Agriculture- Marketing and Infrastructure Public Private Partnership

India
Agriculture- Marketing and Infrastructure
Public Private Partnership
State of play and suggestions
Hardeep Singh

Asia – State of Play
• Role of govts in food and ag trade the last 2
decades is declining - China, Indonesia,
Japan…. and FSU
– centralized procurement systems being replaced
by private investments.
– Privates emerging as co investors in infrastructure
• Govts seeing they cannot over manage the
commercial environment and also create a
transparent arena for the private sector to get
seriously involved.

Current Indian Agricultural Scenario
Slowdown of sustainable value creating investments in
farm sector.
Proliferation of indirect subsidies.
• MSP is no longer a ‘support’ price. It is a preferred
price offered selectively as buyer of first resort… an
unintended consequence of distorted markets
• Inequity/ Largesse/ Malpractice/ Waste
Lack of private investment in
agricultural infrastructure, marketing,
financing

Indirect Subsidies- Impact
Distorted markets… Dangerously continuing
Supply side thought process…
Distorted cropping patterns
Overexploitation of ground water – impact on
recharge
Costly indirect subsidies invariably do not help
long term farm economy competitiveness… and
lead to uneconomic resource utilization
Imperative need to direct public expenditure
and farm subsidies towards segment focussed
long term competitiveness

Foodgrain Production / Procurement
Wheat + Rice prodn 160mn ts [2004-05]
Govt/ FCI procures +/- 40 mn tons [25pct]
- Procurement operations largely confined to
traditional marketable surplus areas
- >80 % of wheat from 2 States. 65 % of rice
from 3 States…
Farmer own consumption/ barter/ hold back –
50/55pct
Private Trade of surpluses - 20/25pct

Rising Support Prices Year on Year
…..While world prices dropped
Add > Quality deterioration/ Wastage/ Pilferage/
Losses/ Infrastructure load
Past accumulation of stocks far in excess of
reasonable worst case need or agreed buffer
stocking norms..
And lost opportunity to maximise export value.
Total annual World Trade –
Wheat >100 mn tons / Rice

Farm policy must balance social objectives
and economic considerations…
Drive political consensus- sensitize polity to
cost and consequences of current policy
Incorporate transition mechanisms to
manage change and minimise social/ political
fallout

Redefining Govt Intervention 1
Support
Price support should be operative
across a wide range of crops including
oilseeds, pulses, maize and cotton, to
encourage crop diversification

Redefining Govt Intervention 1
Support (Cont…)
Focus on remote outlying areas where
infrastructure trade capability is limited.
Operate countrywide
FCI to be a buyer of last resort
FCI price support based procurement for
providing farmers with backstop security.
Balance should be left to market forces

Redefining Govt Intervention 2
Procurement
Delink food security/ relief linked procurement from
support price operations
FCI to maintain approved buffer stock for specified
products each quarter.
Dispose off excess or acquire supplemental quantity
by open tender based on crop harvest cycle
Buffer Stock norms to be periodically revised
Policy environment should allow privates to invest
resources with a long term view - procurement,
financing, storage, transportation and marketing.

Redefining Govt Intervention 3
Distribution
Grain distribution for public/ welfare/ relief
programmes only
Monetise BPL / PDS… cash or food stamps
instead of grain
Increase the allocation of food for work
programmes, particularly where directed at
building rural infrastructure
Use widely networked banking system
Avoid multiple handling/ pilferage/ waste/
corruption/ infrastructure load/ Inequity

Suggested Transition Mechanisms
Proportional monetary support to negatively
impacted states for Rice and Wheat
Linked to agreed, quantified and publicized
phased reduction in Rice /wheat procurement
Recommend to states to use as a per hectare
direct subsidy
Widely implement support prices on a broad basket
of alternate crops
Allay fears of marketability
Drive much needed crop diversification
Politically sustainable/ Socially equitable

