Budget 2024 Expectations: Agriculture

Anand Ramanathan, Partner and Consumer, Products and Retail Sector Leader

Current environment

Agriculture sector overview

India is an agrarian economy, with agriculture and its allied sectors being the largest source of livelihood. In FY23, the estimated Gross Value Added (GVA) for the sector stood at ~US$275 billion, contributing ~15 percent to the country’s total GVA. India’s agricultural exports reached US$53 billion in FY2023, up ~6 percent from FY2022. Rice, marine products and sugar were the top three contributors.

Key trends and challenges

Agriculture in India is slowly shifting from traditional farming to horticulture, dairy, poultry, fisheries and food processing. With rising income levels, urbanisation and changing consumption patterns, the demand for high-nutrition foods and processed foods is increasing in rural and urban households. Farmers are now moving upstream in the agri-value chain. They are adopting modern farming techniques, such as precision farming, drones, polyhouses, crop diversification and breed improvement in dairy, to improve productivity and price realisation. For example, farmers in UP traditionally growing rice and wheat are diversifying into fruits, dairy, poultry and exotic crops, such as strawberries and dragon fruit. Furthermore, increasing interest from start-ups and private players has led to better quality, reduced costs and improved market linkages through innovative solutions for farmers. The output and input platform models enable farmers to obtain a wider market reach, competitive prices and easy access to input suppliers while increasing transparency.

Though the sector has witnessed fundamental shifts, agriculture continues to face the following challenges in India:

• Low productivity: Despite being the top producer in the world, India still lags in productivity compared with other countries, such as China, the US and Brazil across multiple crops (e.g., cereal yield: India – 3.5 MT/Ha, Brazil – 4.9 MT/Ha, China – 6.3 MT/Ha ). This reduces the overall farm output, thus leading to lower price realisation per acre. The unavailability of quality seeds and inputs on time, low levels of mechanisation and poor adoption of modern GAP are some reasons contributing to low productivity.
• Lack of storage facilities: Due to a shortage of storage facilities, over 16 percent of fruits and vegetables, 10 percent of oilseeds, 9 percent of pulses, and 6 percent of cereals are wasted annually. It also results in distress selling by farmers.
• Limited market access: Most farmers in India are small and marginal. After setting aside the produce required for subsistence, they have only a small surplus volume for sale. To avoid transportation costs, most of these farmers sell their produce to traders who function as aggregators, resulting in lower price realisation.
• Minimal value addition: Fewer value addition opportunities at block, gram panchayat and farmgate levels limit the shelf life extension of produce, further contributing to lower price realisation by farmers and distress selling.
• Limited training and extension facilities: Given the huge population of farmers in India, making novel agricultural practices reach every farmer is difficult. This prevents the extension machinery from providing custom inputs to farmers. In addition, the long chain of information transfer hampers the efficient delivery of advisory services to farmers.
• Changing weather patterns: Extreme weather events, including droughts, floods and storms, now occur more frequently and with greater intensity due to climate change. These events result in soil deterioration, crop losses and reduced output from animal husbandry and allied sectors.
• Increased cultivation cost: A higher number of pest incidents, deteriorating soil quality, extreme weather, water scarcity, etc., necessitate increased use of inputs such as pesticides and fertilisers and require better quality of seeds and continuous irrigation to mitigate risks. This, along with the rising prices of these inputs, has increased the overall cost of cultivation for farmers, significantly reducing their profits.

Steps taken by the government across agriculture subsectors to tackle challenges

While agriculture primarily remains a state subject, the central government has implemented over 27 schemes and programmes for comprehensive coverage across credit, insurance, income support, seed quality, the promotion of cooperatives and digital agriculture, among other areas.

• In agriculture, various programmes are running across the value chain to uplift farmers such as:

1. Production-linked incentive schemes to promote food processing
2. PM Fasal Bima Yojna to expand insurance coverage for small farmers
3. National targets to establish 10,000 cooperatives
4. Agriculture infrastructure fund to establish post-harvest infrastructure and build community farming assets, promoting collective farming initiatives
5. Krishi Udan 2.0 scheme to promote air transportation of agri-produce through cost sharing

• The government announced the development of a digital public infrastructure for agriculture to enable farmer-centric digital solutions. It also announced an Agriculture Accelerator Fund to encourage agri-start-ups in rural areas and the Atmanirbhar Clean Plant Programme to boost the availability of quality planting material.
• For aquaculture development, the continuation of the Blue Revolution programme under the PM Matsya Sampada Yojana for 2020–25 reflects a continued government effort to promote modern technology, infrastructure creation and increasing seafood exports from India.
• In its interim budget announcements, the government increased the proposed allocation of ~INR1.17 lakh crore in FY25. The proposed budget focused on empowering farmers, women, youth and the poor. It proposed several initiatives aimed at cultivating a more robust and sustainable agricultural ecosystem.

