1. P R O F . ( D R . ) S A U R A B H A G A R W A L
P H D ( F M S , D E L H I U N I V E R S I T Y ) , M . P H I L . ( D S E ,
D U ) , M . C O M . ( D S E , D U ) , B . C O M . ( H ) ( S R C C ) , U G C
( N E T ) , A M T ( A I M A )
V I C E - C H A I R M A N & P R O F E S S O R O F F I N A N C E
I N D I A N I N S T I T U T E O F F I N A N C E ( W W W . I I F . E D U )
4 5 A , K N O W L E D G E P A R K I I I , G R E A T E R N O I D A ,
U T T A R P R A D E S H 2 0 1 3 0 8 , I N D I A
Reforming Agriculture: Policy
Issues and Perspectives
2. RA: Policy Issues and Perspectives
Indian Agriculture has become more robust over the
past few years with record production of food grains
India also prides itself of being one of the largest
producers in the world of rice, wheat, milk, fruits and
vegetables
Then why is India home to a large population of
malnourished people?
Is it because of threats like El Nino/cyclone or poor
efficiency of supply chain in agricultural
warehousing?
3. RA: Policy Issues and Perspectives
The contribution of agriculture to our gross domestic
product (GDP) is constantly declining (i.e. declined from
15.2 percent in 2012 to current 13.9 percent in 2013)
Despite the low contribution to our GDP approximately
55% of our population is engaged in agriculture
This clearly shows a large proportion of our population
sharing a very low proportion of economic wealth
resulting in poor working and living conditions for a
large section of Indian farmers
This is the main reason for currents shift from farm
employment to non-farm sectors even in rural areas
This is also resulting in an exodus of individuals from
rural areas to urban centers
4. Current Scenario and Challenges
Agriculture is growing averagely at the rate of 4%
Some states like Madhya Pradesh have recorded a high
agricultural growth rate of 24.99% (in 2014)
How to replicate the success story?
How can States and the Centre come together to increase
agricultural production and productivity
A number of steps have been taken including development
of farmer producer organizations (FPOs) for enabling
better market linkages for marginal farmers
Funding is being given under many government schemes
including Rshtriya Krishi Vikas Yojana
5. Current Scenario and Challenges
Attempts are also being made to have green revolution
in Eastern India through BGREI Scheme having an
outlay of Rs. 1000 crores
Major issue that confront Indian agricultural scientist
is how to improve the yield levels of marginal
landholding throughout India
A large number of small and marginal farms (1.16 ha)
limits the capability of farmers to access advancements
in research, gain access to credit, access to modern
inputs, appropriate technology and marketing systems
making them susceptible to agents of Agricultural
Produce Marketing Committee
6. Current Scenario and Challenges
Direct selling through 'Rautu Bazar' or to super
markets directly may improve the situation of
farmers by eliminating the middleman or the agents
The gross capital formation (GCF) is steadily
increasing and is dominated by investments by
private sector
While public GCF is directed towards subsidies,
private GCF focusses on labour saving machinery for
irrigation and other purposes
7. Current Scenario and Challenges
Advanced level of research is being carried by
institutions like ICAR to produce a variety of crops
suitable for different agro-ecological niches and last
year itself 104 varieties of various crops were
released
Such breeder seeds are being produced in large
quantities for the benefits of farmers
Attempts are also being made to develop high
quality seeds under various government schemes
and it is mooted to develop a Seed bank that can
keep a record of all possible cross-pollinated hybrid
crops.
