4. Agricultural Exports

India’s agricultural exports recently hit a record high, yet imports also significantly increased. As a result, its farm trade surplus shrunk, fueling inflation fears and supply uncertainties.

To relieve poverty and protect Indian consumers from global food price fluctuations, the Government subsidises the consumption of certain foods by procuring them at minimum support prices (MSPs), well below market rates. Households applying for ration cards that indicate whether they fall above or below poverty lines can purchase these food items through half a million ‘fair price shops’ in India.

Startups are helping solve many of the challenges associated with agriculture and its marketing, such as Kandawale – an e-commerce website selling Indian red onions directly from farmers to bulk users for reduced cost escalations. Unfortunately, R&D investments remain only a fraction of national income and need to significantly increase for impactful agricultural research, which would address future production challenges and boost agricultural productivity.

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