Parveen Kumar, Dr. Anil Kumar
Agriculture sector in India has undergone significant structural changes over the years. From once being a traditional and subsistence one; the shift has been towards modern and market orientation. Agriculture remains the backbone of Indian economy. The share agriculture in Gross Domestic Product (GDP) has come down over the years, but this decrease in contribution of agriculture to GDP has not been accompanied by matching reduction in share of agriculture in employment. At the same time in the rural economy the share of income from nonfarm activities has increased. Since agriculture forms the resource base for a No. of Agro based industries and agro services, this sector needs to be viewed as a holistic one. This holistic approach should focus on the addition of value to the agricultural produce at every step so that the farmer gets the maximum return from the produce. A distinct value chain encompasses all the stake holders from the production to final distribution. Unfortunately in the country this aspect has not been given due attention. The country has now achieved a recorded food grain production; but the food wastage is a very severe problem. Farmers work hard but do not get the rightful share of their produce. A lot of this share goes to the middlemen and commission agents, because of lack of adequate marketing network. Reports say that the share of farmer in consumer wallet is merely 25-30 per cent as compared to western markets where it goes as high as 50-75 per cent. Without being linked to market the farming community is condemned to produce only for their subsistence.
One of the focus areas for the development of agriculture sector in India is thus promotion of value chains in this sector. A value chain is a set of linked activities that work to add value to a product. It consists of actors and actions that improve a product while linking a commodity producer to processors and markets. The concept of value chain has been used since the beginning of millennium primarily by those working in agricultural development in developing countries. Although there has been no universally accepted definition of the term, it normally refers to the whole range of goods and services necessary for an agriculture product to move from the farm to the final customer or consumer. The term value chain was first popularised in a book published in 1985 by Michael Porter who used it to illustrate how companies could achieve what he called ‘competitive advantage’ by adding value within their organisation. At the heart of agriculture value chain is the idea of actors connected along a chain producing and delivering goods to consumers through a sequence of activities. However this vertical chain cannot work in isolation and an important aspect of value chain approach is that it also considers horizontal impacts on the chain such as input and finance provision. There is a need to differentiate value chains from supply chains. Value chains differ from the supply chains which refer to logistics, transport, storage procedural steps for getting a product from production state to consumer. A value chain on the other hand encompasses the flow of products, knowledge information finance payments and social capital needed to organise producers and commodities. Agriculture value chains may include farm production post harvest handling, processing, technology and grading cooling and packaging. Similarly when we talk of creating a value chain in finance related services in agriculture, it means there is a unrestricted flow of funds to different actors in the value chain. This flow is also essential to meet the credit and other financial needs of farmers as well as other stakeholders to buy inputs, machinery or to secure sales. A typical vale chain in agricultural finance is the contract farming where inputs can be provided to farmers and the cost can be repaid directly when the product is delivered, without need for farmers taking a loan from a bank or similar institution.
In a country like India where about 90 per cent of the farmers are marginal and small, the promotion of value chains can bring in more income for them as it usually encompasses flow of products, knowledge and information between smallholder farmer and consumer. Value chains offer opportunity to capture added value at each stage of production, marketing and consumption process. Small holder farmer need to be engaged with value chain in order to gain added value for improving their livelihood whilst reducing their risk and increasing the resilience. Many multinational companies are also playing an important role in developing value chain opportunities for small holder farmers. Under the Corporate Social Responsibility (CSR) programme many big industrial houses have also taken up this programme to promote various commodity specific value chains. The engineering giant Unilever has made a public commitment to source more raw materials for small holder farmers helping them to improve their agricultural practices and thus enabling them to supply their produce to global markets. Similarly, Nestle too aims to create value for their smallholder farmers and develop direct relationships between farmers and cooperatives through their various farmer contact programmes.
Value chains work best when all the actors cooperate to produce higher quality product and generate more income for all participants along the value chain. It also helps identify weak points in the chain and action to add more value finding way to improve value chain can be very important for increasing smallholder incomes. It can lift them out of poverty. Value chains are also necessary to prevent colossal wastage of agriculture produce of billions dollars loss to economy. Also, when farmer gets adequate price of their produce, they will not look after the government to announce the Minimum Support Price paving the way to do away with this regime. Information and Communication Technologies (ICTs) can be successfully exploited in value chains. The present time is witnessing a rapid expansion in the usage of ICT technologies and now these are becoming more and more affordable. The ICT tools aid in decision making of the farmers. There are now various apps which support access to mobile payment services for a large percentage of those without banks, thereby facilitating transactions in the value chain.
If agriculture value chains are to offer more opportunities to the small and marginal farming community than markets should be made accessible to them. Now two things appear essential for successful value chain development, first is creating the right environment for agriculture and second is the investment in rural public goods. An enabling environment implies farmer friendly public policies that include economic stability and controlling inflation, a friendly tax regime and adequate investments in public goods and adequate investment in rural infrastructure.
(The authors are from Advanced Centre for Rainfed Agriculture (ACRA) Rakh Dhiansar, SKUAST-J)