Can AgriTech startups offering market linkage benefit smaller farmers?

While farmers close to urban areas are diversifying production towards high value commodities, a large number of farmers with small and marginal land holding still struggle with market access.
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By Puneet Sethi, Co-Founder, Farmpal 

For many years now, Indian agriculture has been in crisis for a variety of reasons. Several experts opine that the surest, a more long-lasting solution to solve the crisis is by enabling farmers to earn more. A variety of stakeholders are doing their bit to ensure better income for the farmers. The private sector, especially the more recently minted startups both in pre and post-harvest supply chain cycles are also contributing significantly as the Agri Tech space heats up, more so with the COVID-19 pandemic dictating a more urgent need for fresh supplies, and Agri based products in general.

In Indian agriculture, one of the bigger challenges is that a large percentage of the farmers have an average plot size of around 2-3 hectares; this size of farm holding makes it difficult for farmers to earn sustainable profits from farming due to ever increasing costs of inputs (seeds, fertilizer, pesticide etc.) and difficulty in utilization of mechanization for sowing, cultivation processes to improve yield. And finally, probably the most significant challenge, the presence of numerous intermediaries, takes away a large share of the profits leaving the farmers with fewer returns.

In the past few years, there has been a rapid transformation in trading, marketing and retailing of Agri foods across India. Traditionally, farmers were unaware in advance when, to whom and at what price they are going to sell their produce. This scenario would change with improved coordination between farmers, processors, retailers and other players in the supply chain. In addition, farmers, especially those close to India’s new urban centers are diversifying production towards high value commodities due to changing food habits of the buyers. While these advances are great for the richer, closer to the end market farmers, a large number of farmers with small and marginal land holding still struggle with efficient market access.

The 3 recent Farm bills have sought to do this for the more distressed farmers. As the “closed loop” Agri supply chain opens up, it will offer a host of opportunities to private players; as in the past, an influx of private sector interest and funds should also benefit the farmer – low cost storage options, upfront price contracts for example. In addition, this will encourage smaller farmers to form FPOs/FPCs, both of which are again incentivized by the Government to avail economy of scale benefits, especially more so now that they have the freedom to choose their market.

This improved market linkage for smaller farmers should have a genuine impact across the Agri sector. For farmers, marketing of their products is a big challenge apart from access to credit and crop diversification. Traditionally, market linkages have involved connecting farmers to - local traders, retailers, exporters and even food processing. As farmers become more aware of the recently passed bills and how to leverage the same to their benefit, and as the focus on Agri sector continues to grow, with Government incentives and schemes and an unseen before interest from the private sector, especially new age entrepreneurs, the following factors can additionally positively influence the market access and linkage to farmers.

Price Transparency through Technology

In the last few decades, a large contributor to small farmers woes has been the lack of price transparency in traditional mandis. Farmers have no say in setting a selling price and the whole price advantage lies with the traders. As phones and internet penetrate the deepest parts of India, slowly there is increased transparency in buying and selling of Agri goods at the mandis.

Alternate Markets through Agri Tech Space  

Considering the recent trend in the Indian Agri start-up ecosystem, entrepreneurs are working at grass roots level, leveraging technology to connect small and marginal farmers to alternate markets to both increase income of farmers, and reduce wastage across the supply chain. With the assistance of the post-harvest supply chain start-ups, farmers can take their produce either to an online marketplace and sell it across India or plan their produce on pre-defined demand patterns.

Apart from the startups, in the past few years, there has also been a rise in overseas FMCG companies coming to India and working in Agriculture thereby providing an alternative to selling in mandis. With the contract farming option available, this can be a win-win if implemented correctly. Through this mechanism, farmers will have the price guarantee up front for production to certain specifications and quality standards, hence earning more.

Farmers Producer Organization (FPO) / Group Farming

The government is increasingly promoting the concept of FPO and Group Farming. The development of farmer groups helps to a great extent in accessing inputs more easily, improving product quality, increasing quantity and achieving economies of scale, and increasing bargaining power. Market-oriented collective action helps overcome high transaction costs that would be faced by farmers acting individually.

Direct Marketing

Another market linkage that has emerged for farmers has been the direct marketing and selling for farm to consumers in urban areas. During the Covid 19 pandemic, this model picked up significantly as traditional supply was disrupted for both the farmers and consumers. This process is highly efficient as it connects farmers directly with both retail and business consumers in cities by eliminating all middlemen, and greatly adds to their selling rates and eventual margins. This model works especially well for the more recent demand for exotic vegetables and organics. This however only helps farmers located closer to the cities.

Overall, for success of the Indian farmer and the Agri sector as a whole, it is critical to get small farmers access to cheaper sources of inputs and assured market linkages with fair pricing. If these initiatives on the ground – innovation from private organizations coupled with policy from the Government are aligned with increased awareness / education and willingness of farmers, revival of the Agri sector could be far faster.

Views expressed are author’s own

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