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Under the new model, land will remain in the hands of farmers, while corporate farms may take land on lease and also have their own lands for cultivation. The organised retail players will be directed to invest in mod..

08 Dec 2011

By Sreekumar Raghavan
India is badly in need of a second green revolution, according to Prime Minister, Manmohan Singh. The first one was based on high yielding varieties and farm mechanisation that helped us to become self-sufficient in food. There is talk of a second green revolution, but nobody seems to have a clue as to how it will work out.

But before we get immersed in evolving  the model for the second green revolution, the success story of Argentina is worth recalling here.

In a short span of twenty years (1990-2010), Argentina has become a force to reckon with in oilseeds and food grains. Its total crop production has risen from 40 mn tonnes to 110 mn tonnes during the period, according to an analysis by Rabobank.

It was the adoption of genetically modified (GM) soybean seeds, no till planting that helped raised production. No till allows double cropping, increases the amount of water and organic matter in the soil, lowering fertiliser needs and decreasing soil erosion, Rabobank report said.

It helped reduce soybean farming costs into half, and brought more marginal areas into cultivation. Corn yields doubled while wheat yields rose 50%. Soybean expanded and even replaced grains in the Pampas due to high profitability.

The planting pools of Argentina

The amazing success of Argentina agriculture is attributed to the growth of ‘planting pools’. Planting pools are run by agricultural consultancies or entrepreneurs who develop a business plan and offer it to investors.  The land is leased from a third party and planting, spraying and harvesting activities are contracted out. The crop sale is managed by the pool organised through pre-chosen buyers processor or exporters. Land ownership and land under management have become two different concepts in Argentina with 50-60% of production currently done on rented land as against 25% in 1990’s. Investment in the planting pools can be as low as US $1000 and typical expected returns can be 15 to 20% annually. Weather and production risks fall entirely on the investor while price risks fall on the farmers. In some cases, the organiser of the pool is  an entrepreneurial farmer or a farming company. This is the case for big farming companies that have become prominent in the last decade.

As opposed to models in which the farmers own the land, work on the land and makes technological and commercial decisions, these new companies separate the three roles (Courtesy:  Rabobank November Report: New Models of Farming in Argentina)

The Existing Indian scenario and challenges

-Fragmented, small holdings
-No price discovery, research
-Existence of middlemen
-Lack of cold storage, warehousing
-Poor Logistics
- Retailing – large unorganised sector

The model with no middlemen
Under a new Indian model envisaged by the author, land will remain in the hands of farmers, while corporate farms may take land on lease and also have their own lands for cultivation.  The organised retail players will be directed to invest in modern warehousing and logistics. (More studies will have to be done on the Argentina model to ascertain whether it can work in Indian situation.)

Among outside agents, Government will provide research inputs (agricultural universities), policy making, market intervention and extension activities. For the development of high yielding varieties and GM crops, research institutions in both private and public sector would play the dominant role subject to approvals from government. Seeds will be supplied by both government agencies and private players. Increased competition in this sector may bring prices to affordable levels.

It is a fact that if land holdings remain small and farmers remain under the clutches of middlemen, no second green revolution will be possible.  This is where some elements of the Argentina model will be worth emulating in India.

The futures market

The futures market will help in price discovery and hedging and spot markets (both electronic and physical) will play their role in price discovery and selling of products.

Retail
Both organised retail (currently holding 4% of total business) which may increase if government policy to allow FDI in multi-brand retail is implemented and un-organised retail will continue to play their respective roles. The unorganised retail won’t be affected by FDI, according to India Government. The end consumer benefits in terms of superior quality products at affordable prices as middlemen are eliminated.

Farmers and consumers have overwhelmingly supported FDI in retail, according to an ASSOCHAM survey. However, Opposition parties continue to campaign against the move, so are small traders and middlemen. 

Warehousing, Logistics

Warehousing, cold storage and logistics network needs huge investments and that is the vital missing link in the conventional system leading to huge crop losses. Here again, the organised retail along with government/ public sector agencies is expected to pump capital to augment capacity.

A better policy option would be to have the new overseas players mandated to invest a portion of their capital for augmenting our warehousing, supply chain, logistics through a public-private partnership model. The augmenting of logistics capacity will in turn benefit the entire stakeholders in the agriculture supply chain. 

In economics, a model is only a simplification of reality with lot of assumptions built in. I hope this model creates the broad framework with which the second green revolution can be conceptualised further.
 
(The author is Managing Editor of Commodity Online and may be contacted at sk@commodityonline.com)

 

 

 


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COMMENTS (1)
GYANENDRA SHUKLA
11 Dec 2011
I agree more comprehenxsive approach will help deliver 2nd green revolution!
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