8. Current Scenario and Challenges
Soil quality is another issue affecting productivity in
agriculture
Fertilizers are often used to improve the productivity
in agriculture
Import of components used in creating fertilizers
limits its availability
To overcome the problem associated with import
dependence of potassic (K) and phosphatic (P)
fertilizer, Indian companies are being given special
incentives for have joint ventures with international
companies to enable a long term supply of fertilizers
in India
9. Current Scenario and Challenges
Mechanization and Technology improvement of
Indian Farm sector is another grey area requiring
significant focus of agricultural scientists
While the level of mechanization in developed
countries is around 90 percent, our farms are
averagely mechanized around 25 percent only
With rural youth increasingly leaving farm
employment, it is necessary to increase the level of
farm mechanization to prevent any fall in the level of
production
10. Current Scenario and Challenges
A large number of irrigation projects are being
executed at an outlay of around Rs. 64,228 crores
through central loan assistance/grant under
Accelerated Irrigation Benefit Programme (AIBP)
Yet only 45 per cent of the net cropped area is
irrigated
Hence, it is important that indigenous measures like
creating local ponds and crop diversification may be
undertaken to prevent further lowering of water
table
11. Current Scenario and Challenges
For policy responses in agriculture, it is
recommended that the water use should be made
more efficient and government support to use of
harmful inputs should be withdrawn
Agricultural Credit of Rs. 7,30,765 Crores were
disbursed in 2012-13 at a nominal rate of 4 percent
Small and marginal farmers could avail the benefit of
loans by use of kisan credit card
However, a focus must be laid not only on disbursal
of loans but also educating farmers of the ills of
taking the loan
12. Current Scenario and Challenges
To prevent any default on the part of the farmer,
crop insurance may be undertaken
Crop insurance is being made more accessible by
making village panchayat as the insurance unit
It is important that hedging of risks should be
permitted with the use of Weather Derivatives, a
concept largely unknown in India
13. Current Scenario and Challenges
The price policy and tax structure has inevitably
done more harm than good to agriculture
In a country that got free 67 years ago, our farmers
are still forced to sell their produce either to APMC
or at Minimum Support Price (MSP) or the price is
governed by some act like Essential Commodities
(EC) Act 1955
Also, movement of agricultural produce from one
state to another is permitted under a much regulated
framework
14. Current Scenario and Challenges
An attempt has to be made to realize that this is one
country and a farmer should be free to sell his
produce anywhere in India based on wherever he
would get the best possible price
Attempts have been made in this regard and we
have recently seen development of e-mandi's in India
Commodity Futures Market under the regulation of
Forward Markets Commission currently allows
trading in 46 out of 113 commodities that are notified
for commodity trading
15. Current Scenario and Challenges
The trading takes place on 6 National Exchanges and
11 Commodity Specific Exchanges
Agricultural Commodities constitute around 15.8
percent of the total turnover on these exchanges
Amongst agricultural commodities, it is the food
items like soya oil, soyabean, chana, mustard seed
and coriander that are maximum traded contributing
around 55.56 percent to the total volume of
commodity futures trading
Farmers can get better prices of produce in case we
are able to reduce the information asymmetry and
educate the farmers about cropping strategies
16. Current Scenario and Challenges
Farmers can access information on spot prices of
around 1700 mandis that can be seen on
AGMARKNET
Such a platform can certainly help in better price
discovery provided the government does not
intervene too much by imposing ban
Such infrastructure may also be used for the benefit
of farmers for protecting them against risk of falling
prices.
17. Current Scenario and Challenges
A large proportion our Agricultural produce gets
rotten away or is lost in pilferage
To overcome this loss, Warehousing Development
and Regulatory Authority have been set up recently
to promote the infrastructure in warehousing in
India
To facilitate liquidity amongst farmers on their
produce, a concept of Negotiable Warehousing
Receipts (NWRs) has also been developed
18. Current Scenario and Challenges
In this a farmer can get loans from financial
institutions based on the quantum of agricultural
produce that is deposited by the farmer at registered
warehouse
However, there remain huge infrastructure needs
that can store agricultural produce and issue such
NWRs
It is also important to invite international
investments and technical assistance in areas like
packaging, storage, transportation, cold chain and
processing of agricultural produce
19. Current Scenario and Challenges
Many initiatives by the government like creation of
mega food parks and cold chain infrastructure
require a greater push and financial support
Trade policy in India has predominantly remained
ad-hoc without focus on economic rationales and
primarily motivated by political vote banks
Attempts are needed to stabilize prices domestically
and follow a stable export policy to enable India
become one of the largest exporter of agricultural
produce
20. Current Scenario and Challenges
This will not only bring valuable foreign exchange but also
improve the per capita income of farmers
Kommerskollegium in his book on “Open for Business: A
Comparative Analysis of the Trade Policies of the European
Union (EU), the United States (US), Canada and Japan”
found that the tariffs for agricultural goods were more than
that for industrial goods
US was found to be having lowest and least distorting tariff
structure
Canada had a lot of difference between the maximum and
the minimum tariff
EU was least transparent and Japan had unbounded tariff.
21. Current Scenario and Challenges
The market access for agricultural goods was found
to be more unpredictable for the EU and the US and
most predictable for Canada
As regards export subsidies, EU was the largest user
followed by US, Canada and finally Japan
The farmers in Japan and EU were found to be
dependent on government for budgetary payments
and market price support
On the other hand, US and Canadian farmers were
more dependent on the market
22. Current Scenario and Challenges
US and Canada were found to be more open than EU
and Japan
We may study the trade policies of US and Canada
and adapt their policies to suit indigenous needs of
our agricultural markets.
