Agri reforms: Some early movers, but global biggies cautious

On their part, conventional agricultural traders don’t see the need to change their business model anytime soon.

By Prabhudatta Mishra
A clutch of firms in the food processing/retailing sector may prove to be early movers to grab the opportunity afforded by recently announced near-comprehensive reforms in agricultural products marketing, but large multinationals would circumspectly watch how the de-regulation unfolds at the ground level, before taking the plunge. On their part, conventional agricultural traders don’t see the need to change their business model anytime soon. Creation of necessary infrastructure at farm-gates will take time and till then the APMC mandis will continue to have the dominant role, they assert.

Rajnikant Rai, chief executive officer at ITC’s agri-business division, told FE that the company would now open more e-choupals to procure directly from farmers, particularly for cereals, fruits and vegetables. The reforms will help create ‘hub and spoke’ model in which farmers around a hub would be connected to form cluster of crops, he added.
“We have started disseminating our purchase rates on a daily basis to about 250 chana farmers through SMS and the response is overwhelming,” said Pawan Jindal, who has a processing plant of pulses at Bina, Madhya Pradesh. He added that cleaning and grading facilities would be set up by the firm at village levels to ease direct purchases.
Some units in the poultry industry have also confirmed to FE that they have started buying maize from farmers directly, though on a limited scale.

Earlier this month, the Centre had promulgated two separate ordinances on contract farming and barrier-free inter-state trading. It also ‘de-regulated’ key foodstuff – cereals, edible oils, oilseeds, pulses, onions and potato – from the six-and-a-half-decade-old Essential Commodities (EC) Act, though it reserved the right to impose stock limits in cases of ‘extraordinary price rise’.

“Contract farming is a very sensitive issue. We do not want to hop the limelight at this juncture or inflate expectations among farmers. If we require 200 tonne of daily supply of a produce, we have to get it from a closed area, like a cluster and for which we have to enter into agreement with many small farmers,” said an executive with a multinational food processing firm dealing with potato-based products, seeking anonymity.

Currently, most of the contract farming in the country is confined to Punjab and Gujarat and mainly to potato and tomato. Processed food products of these two horticulture produces need to conform to international standards for exports and processors like Pepsi and ITC help farmers from supplying seeds to manage pests, a sector expert said.
“These reforms in the agriculture sector can be compared with the economic liberalisation, which started in 1991, and we started seeing its benefits from late nineties. We will start seeing the impact of farm reforms in the medium to long term, provided they are implemented by the states in letter and spirit,” said Simon George, president, Cargill India.

The new law on inter-state trading is an important step towards “one nation-one agri market” and it will create healthy competition between APMC and private market yards, George said, adding that traders and processors who can now buy directly from the farmers would result in farming becoming more remunerative. He was non-committal on his firm’s plans, if any, for ramping up direct purchases or investing in food storage infrastructure.

“The agriculture sector will move from a supply-driven economy to a demand-driven supply chain as a result of the reforms. Companies will have freedom to ask the producers (farmers) what they want as per market demand whereas they were so far buying what was available in mandis. These agri reforms will go a long way in fulfilling the aim of prime minister of doubling the farmers’ income,” Rai of ITC said.

However, conventional agri traders are keeping their fingers crossed and watching the changes at the state level before venturing to direct purchases from farmers, bypassing mandis. They, however, also do not fear losing business overnight as they feel processors will depend on them to ensure quality of products they buy since setting up reliable infrastructure at farmers’ doorsteps will be costlier than buying through the conventional system. “So far, there is no concern and we might not see any challenges in future as well,” said Akhil Gupta, who is into paddy and wheat trading at Garh Mukteshwar in western Uttar Pradesh and supplies to millers in Hapur and Ghaziabad.

“There will be opportunities for new players and a transformation of agri-marketing will happen. There is possibility of start-ups coming up who will buy fresh horticulture produce directly from farmers and supply to consumers,” Rai of ITC said.

The near elimination of APMCs or mandis logically led to abolishing the mandi fee, which is a very welcome reform, said Davish Jain, chairman of Indore-based Soybean Processors Association of India. He also sought removal of GST on all agri produce, including oilseeds, as currently available to cereals and pulses.

Prime minister Narendra Modi, in his address at Indian Chamber of Commerce on June 11, had said: “The decisions made recently for the farmers and rural economy have freed the agricultural economy from years of slavery. These decisions have identified the farmer as a producer and his produce as a product. The cluster-based approach for local products which is now being promoted in India is also an opportunity for everyone. Whatever is produced in the districts and blocks, related clusters will be developed nearby. For example, jute based industries will be strengthened nearby for the jute farmers of West Bengal.”