There has been a lot of talk about ways in which we can double farmers’ income. One step towards this is to work on the agricultural value chain (AVC). AVC is a complex structure of inputs that includes farm inputs such as seeds, pesticides, fertilisers, and production efficiencies. It also looks into issues of geographic location, soil health, water, climatic conditions, output per hectare, and markets such as prices and market access. The Government of India has three critical agendas aligned for optimal return—increasing farm produce, enabling better resource utilisation, and extending knowledge-based services. Digitisation of the AVC is the one way to achieve the government’s objective of doubling farmers’ income and making a meaningful impact on farmers’ life. It can be achieved by e-governance initiatives (e.g., eNAM) by the government and through the active participation of agritech and agrifintech startups.
Digitisation efforts can be divided into three principal focus areas—Digital Agriculture, Digital Market Access, and Digital Finance. This article explores these areas in today’s context and looks at the challenges and opportunities within them for Indian farmers.
The adoption of improvements in agrarian practices has been a critical challenge for farmers. Collecting data across the AVC and its practical use in agricultural practice to show a visible impact on farm outputs has remained a key challenge.
Emerging technologies such as Internet-of-Things (IoT), Artificial Intelligence (AI), Machine Learning (ML) and Advanced Analytics can help digitise farm value chains. IoT and spatial data analytics of imagery (by satellite/drone) can help determine soil, temperature, precipitation, and climatic factors and even help predict crop choice for profit maximisation. Microsoft and International Crops Research Institute for Semi-Arid Tropics (ICRISAT) have worked on an AI model to identify the best time to sow crops. This model was tested in Andhra Pradesh, resulting in a 30 percent increase in crop yields without any increase in capital expenditure.
The AI model can be further extended to use high-resolution satellite images and utilise data points like leaf area index, the height of plants, canopy, and crop vigour. This can be used to predict farm yield. Instead of utilising high-resolution satellite images, the AI model can also use high-resolution images from drone surveys. The new drone (amendment) rules in 2022 will be a big push for these services in the country.
Once the farm yield can be predicted using the model, knowledge advisory can be provided to farmers. Since some farmers are not tech-savvy, these advisory services can be routed through existing government channels such as gram panchayats and block, district and state administration.
Digital Market Access
ITC launched e-Choupal in June 2000, which leveraged technology to buy agricultural produce online through Sanchalaks (Coordinators) from villages. Seeing the success of ITC, Karnataka Government created State Agricultural Market (SAM) to transform the Agricultural Produce Market Committee (APMCs). The SAMs were to leverage the Unified Market Platform (UMP) of Rashtriya eMarket Services Pvt. Ltd. (ReMS) to build an eMandi. 164 APMCs interlinked under the SAM facilitated inter-mandi and inter-state trade. ReMS was able to facilitate trade for 92 agri-commodities. There was a noticeable increase in paddy, ground nut and maize model prices by 5.1 percent, 3.6 percent, and 3.5 percent, respectively.
Taking a cue from the Karnataka model, the Government of India replicated best practices and launched Electronic National Agricultural Market (eNAM). As of Feb 2022, eNAM has integrated 1000 APMCs in 18 states and 3 UTs. While successful, some interoperability challenges are yet to be addressed. Interoperability means a seller uploads a price quote on any market (eNAM/UMP/e-Choupal/Private Mandi); the winning bid would be the best across all platforms. Interoperability protocol would allow multiple platforms to co-exist and be recognised as a valid market by other eMarkets.
If we can predict farm gate prices, farmers are more open to adopting technological innovations. The role of e-markets in increasing farmer income is therefore of utmost importance. The availability of transaction data for sales/purchases for farmers from the SAMs is an essential tool for lenders to enable cash flow-based lending. The digital footprint generated by these platforms, along with a buyer and assured prices, can help farmers access funds at affordable rates through institutional lenders.
Also read: How to reshape the future of Indian agriculture
Access to institutional credit has always remained a challenge for farmers, despite the introduction and y-o-y increase in Priority Sector Lending (PSL) by banks. According to the 2019 RBI working group to review the agri-credit report, 30 percent of farmers access institutional credit, 61 percent access informal credit and 9 percent access institutional and non-institutional sources.
The weighted average cost of capital (WACC) for Indian farms is around 22 percent. This is when we assume a 50 percent funding split between Institutional and non-Institutional sources. The rate of interest from non-institutional sources is about 36 percent, and institutional sources are around 7 percent, with an industry beta of 2.2. A closer look at the computation shows that reducing dependence on non-institutional funding sources can make farming a viable business.
Lenders are apprehensive about lending to farmers because of a lack of data. This borders on the details of farmers, land and crop output, market transactions and so on, including the unpredictable loan waivers by state/central governments. While the loan waivers cannot be solved, technology can be used to resolve the issue of the lack of data. Confidence in data will lead to more institutional lenders coming forward and making farming a viable business.
In 2021, the Department of Agriculture, Co-operation and Farmer Welfare, Government of India, released a consultative paper to discuss the creation of the Indian Digital Ecosystem of Agriculture (IDEA). The core of IDEA is to create a Unified Farmer Service Interface (UFSI), which will help make unique data identifiers for farms, crops and more. Once IDEA is live, lenders could use it to validate information before sanctioning farmers’ loans.
Also read: 5 agri-fintech startups powering agriculture in the hinterland
Digitisation will increase farmer’s income
For farmers to increase their yield and achieve sustainable financial growth, digital agriculture, financing, and market access must work in tandem. Support from state and central governments, agritech and agrifintech startups can lead the way in making India a powerhouse of agricultural products worldwide. We feel that the digitisation process will make things very transparent for both farmers and the market. This process will improve the accessibility of farmers to the market and will lead to them being empowered enough to sell their products to the highest bidder. There will be much less transaction cost, and farmers will be the winners. Reforms towards digital agriculture, market and finance, if done simultaneously, will be one step forward in increasing farmers’ income.
Abhisheik Vishwakarma is a Senior Banker and a student of the Post Graduate Program for Senior Executives (PGPMAX) at ISB
Anjal Prakash is the research director at Bharti Institute of Public Policy, Indian School of Business. He teaches at the advanced management program in public policy at ISB.
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[This article has been reproduced with permission from ISBInsight, the research publication of the Indian School of Business, India]