23. Transnational Corporations (TNC)
Impact of TNC on environmental and social
concerns, land degradation, land tenure rights, food
security and protection of local people
Transfer of technology, standards, skills and access
to credit and markets
Issue of “land grab”
Millennium Development Goals adopted by United
Nations
Heavy investment in agriculture
24. Transnational Corporations
To promote bio-fuel initiatives and growing
sugarcane, grains, oilseeds and jatropha in
developing countries
Effect of TNCs on food crises, bio-fuels, water
resources, ecological balance, deforestation,
biodiversity, carbon emission etc.
How to strategize agricultural production?
Need for a multi-stakeholder mechanism
How to have an integrated approach towards
agriculture, investment, infrastructure, competition,
trade and R&D?
25. How to address the environmental and social
concerns that will arise from TNCs involvement?
How can regional economic integration help in
boosting agricultural production?
How to promote contractual linkages between TNCs
and local farmers?
How to review the FDI entry regulations and land
use policies?
What would be the priority areas for research and
development?
Transnational Corporations
26. Saurabh Agarwal, Warehousing and Financing Options
26
Overview
Warehousing Capacity Expansion: DHL Global Forwarding,
Future Group, Gati, Suri Agrofresh etc.
Setting up of Computer Controlled racked shelving (MJ
Logistics Services)
Setting of Agriculture Economic Zone along the lines of SEZs
enabling tax exemptions
650 crores allocated to National Cooperative Consumer’s
Federation of India (NCCF) for development of warehousing
facilities in 12 states/672 Crores given as subsidy under scheme
of construction/renovation of rural godowns.
27. Saurabh Agarwal, Warehousing and Financing Options
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235.13 (in lakh MT) of foodgrains with FCI (10/2010)
Storage
Better warehousing will enable better management of
Inflation
Political will for promoting warehousing infrastructure
Liberalised Scheme for hiring of warehouses (2010)
GOI unique Private Entrepreneur Guarantee Scheme (2010)
Guaranteed hiring of godowns
Income Tax Benefit u/s 35 AD
Foodgrains
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FIFO Technology to be part of the Warehousing Policy
System of Containers marked with date of storage to
enable quick transportation and disaster management
In- Out Method of Storage
Storage
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How to Manage Warehouses
Adoption of EOQ Method to manage foodgrains
Quantity
Period
Maximum
Average
Minimum
Danger Zone
31. 31
Warehouse Receipt Financing – Agricultural and Non
Agricultural Commodities
The negotiability of warehouse receipt
Registration and accreditation of warehouses intending to
issue negotiable warehouse receipts
System of quality certification and grading of commodities
How will the farmers and Financial Institutions Benefit
Postponement of sales beyond the harvest season
WRs are secure collateral for obtaining finance
“price takers” to that of “price negotiators”
Is There a Downside for the Farmer?
Saurabh Agarwal, Warehousing and Financing Options
Micro Economic Perspective
32. Saurabh Agarwal, Warehousing and Financing Options
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Warehousing Receipt Financing - Advancements
1% Loan Waiver on Loans Against Godown Receipts thereby
reducing the loan rates from 12-12.5% to 11-11.5%
Last year the concessional rate offered by SBI was 8%
Full negotiability of receipts issued by registered warehouses
Registration of warehouses likely to become mandatory
Till date around 40 agri commodities notified including cash
crops, staple and coarse grain
Likely extension of loan waiver to food processing and
horticulture
51 warehouses registered by regulator as compared to 318
applications
Registered warehouses are located in Rajasthan, Tamil Nadu,
Andhra Pradesh and Madhya Pradesh
33. Saurabh Agarwal, Warehousing and Financing Options
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From Whom?
TQ, Tata Projects Limited, American Quality Assessors
(INDIA) Private Limited
Bureau Veritas Certification (INDIA)Private Limited
BSI Group India Private Limited
The National Productivity Council
Indian Grain Storage Management and Research
Institute (IGMRI)
National Cooperative Development Corporation
(NCDC)
National Institute of Agricultural Marketing (NIAM)
Accreditation
34. Saurabh Agarwal, Warehousing and Financing Options
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Field warehousing involves a manufacturer making available a
portion of his property to the warehouse which may be
separated from the rest of the plant with the help of partitions
Advantages
1. The manufacturer benefits, as he can deposit the raw
material with the warehouse and in return get warehouse
receipts which can be further be used as a security for
securing a bank loan
2. The warehouses companies benefits by generation of
additional business without having to invest in land and
building
3. Banks will also have to think creatively of entering into this
new area of working capital financing
Field warehousing
35. Saurabh Agarwal, Warehousing and Financing Options
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National Horticulture Mission (NHM) was launched in 2005-
06 for Fruits and Vegetables.
