India is predominantly an agricultural driven economy with agro sector being the one of the major contributor to the country’s GDP. Agriculture and allied sectors like forestry and fisheries account for around 23 percent of the Gross Domestic Product with estimated USD 274.23 billion in FY18.
India ranks second globally in agricultural production
No other country has such strong agriculture base as India is blessed with. India is estimated to produce record 284.83 million tonnes of food grain in 2017-18 crop year. All in all, agro-commodities play a major role in the economy and they remain an imperative part of the Indian economy fabric.
Globally, India leads the various food segments as of 2017-18 such as being the largest producer of pulses, jute, milk; first in the production of many fruits and vegetables such as bananas, papayas and mangoes; second-largest producer of rice, wheat, sugarcane, cotton and second-largest fruit and vegetable producer worldwide.
Although agricultural sector has been the backbone of India so far, its due is not fairly paid to the producers. Over the decades, the prices of agro-commodities and raw materials have increased rapidly, and so has the production of India.
This should have resulted in increased revenues of the producers, which however, is not the case. Even though the economic dynamics have shown favorable change towards agro-commodities, the scenario downplays the market. There are many reasons due to which the agro-producers are stuck, the roots of these problems lies in the system, the channels, the mind-set, the markets, producers’ spectrum and a lot of other factors.
The agro-producers need to be self-reliant
To solve these issues, self-reliance of agro-producers is extremely important. In fact, high-degree of self-reliance in any business is extremely beneficial. One needs to be the producer and the supplier both at the same time. Dependence on a different entity to conduct the sale of your product to your consumers not only limits your reach, it limits your control on the market, it makes you dependent on the supplier when it should be the other way around, it results in loss of control over all the aspects of the business apart from producing. Business is a more holistic concept, requiring holistic spectrum and operations.
Same applies to the agro-producers, they need self-reliance or at least more control and more options to get fair revenues for their efforts. The government mentioned certain initiatives to increase the self-reliance of the producers and has paid special emphasis on the execution of these initiatives.
The Indian government is constantly outlining the measures to boost the agricultural economy. Finance minister Mr. Arun Jaitley has earlier announced a minimum support price of 1.5 times the cost of production for Kharif Crops. Not only this, Niti Aayog, after discussions with state governments, have put in place a mechanism to ensure farmers get adequate remuneration should crop prices fall. Mr. Jaitley also announced an increase in agricultural credit to Rs. 11 trillion.
Export is a key aspect of self-reliance
The other side of the coin with respect to agricultural which has maintained a very low profile is “Export”. Export is one of the most important aspects of the self-reliance initiative, which we need for agriculture producers of the country. It opens producers to a world of opportunities, a huge market place with little control of the middle-men who are hindering their growth in local markets.
India ranks second globally in agricultural production, however, India’s total agri-export accounts for only little over 2% of world agro-trade, estimated at USD 1.5 Trillion. India’s agricultural export amounts to $38 billion as of 2017-18.
During the period, export of cereals accounted for 43.6%of the total exports, followed by livestock products (25%), other processed foods (15.94%), fresh fruits and vegetables (8.20 %), processed fruits and vegetables (6.27%) and floriculture and seeds (0.99 %).
There is a huge scope and potential to increase India current agro exports. However, exporting any commodity takes a lot of effort.
What are the major challenges?
There are a lot of fingers raised on the genuineness of international buyers, their credibility, trade history etc.. Likewise, there a lot of uncertainties on the Indian side too. Let’s walk through these issues one by one.
- Lack of visibility: Low literacy and even lack of basic technical skills in the agricultural sector remains a concern for performing global trade. The agro producers need to be globally visible for international buyer to contact them, and this in majority of the cases is missing.
- Inadequacy of Trade Knowledge and information: There is a dearth of the trade information available, which raises a lot of concern on reliability and veracity. For exporting, one should know the export potential of your products, the target markets and the price trends, amongst various other things, to make informed decisions.
- Execution problems like supply chain breakage: For facilitating and executing an export order, supply chain becomes an integral part. A lot of questions arise while preparing for logistics, packaging, processing shipments, performing external inspection and how to get a real-time update of the shipment?
- Procedural Complexities: These include lack of hand-holding for end-2-end support. The certifications, inco-terms, payment terms, contracts, procedure, paperwork , documentation, duties involved etc. all are major problems when it comes to arranging the export orders by agro producers.
How could we overcome these challenges?
To start with, our agro producers need to be globally aware, globally visible and globally competitive. They then need partners, who could handhold them at every stage of the process from finding demand to ensuring production to arranging and executing exports.
Government took the decision to liberalize the agri-exports in the budget earlier this year. Further, the ministry of Commerce & Industry has introduced an “Agriculture Export Policy” which aims at doubling India’s agricultural exports and integrating Indian farmers and agricultural products to the global value chain.
Following would help agro producers to overcome the challenge of exporting:
- Self-help groups and federal co-operatives - These could help bring cutting-edge technologies and approaches to India’s agricultural sector. IT and biotech stand to transform agriculture, raising its production levels and outputs. These self-help groups and federal cooperatives could act as interface between the farmers and the outside work and helps in providing the visibility.
- Economizing the cost of production - This also includes maintaining the uniformity in quality and standardization of agro-commodities. The technology could play a key role here as well, ensuring better planning based on the demand. PPPs that help the agricultural sector deal with natural calamities, weather shocks, and allow farmers to minimize risk through insurance, would be a crucial helping hand.
- Partner based approach – The agro producers need partners who could hand-hold them at various stages and support them till the last mile. These partners should help them not only to optimize production but also to make them globally aware, globally visible and globally competitive.
- End-to-End export managed solutions - From finding best target markets, to identifying & qualifying trade counterparts, to ensuring the best payment terms and then arranging and executing export orders, including logistics, shipment, paperwork, the global trade partners could enable these agro producers to export directly.
The scenario of global trade has changed massively with the advancements in information technology. There are companies making good use of technology and coming up with initiatives aimed towards enabling the Indian agro producers to export globally, on their own.
These companies allow agro producers to export globally, without any technological, geographical or language limitations. With the help of these organizations, India can leverage its true export potential of agricultural commodities to boost this sector and the agricultural economy overall.
Exports are the need of agriculture sector of India, not only it provides a bigger market, it increases competitiveness, it has a reverse effect which results in increase of productivity scale. The country's agricultural sector has potential to double farmer income and grow exports to $100 billion by 2022 from the present $38 billion!
Pawan is an entrepreneur with expertise in trade and technology. As founder & CEO of Connect2India, a one stop source with end-2-end managed solution for export/import, he is enabling and empowering 65 million Indian SMEs to go global. With degree from London Business School, Pawan has enjoyed solving core business problems - be it at Fortune 500 companies or in his own entrepreneurial ventures.