The promise of agro-processing

The promise of agro-processing
Despite their large numbers, farmers don’t have bargaining power. They are also vulnerable to risks such as pests, monsoon failure, commodity price crashes
We need to really look at agriculture-allied activities if we are serious about our allround economic development.

Fourteen per cent of India’s national income comes from agriculture. This used to be almost 30-35 per cent in the early 1990s. So the share of income going to agriculture, or the share of income arising from agriculture has been steadily shrinking. However, the number of people dependent on agricultural income in the country is still almost 50 per cent. This means that a smaller and smaller fraction of national income is going to a still-large section of society. Not surprisingly, most of India's poor are in the rural areas, engaged in agriculture. This is one of the central challenges of economic development. That's not to deny the problem of urban poverty, but the severity of the problem in rural areas is much more.

Either we need to find a way to increase the share of income going into agriculture, or we need to find a way to get people out of agriculture into the industrial and services sector. All countries have gone through this process, and India is no exception. Some aspects of the problem are manifest in urban migration and congestion.

However, because India’s population is so large and because the prospects for large-scale industrial growth or industrial employment absorption is limited, we need to find a way to increase people’s income or farmer income, despite them staying in agriculture or agriculture-allied activities. Hence, the need to use the opportunity for agro-processing.

When you produce groundnut, that’s an agricultural product. However, when you convert that into salted peanuts or packaged masala peanuts, it becomes an industrial product, or an agro-processing product. The difference between selling just groundnuts and selling packaged peanuts can be almost ten times, i.e. plain groundnuts can sell for Rs 40 a kilo, whereas salted peanuts could be Rs 400 a kilo.

Unfortunately, most of that extra income goes to middlemen such as procurement agents or wholesalers and retailers. We all know how city folk pay almost four or five times the price for vegetables and fruits in cities compared to the price that is received by the farmer. So the key challenge is to reduce this margin and ensure that the farmer gets the maximum part of this pie. For that to happen, farmers have to have economic clout, and must organise themselves into a business organisation.

The promise of agro-processing is almost infinite. For instance, oranges can be sold as orange juice, lychees can be sold as lychee juice and rice can be sold as rice crispies. The main challenge is of supply chain, which is converting the agricultural product into something that has a longer shelf life and can be transported to urban markets or exported.

It is important that control of the value added in agro-processing remains with farmers. Otherwise that extra value is expropriated by non-farmers and middlemen. This is the reason that, despite large numbers, farmers don't have bargaining power. They are also vulnerable to other risks like pests, monsoon failure, commodity price crashes and so on.

Often, the difficulty for farmers is that when there is a bounty of a harvest, the prices fall and their incomes drop. On the other hand, when there is scarcity, the prices shoot up, but the benefits don’t go to the farmers and are almost entirely expropriated by the middlemen.

To really exploit the great opportunity of agro-processing, not only must infrastructure like supply chain and production facilities be developed, but farmers also need to have economic power which comes when you form cooperatives (such as Amul for milk) or producer companies. Farming and agro-business need to be organised in the form of shareholder companies. India is uniquely poised to be a leader in this transformation.

No country has shown income increases to agriculture, but agro-processing and agri-business has immense promise.

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