Results in 2010
Under the post harvest management component, 898 pack
houses, 46 cold storages, 14 refrigerated vans, 7 wholesale
markets and 45 rural markets have been set up
Requirement of adopting warehousing
Technology as adopted by Walmart etc.
Horticulture – Opportunities for PPP
36. Saurabh Agarwal, Warehousing and Financing Options
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Mr. Vishwas Kachare who in period of 30 years has been
able to shift from a small hut to a 40,000 sq ft farm house in
Telanwadi. Starting from 27 acres of barren land to his
current day orchids of more than 300 acres
Mother Dairy's Safal whereby sorting of fruits and
vegetables into different categories and packing is done with
the help of farmers have significantly reduced the time lag
and burden on existing cold chain infrastructure
Use of Global positioning system (GPS), better electronic
weighing systems, local language billing machines and
General Packet Radio Services (GPRS) for updating the
details on the central server - Krishnagiri district (Tamil
Nadu)
Innovative Case Studies
37. Saurabh Agarwal, Warehousing and Financing Options
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To provide information of
Accredited Warehouses
Availability of Warehouses
On time, On budget, Right Functionality
Serve Commodities Future Market and Spot Exchanges
The nationwide grid-computing initiative, Garuda, aggregates
supercomputing and storage resources nationwide, provides a
problem-solving environment, and enables collaborative R&D for
research and user community. Garuda connects 45 premier
institutions across17 cities.
Data Warehousing & Electronics and
information technology
38. Saurabh Agarwal, Warehousing and Financing Options
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Ports
Areas have been opened up to the private sector on BOT
basis
Areas opened up include construction of cargo-handling
berths and dry docks, container terminals and warehousing
facilities and ship-repair facilities.
Ports Warehousing – Investment Opportunities
39. 39
Introduced in 1997, under which food grains are procured and
distributed by the State Governments themselves
Advantages
Wider coverage of farmers
Higher Efficiency in the form of saved transportation and
reduced pilferage.
Is successful for rice but not for wheat.
Questions
How can this be made efficient?
How can it be extended to other agricultural commodities and
non-agricultural commodities
Decentralized Procurement Scheme (DCP)
Saurabh Agarwal, Warehousing and Financing Options
40. Saurabh Agarwal, Warehousing and Financing Options
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Financing
A. Domestic Financial Markets:
i. Equity finance
ii. Debt Finance
iii. Domestic Capital Market
iv. Financial Developmental Institutions
B. International Financial Markets:
i. Multilateral Institutions
ii. Export Credit Agencies (ECA)
iii. External Commercial Borrowing (ECB)
iv. Syndicated Loans
v. Private placement
vi. Global Depository Receipts (GDRs)
vii. Weather Derivatives & Hybrid Instruments
41. Saurabh Agarwal, Warehousing and Financing Options
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B. International Financial Markets:
viii. Private Equity
ix. Mergers and Acquisitions
Example: (5 deals in last month itself)
a. Warburg Pincus putting $100 million in Continental
Warehousing Corporation
b. Fidelity Growth Partners investing $13.5 million in
Transpole Logistics
c. Aqua Logistics taking over Nikkos Logistics
M&A activity centred around Freight Forwarding companies
Financing
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C. Internal Resources
D. Public Private Partnership
E. Forward Need Financing
This will prevent cost of capital being added to cost of
food grains
Financing
43. Saurabh Agarwal, Warehousing and Financing Options
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Capital Structure Financing
- Domestic Financial Markets
1. Equity finance
2. Debt Finance
3. Domestic Capital Market
4. Financial Developmental
Institutions
1. International Financial Markets
2. Multilateral Institutions
3. External Commercial
Borrowing (ECB)
4. Syndicated Loans
5. Private placement
6. Global Depository Receipts
(GDRs)
- Weather Derivatives & Hybrid
Instruments
- Internal Resources
-Public Private Partnership
- PE and M&A
Financing
Working Capital Financing
1. Field warehousing
2. Warehousing receipt
financing (WRF)
Financing by FCI/CWC
Forward Need Financing
44. Saurabh Agarwal, Warehousing and Financing Options
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Hi Tech Farming
Vikas Rai – Farm at Nihal Khera Village in Punjab Fazzilka
district
90 HP John Deere air-conditioned tractor, which he bought
in 2009 for Rs.18 lakh
Who rotates cotton and wheat on his 150 acres
He is now set to spend Rs. 25 lakh on a seed driller and a
sprayer
Even as neighbors opt for Rs. 60000 seed drills, Rai is going
to buy a Rs. 13 lakh Lemken, a German brand, after he sells
his wheat crop this April.
