Budget: What to expect for the agriculture and food sector?

Here’s a look at the agriculture and food sector’s expectation from the upcoming budget:

1. Startups: The startups in India are in need of the right environment to help them thrive in the industry. There is a need to create a support infrastructure such as innovation labs in states, which will provide an equal opportunity to entrepreneurs in every state. Further, once in business, they will need industrial benefits to thrive in the industry. Initiatives such as startup growth fund will help them raise much required capital for growth in absence of collaterals. Further, tax incentives such as relaxation on the tax holiday from 3-5 years and removal of the tax applicable for startups receiving angel funding can be a welcome move.

2. Research: With growing population, the agriculture systems are under immense pressure to boost production to meet the consumption demands. Most agricultural crops in India have 10-40% lower productivity than global averages. Currently India spends 0.3% of agri GDP in research as compared to 0.62% in China, 1.2% in the U.S. and 3% in South Africa. There is a need to double its investment in agricultural R&D. The research could be done in collaboration with the private sector for optimum results.

3. Cold Chain Industry: As per the Ashok Dalwai committee, the cold chain infrastructure needs to be strengthened to support the industry, especially the small and marginal producers of perishable goods. There are 7,645 cold stores across India having a cumulative capacity of 34.95 million tons. Out of this, 95% capacity is owned by the private sector while the public sector has a minuscule share of 2%. The budget should look at creating public assets in form of cold stores to support the small and marginal farmers. The target can be to increase the share of public sector to 12-15% of total capacity, distributed evenly across production and consumption centers.

The gap in logistical connectivity is a major concern in the cold chain industry. A small farmer does not find it profitable to supply perishable produce to a distant market due to huge cost involved, which often makes the produce unviable in those markets. You end up spending over ₹5-7 per kg for a distance of 1,000-1,500 kms for a full truck loaded with 10 tons, while the cost is more than double if the truck is partially loaded. Operation Greens is good start to provide logistical and infrastructure support, price stabilisation and manage supply-demand mismatch for Tomato-Onion-Potato (TOP) commodities.

The budget of ₹500 crore needs to be enhanced considering the logistics, storage and infrastructure required to manage a substantial proportion of around 90 million tons of TOP crop (Onion 22 million tons, Potato 48 million tons and Tomato 20 million tons). This budget should look at investing in low cost technologies, multimodal logistics to make interstate movement feasible for small farmers. Rail cargo movement can play an important role in reducing the logistics cost.

4. Export Infrastructure: India’s share in export of perishable products including milk and milk products is minuscule. While export is considered as highest value addition in the supply chain, we need support infrastructure to promote export. Apart from Agricultural and Processed Food Products Export Development Authority (APEDA’s) export infrastructure scheme, each state should develop the infrastructure which includes cold storage, quality testing labs, product certification, global GAP training to port infrastructure such as perishable cargo centers. We can even look at developing export facilitation centers in major importing countries, thereby supporting the exporters in foreign land. Further, the exporters face issues in getting finance from the foreign banks if they want to invest in offshore projects. A dedicated fund may be created to motivate the private banks to support these agro businesses investing outside India, especially Africa.

5. Small and Medium Agro Industries: The small and medium agro enterprises are the building blocks of the industry. There are 50000 SME units across India which are into various processed foods. However, around 45% of these are a part of the unorganised sector and access to finance is a constraint for them. The budget should look at creating provisions/funds to bring these under the ambit of organised segment.

6. Palm Oil Industry: India is the largest importer of palm oil in South Asia. The country spends around $11-12 billion in vegetable oil imports, out of which palm oil has the highest share. The government has been promoting palm oil cultivation and currently around 3 lakh hectares of land is under cultivation, which is only 0.2% of total agricultural land. Government has hiked the import duty from 15% to 54% for refined palm oil, which has impacted the importers. However, this is to protect the local Crude Palm Oil (CPO) refining industry. Further measures may be taken to impose duty on Palm Stearin and Palm Fatty Acid Distillate (PFAD) to ensure viability of local units. Dedicated programs are required to shift agricultural land from other crops for cultivation of palm.

7. Poultry Industry: The Indian poultry sector produces more than 84 billion eggs and around 4.2 million tons of chicken. It is an unorganised sector with very few organised players. The industry is faced with key issues such as less regulation for antibiotic usage, high cost of poultry feed, cold storage availability and logistics connectivity. The poultry feed industry is highly dependent on the prices of soybean and maize for the chicken’s protein requirements. It is time that the government invests in supporting poultry feed industry so that alternate sources of protein like animal, insect, fish or artificial sources can be sourced. Further, 90% of the poultry industry is concentrated on fresh birds and only 10% is consumed as frozen whereas in developed countries, like the US, consumption of frozen meat is more than 50%. The budget needs to focus on promotion of poultry players for developing the infrastructure for storage and movement of frozen chicken.

8. Dairy Industry: Animal health and hygiene is a critical factor in the dairy industry, which is largely unorganised at the production level. A high quality vaccination facility is the need of the hour. We need to invest in supporting pharma companies to introduce and roll out promising and more effective vaccines for the dairy industry at a subsidised rate. An innovative model is required to aid the commercialisation of such vaccines. This will facilitate the pharma companies to gain productive market share faster and build required volumes.

9. Digital Agriculture: Indian agriculture still remains one of the sectors which is the most untouched by the digital revolution. Even preliminary digitisation of agri markets is far from done. Record keeping, process mapping and transactions of the Agriculture Produce Market Committee (APMC’s) needs to be digitised. Further, the Electronic National Agriculture market initiative, which aimed at digitally interlining the markets across the nation, has progressed to cover only 584 markets as on date, integrating more than 14 million farmers across 18 states. There is a long way to go as the government plans to connect 22,000 mandis by 2022. The budget should adequately allocate funds to enable this platform to develop and cover major agricultural crops. Apart from these, the sector needs other digital initiatives which will enable the farmer to connect easily for access to farm advisory, better agri inputs and logistic services.

10. Land reclamation: India has 19 million hectares of cultivable land, which remains barren and on which miscellaneous crops are grown and are not profitable. Further, a lot of toxic lands are present in the country. U.P. has 1.3 million hectares of salty land. These lands can be reclaimed for agricultural production. The government can look at a focused programme to reclaim these lands.

Views are personal.

Ajay Kakra, is the leader – food and agriculture at PwC India.