Key interim budget highlights for agriculture

Expectations

The agriculture sector needs continued focus targeting existing gaps in the agriculture value chain to empower small farmers, FPOs, intermediaries, start-ups and large companies.

Expectation #1: Increasing digital adoption – Agri-tech in India has an addressable market of US$24 billion . Increased adoption of tech-driven modern agricultural practices, such as crop mapping, precision farming, breed improvement in dairy, automation of poultry farms and drones, is likely to enhance efficiency and help them make informed decisions. However, due to a lack of awareness, presence of segregated small-farm holders, access to credit and other factors, digital adoption is still at an emerging stage in India. The government recently announced the development of Digital Public Agriculture Infrastructure and an Agriculture Accelerator Fund to foster farmer-centric solutions, nurture agri-tech growth and encourage agri-start-ups in rural areas. Furthermore, the government should aim to increase digital adoption through suitable interventions focusing on educating stakeholders, improving tech affordability and accessibility, increasing investments in R&D, etc. Robust data collection and analysis systems should be established to provide farmers with accurate information on market trends (price, exports, etc.), weather patterns and best practices. Precision agriculture can increase yield by ~30 percent and reduce input costs by ~20 percent. Digital techniques, such as smart irrigation, soil health and crop monitoring facilitate informed decision-making by farmers, save time and increase efficiency in farm operations. Steps should be taken to strengthen public-private partnerships for increased adoption of digital technologies.

Expectation #2: Strengthening the food processing value chain – The Indian food processing market is estimated to reach US$ 535 billion by 2025 at a CAGR of ~15.2 percent. Additionally, exports of processed food products reached ~US$ 20 billion in nine months of FY23, a jump of ~13 percent. With total FDI between April 2000 and December 2022 at ~US$ 12 billion, the sector witnessed an influx of investments offering higher value to agricultural produce, limiting post-harvest losses, rising employment opportunities, etc. The government has already taken measures to boost the sector through its schemes, policies and incentives, such as the Pradhan Mantri Kisan Sampada Yojana (PMKSY) and Pradhan Mantri Formalization of Micro Food Processing Enterprises Scheme (PMFME). However, providing high-quality raw materials at an economical price to food processing industries is one of the major challenges that needs to be addressed. Thus, the government should promote cluster development to provide economies of scale to farmers and improve the quality of produce by increasing the adoption of good agricultural practices.

Expectation #3: Improving post-harvest infrastructure – In India, post-harvest losses stand at ~10–25 percent for perishable foods, such as milk, fish and eggs, and ~30–40 percent for fruits and vegetables. Increasing and improving storage and grading facilities and transportation networks is expected to reduce post-harvest losses and enable timely transportation of quality produce. Furthermore, it leads to a higher value of the agricultural produce and enhances key stakeholders’ revenues. The AIF and the Mission on Integrated Development of Horticulture (MIDH) are steps in the right direction to meet India’s post-harvest infrastructure requirement. However, the low uptake of the AIF suggests a revisit of the provisions under the AIF and similar schemes to make them financially more viable for private participation.

Expectation #4: Boosting the export ecosystem – India’s agricultural exports reached US$53 billion in FY2023. Rice (US$11 billion), marine products (US$8 billion) and sugar (US$5.8 billion) were the top three contributors. This milestone was achieved because of well-crafted trade policy interventions, effective execution and other initiatives. As the increase in agricultural exports leads to higher earnings for farmers, the government should take steps to create a deeper network of export facilitation centres and testing labs and improve the affordability of exports through roads, rail and airways to boost the overall exporting ecosystem.