On one acre of land for cotton sowing, he is using four
packets of 500 grams of hybrid seed, with the new machine,
he only needs to use one packet, costing Rs.900-950 and
yielding 15 quintals per acre
45. Saurabh Agarwal, Warehousing and Financing Options
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He’s targeting yields of 20quintals of wheat from an
acre
By using Lemken’s duck foot cultivator to prepare land
for sowing , he used 30% less diesel than his neighbors
at 4 liters an acre
Investing more than Rs.1crore on farm equipment
At 48 degrees Celsius in the firs week of May, it’s a joy
to cultivate land for cotton driving an AC tractor
He wears his best clothes when he goes to cultivate his
land, which only takes two hours unlike the previous
time of eight hours
Hi Tech Farming
46. Saurabh Agarwal, Warehousing and Financing Options
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Sumanta Bisui, 30 – Owner Bisui Poultry
Learnt Poulty farming at companies such as Chakra India,
Uma Kiran Industries and Sai Durga Industries
Key Learning - “Keeping the feed cost under control is key to
profitability in poultry farming”
Initial capital Rs.2crore from father and friend, Term loan of
Rs.4crore, Working capital of Rs.69lakh and Bought 56big
has of land in Nuniadihi
Bisui Poultry has 90000 layers or chickens raised for their
eggs
Orders are also coming from traders in Jharkhand
e-commerce platform to market my eggs and chickens across
India
Poultry
47. Saurabh Agarwal, Warehousing and Financing Options
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Jayawant Patil, 27, works in an information
technology company in Pune four days a week
Part Time Organic Farmer
Tending to his 2.5-acre farm about 80 km
away from Pune
Started work on a website to connect organic
vegetable growers with customers
To get first-hand experience to understand
these fully he got into organic farming
Organic Farming
48. Saurabh Agarwal, Warehousing and Financing Options
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The organic certifying agency, said the companies
involved in organic farming are mostly export
oriented. “The first type is of the traditional farmer
practicing organic farming to earn their bread and
butter. The second type is the increasing breed of
urban farmers, who have turned to growing organic
food as a passion or liking,”
Marketing is the biggest challenge
The most effective marketing channel is digital.
Orders are processed through websites, voice SMSes
and e-mails
Future Prospect for Development - Organic processed
fruits
Organic Farming
49. Saurabh Agarwal, Warehousing and Financing Options
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Aquaponics
Vijayakumar Narayanan, 40, - returned to his native
village in Kerala two years ago after spending
20years in various jobs in India and the Gulf, he
wasn’t too sure about what to do
Plunged into aquaponics - “Inspired from
hydroponics - Cultivation of plants without soil in
water often with the help of chemical nutrients”
Aquaponics - Combination of aqua culture and
hydroponics and use water rich in fish waste to
cultivate plants
This method is more organic in nature and doesn’t
involve the use of chemical nutrients
50. Saurabh Agarwal, Warehousing and Financing Options
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Double guarantee for a farmer - income through
fish and vegetables
Though Aquaponics was practiced by the Aztecs in
Mexico thousands of years ago
The farmer can start with 500 kg of fish in a pond
with 10,000 litres of water in about half a cent in
the backyard. (1cent = 435sq ft.)
The investment will be around Rs.40,000/- to
Rs.50000/-
For commercial operations, a minimum of 4 cents is
needed, along with 5000 kg of fish and 50000 litres
of water and an investment of Rs.1.50-1.75lakh
Aquaponics
51. Saurabh Agarwal, Warehousing and Financing Options
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Aquaponics
Investment can be recovered in the first six months
from the fish and vegetable harvests
Plants are grown on sheets of gravel laid on the
banks of the pond
Two pumps-one for blowing air into the pond and
the other for pumping water on the gravel where
plants are grown will have to be run continuously –
Electricity Cost
Subsidy for the electricity charge from Fish Farmers
Ammonia from the fish waste in the pond gets
converted into nitrites through bacterial action
52. Saurabh Agarwal, Warehousing and Financing Options
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Aquaponics
Nitrates aid in plant development - Leafy vegetables
like broccoli, lettuce, spinach, palak, pudina are the
best, apart from tomato, lady’s finger and brinjal
In six months, one can get three harvests of leafy
green vegetables
Danger - The farmer needs to fear only airborne
pests since there’s no soil involved. These can be
dealt with using bio insecticides such as tobacco
juice
A farmer can easily get an income of Rs.4lakh or
more a year