“India’s agriculture economy is a low-growth sector and, in general, a very risky, loss-making sector, with low contribution to GDP.” While this is the standard and accepted economists’ view, strangely, with recession, sub-prime crisis, corporate scams, now every sector from information technology to retail, once considered the shining stars of India Inc., are cutting an even sorrier figure, says Venkata Subramanian, Founder and Managing Director, eFarm, Chennai (http://bit.ly/F4TeFarm). In comparison, agri sector, in spite of being run by the least skilled labour force, worst risk management in industry, with zero usage of IT is at least surviving, he adds, during a recent interaction with Business Line.
Excerpts from the interview.
Why is Indian agriculture, in spite of years of government interventions, still ‘economically not viable’?
Forget the economics of it for a moment and think – however successful we may be in the services sector (like ITES/BPO/telecom), how much ever foreign exchange we may earn from other sectors, we cannot ‘eat’ currency notes. Food, shelter and clothing, time and again, are something which any growing economy cannot do without. Out of these, the only sector which is perennially going to be in short supply is FOOD – because people are quitting agriculture and moving to cities, cultivable land is shrinking, productivity is getting lower owing to over-usage of chemicals and most importantly, the youth of this nation do not fancy an agri-career!
Most importantly, we don’t have valid data to predict this industry correctly. Farmers don’t pay taxes. Almost all transactions are in cash. Most investments in this industry are through government grants to aid agencies. As it has always been seen to be a ‘social obligation’ we have not given it its due recognition as an industry – even after thousands of years and still being the primary breadwinner for an overwhelming majority of our people.
On the importance of management in agriculture industry.
It is said, “Agriculture is a very risky business.” Well, can you name one industry which is devoid of risk? Typically ‘high risk implies high return.’ But how come agriculture has become, or is perceived to be, ‘high-risk, low-return’ venture?
It is true that the farmer has all the chips loaded against him. If it rains too much, his crops get washed out. If it is too little, the crops have drought impact. Even if the wind is too harsh, some crops break the stems. With more risks such as pests, price fluctuations, political unrest and so on, you have the perfect ingredients for a near disaster. In fact, one is surprised how, in spite of all this, we are actually able to get food on our plates every day.
But risks and unpredictability are there in any industry – even the Tata had to move their dream project overnight. Lehman Brothers – the financials advisors to Fortune 100 firms – collapsed over a weekend. Satyam, hailed as corporate governance poster-child, failed to live up to its ‘truthful’ name. Compared to such ‘manmade’ disasters, the agri economy endures mostly the ‘god-made’ ones which, however, with modern weather forecast satellites, are far more predictable.
Risks need to be ‘managed.’ Issues need to be planned for and mitigated. These typically are where managers step in. In ‘organised’ industries most of these management tasks are individually handled by professionals with various complementary skills – marketing, sales, technology, corporate strategy, and finance. Ironically, in the agri sector, a rather utopian concept has prevailed – that a farmer can do all these tasks himself, ‘from farm to fork,’ and has the silver bullet to help him earn more money.
In sum, the farmers today need assistance in planning their cultivation, marketing their produce, managing their finances, but have no one to help. The agri institutions and NGOs have only assisted cultivation, and aren’t competent to handle management-related tasks.
As agri industry is still primarily driven by subsidies, don’t these skew all financial indicators of growth and success? Can farmers do without subsidies?
A common assertion is, “Agriculture survives on subsidies, hence the returns and profits are often notional.” True. All industries need some subsidy to start off, but once they stabilise and scale, the government has been able to withdraw the sops. Even the IT industry needed tax-free status, and infrastructure support through special zones, to jumpstart.
But in the case of agriculture, the subsidy dependency has become extremely high. What is causing worry is that in spite of such high aid, this industry has not shown sufficient improvement, creating a vicious cycle of waivers and grants to stem the losses.
The question, therefore, is whether we can get out of this trap. In the case of other industries, the government has primarily given subsidies or soft loans to ‘entrepreneurs’ and ‘business houses’ on PPP model and not to individuals. Thus through economies of scale, and professional management, the effects have been felt by the people who work in them. (For example, the government builds IT parks and provides them at subsidised costs to IT companies, which in turn employ thousands of people. It does not offer any subsidy directly to a software developer.) This way, the ROI has also been more tangible and faster.
In the case of agri industry, the government has retained the predominant ‘business interests’ through its own Departments and has been dealing directly with individual farmers for each subsidy scheme. This has not only created huge operational costs for delivering those subsidies, but often confusing overlap and redundancy in the subsidy schemes. To add to confusion, policies differ from state to state, making even simple standardisation nearly impossible. The governments (central and state) are thus micromanaging the entire industry and have been caught in their own web.
Even when the government did involve private players, as it is caught in the subsidy regime, everything had to be pushed down as a subsidy. Thus if a farmer needs to install drip irrigation, he has to apply for a scheme, and is provided materials of a certain company’s products in lieu of cash. Strangely, often the manufacturers over-invoice their items when applied through subsidy, which are otherwise available at half the costs in the open market!
Thus the farmers, frustrated with the loan bureaucracy and corruption in getting subsidies, find it easier to buy off the shelf. This is why most subsidies never reach the intended users…
Farmer’s don’t need subsidy. This is not just my conclusion but actually the opinion expressed by several ‘real’ farmers. They feel subsidies have reduced them to the state of beggars, without respect to the real value of what they do. They rather have been crying (in deaf ears) to actually bring in better marketing support, so that they can ‘earn’ their own decent income, as everyone else.
Why have the government’s efforts to market agri produce failed?
There is a Hindi saying, “Jab sarkar baney vyapari, log baney bikahri,” which loosely translates to, “If government runs any business, the people become paupers.”
It is true that the government has done commendable work in certain areas of industry, but as farmers’ issues are always prime political topics, sentiments rule over sensible business decisions.
The government has thus been dragged into so many roles, and competing interests, that it has often been caught on the wrong foot: like having excess grains rotting in its storage, but unable to even distribute it for free, in spite of Supreme Court intervention, and on the very same day, discussing the Food Security Bill.
To put things in perspective, the IT Minister doesn’t attend the ‘World Java Developers Forum’ and try to promote India’s Java developers; rather, the IT companies do. But in the world agri trade forums, strangely the ‘Coffee Board’ is the one putting up stalls.
The PM doesn’t get dragged into deciding what the ‘salary of a .Net programmer’ or ‘how many paise per minute should talk time in a cell phone plan be.’ The various market mechanisms and prevailing demand/ supply enable that. But sugarcane price determination was done by the Prime Minister on the Delhi expressway with farmers blocking the entire road traffic. Just think if every commodity price has to be negotiated like this.
The government doesn’t create ‘car bazaars’ so that poor factory workers can directly sell BMWs to end consumers and make more money, cutting the middlemen. The companies ‘create’ a distribution chain, where each individual/ stakeholder is compensated for the efforts put in.
Other industries, such as pharmaceuticals, also have ‘middlemen’ – the distributors/ stockists/retailers who do take 40 per cent of the price. But the chain is well-regulated and recognised as a necessary mechanism to ensure distribution and marketing reach. But in agri, the best that the government has done to avoid middlemen is to create a ‘farmers market,’ which is so utopian, that even farmers don’t patronise it.