Major Spin Off Benefits..
Will align grain markets with alternate crops and
gradually with worldwide values
Will reduce cropping distortions
Will improve flow of technology/ genetics
Will attract much needed private investment in grain
handling/ infrastructure/ financing
Demand led quality / identity preservation
Market led trading of surpluses and deficits
Will Spur investments in food processing
Will release huge funding for developing close to farm
infrastructure and value adding investments
Arrest land degradation…conserve water table
Will make farming long term sustainable

Public / Private partnership
Interim suggestion
FCI outsources procurement, handling and
distribution in select zones
Frees up FCI resources for wider and ‘true’ support
price operations… across a range of crops.
Conserves public finances… brings in pvt capital
Savings to nation
Competitive behavior and disintermediation will drive down
grain handling costs
Farmer realisation will improve with more balanced and
equitable procurement
Added benefits… employment generation close to farm
Can be immediate- Minimal risk and high reward

Saathi
Partnership Model
Govt.
Local Entrepreneur
SAATHI
Alliance Partners
-Input Companies
-Consuming Industries
-Service Providers
-Insurance & Banks
Individual Farmers
and Farmer Groups
Cargill
Linked Customer Access
-Risk Management
-Financing
-Access
-Intellectual Capital
85 Full Service centers now operational

Grain Handling investments
-need for an integrated approach
Capability/ Objectives
Identity Preservation
Obviate Bagging/ Cost
Ease in fumigation
Optimize specs/ value
‘Aggregate’ quality
Economy in transport
and shipping
Components
Hopper bottom trptn
primary movement
railcars
Silo ‘systems’
at ‘both’ ends
Customer interface
Farmer Financing

Net Interregional Food Flows
(grains, rice, oilseeds, meals, oils, feed equivalent of meat – 2003/04 crop year est)
mmt surplus/deficit
150
120
90
60
30
0
-30
-60
-90
-120
NAmer SAmer AusAsia FSU NAfri OthAfri EU MidEast FarEast

Composition of caloric intake vs. income
pct of total calories
100
90
80
70
60
50
40
30
20
10
0
fish
anml fats
alc bevs
meats
sweeteners
milk, eggs
fruits, nuts, vegs
vegoils
roots, pulses
cereals
$270 inc, 2000 cals $2700 inc, 2900 cals $27000 inc, 3400 cals

India- Agricultural Scenario
Surpluses [Myn Mts]
• Wheat 2myn
• Rice 3myn
Deficits [Grain Equivlnt]
Ts Gr Eq
Vegoil 5 33
Pulses 1.8 7
Total Surplus 5myn ts
Grain Equiv [-] 40myn ts

Leverage Country Competitiveness
• Focus on commodities where
India has competitive advantage
& import with value of
surpluses generated
0.5
0.4
Competitiveness of Indian
Crops
Yield/HA
Rice
Wheat
Corn
India
2.9
2.5
1.6
US
6.3
2.4
7.1
World
3.7
2.5
3.8
China
6.0
3.5
4.9
0.3
0.2
0.1
0
-0.1
-0.2
Rice
Wheat
Corn
Source : Adapted and updated from NCAER/ Gulati

Indian Vegoil Competitiveness
0
-0.2
-0.4
-0.6
-0.8
-1
-1.2
Gnut Oil
Soybean
Oil
Sun Oil
Mustard
Oil
-1.4
Even Worse Off Relative to Palm Oil Equivalence
Source : Adapted/ Updated from NCAER/ Gulati

Action Steps
• Immediate serious new study on competitive advantage
• Get the best brains together… Debate and decide.. Sensitise
and create support.. Heighten awareness of consequences-
Get politicos, banks, farmer leaders, corporates, to buy in.
• Integrate Public and Private investments to align upstream
and downstream within selected areas.
• Protect producers in export competitive segments… and
consumers in others!!
• Clean up unnecessary constraining legislation.. Immediate!
• Plan for transition mechanisms… graded timeline
Deploy the very best talent to monitor and execute plan