Expectation #5: Focused strategies for growth in the allied sector – India is the highest milk producer globally and contributes ~25 percent to global milk production. With a production of over ~230 million tons of milk, India’s milk production increased by 58 percent from 2014–15 to 2022–23. Low productivity per animal restricts the growth of the dairy sector, especially for small farmers. Steps are needed to effectively solve the scarcity of feed and fodder, lack of proper sanitation and veterinary care, high input costs, and inefficient marketing channels for farms untouched by cooperative sectors.
The fisheries sector, for long considered a “sunrise sector,” has received massive investments over the years, with the latest being the Pradhan Mantri Matsya Sampada Yojana (PMMSY) in September 2020, which allocated funds worth INR20,050 crore (US$2.74 billion) for five years (FY21–FY25) for the development of the country’s fisheries. Adoption of modern techniques being promoted by the government would require an increased focus on extension activities and cluster-based promotion of scalable best practices. Efforts to reduce the cost of artificial feed, support for electricity and post-harvest infrastructure support are necessary to provide growth opportunities for small and marginalised farmers across India.

Recommendations

Recommendation #1 – Tactical partnerships with the agri-tech ecosystem to realise the digital adoption target

1. The government and start-ups have mostly functioned in silos, with policy support limited to funding and tax benefits. Policy initiatives enabling government and agri-tech players to collaborate in the implementation of state initiatives could help drive margins across the agri value chain. Promoting technologies right from advisory and input services at pre-cultivation stages to crop monitoring during the cultivation stage, along with quality, storage, traceability and market linkage solutions in the post-cultivation stages, can reap immense benefits for the sector.
2. The government should focus on the last-mile reach of the benefits of “Agristack” as it seeks to furnish real-time and accurate data regarding markets, schemes, logistics, warehousing and market access (e-NAM and marketing channels). This integrated ecosystem should function as a comprehensive repository of farmer information, encompassing data on soil conditions, crop specifics and land records, accessible across states. The government should also encourage state-level resource centres to support Agristack through data, production, prediction, analysis, farmer/FPO details, crop insurance, etc.

Recommendation #2 – Rethink the post-harvest infrastructure strategy

• The government needs to integrate the existing warehousing and storage infrastructure through digital means to enable real-time tracking of produce. The existing storage infrastructure also needs to be modernised by incorporating novel technologies, such as IoT sensors to monitor the produce damage. Partnerships with agri-tech players and agribusinesses can support target-based implementation in priority regions. These partnerships could expand coverage of innovative solutions, such as solar drying, plasma technology to reduce fungal growth, micro-cold storage and foster better market linkages.
• The government should encourage the creation of storage, grading and cooling units near mandis, airports, etc. Furthermore, capacity building at these locations will foster grade-based pricing of produce, a reduction in transportation costs and a decline in distress selling. The above interventions can be incentivised under AIF and similar schemes.

Recommendation #3 – Establishing agri-processing and agri-export infrastructure

• The government must focus on value addition and market linkages through strengthened processing infrastructure and export facilitation with digitally enabled supply chains, adherence to global quality standards and improved transport infrastructure.
• Establishing clusters and micro units will increase processing output capacity and reduce unnecessary costs. Clusters can enable multiple food processing units to share common infrastructure and services, thus helping reduce input and other costs and facilitate demand-driven processing. With high-quality, supplying capacity clusters as one unit can have wider market access and promote collaborations and exports.
• It is important to develop a network of value addition infrastructure with a focus on farm-gate processing and larger infrastructure at the block and district levels to provide bargaining power to farmers through improved shelf-life of the produce and alternate selling opportunities.
• Infrastructure should be improved by setting up quality testing centres to ensure quality and foster adherence to country-specific compliances and benchmarks per global standards for increased acceptance of produce.
• Efforts should be made to provide better affordability and accessibility to export routes, even for small regional exporters, through policy measures and incentives.

Recommendation #4 – Enabling allied sector growth

• Dairy, poultry and aquaculture provide lucrative opportunities for farmers to supplement their income. As part of upgrading Krishi Vigyan Kendras (KVK), the government should plan focused expansion for allied sectors to ensure the adoption of modern techniques and best methodologies by farmers.
• Interventions for input financing (extend credit) are necessary in all three subsectors to support farmers through Kisan credit cards. The aquaculture sector especially needs a scheme for restoration and adaptation measures and coastal aquaculture and mariculture with an integrated and multi-sectoral approach to promote climate-resilient activities for the blue economy 2.0.