Budget 2018: Things to know about agri, dairy sector and their expectations

Ahead of Union Budget 2018-19, to be presented by Finance Minister Arun Jaitley on February 1, here are the Budget expectations of the agriculture and dairy sectors

Agriculture 

India is the second largest producer of agriculture product and its contribution to the Indian GDP at 18% is much higher than world's average GDP. Yet the sector needs significant focus with a view to improving rural economy and livelihoods.

Key Challenges 

1. Price Fluctuation: Farmers are frequently at the mercy of traders, inspite of good produce the price the farmers get is not sufficient to even cover the expenses. Initiatives such as Minimum Support Prices (MSPs) and Agricultural Produce Market Committees (APMCs), which were supposed to protect the farmer are not helping in good returns. 

2. Lack of Infrastructure: Inadequate rural infrastructure, roads & transport systems, food processing units, reliable power and cold-storage, continue to hinder farm operations and increase costs. Further, there is limited access to resources such as financial services, credit, support expertise, educational services or irrigation solutions.
 
3. Existing crop insurance do not benefit farmers: Insurance schemes are seen as an added burden over and above the loans the farmers are already struggling to pay. Less than 20% of farmers in India are covered under crop insurance.  

4. Poor performance of farm exports - The country is being denied market access in the name of health and safety regulations. Prohibitive import duties and high subsidies are constraining India’s farm exports. Measures have to be taken to incentivize India competitive agro products and removal of non-tariff barrier.

5. Lack of technological advances: Farmers do not have access to quick soil testing methods to know micronutrients in the soil.  Other challenges are poor access to market information for forecasting, weather, price & yield at the time of sowing.  

Budget 2018 Expectations

Agro reforms are the need of the day. To start with, the upcoming budget should encourage Corporate-Farming to protect farmers from price risks. The government should strengthen recently drafted model contract farming act and encourage states to adopt it as per their needs.

Small farmers usually do not benefit from the government assured Minimum Support Prices (MSPs) as they do not have enough marketable surpluses to justify the cost of transporting the crop to government corporations in the towns. Thereby, selling it to traders at rock-bottom prices. Even, Agricultural Produce Market Committees’ (APMCs) monopoly has led to cartels of traders, commission agents and transporters being formed which have not benefited the farmers so far.

Further, the existing crop insurance schemes have not provided any relief to the hapless farmers. The government needs to bring in more transparency in the term and conditions of the schemes, some of which are downright absurd. In addition, given the lower penetration of the crop insurance, more geography and more crops are to be covered under existing schemes.

In addition, waiving farm loans has short-term relief to a limited section of the farmer and a costly option for the banking system. Instead, the government should spend a similar amount on the improvement of agriculture infrastructure which has a much larger multiplier effect on the economy in the long run.

Lastly, the agro-research should get more funding. Indian Council of Agricultural Research (ICAR) has lost its glory over a period of time. The government should apply a mission mode approach to research for achieving the goal of doubling farmer’s income by the year 2022.

Dairy Industry 

Milk has highest value in Indian agri and food sector, more than combined value of wheat and rice. Milk contributes close to the 1/3^rd of gross income of rural households. The livestock sector contributes to 4% of India’s GDP and the dairy sector comprises majority of share. 

Key Challenges 

1. Quality a big concern – More than 70% of marketable surplus goes through informal channel where quality is a big concern. Sometimes quality is an issue in the formal channel as well. Quality of milk or value-added products are a barrier to entry to the export market, especially the USA and the EU.

2. Poor governance of cooperatives - Prices decided by cooperatives are not based on fat measurement, which affects Farmer’s profitability. In addition, lower prices declared by cooperatives, results in low prices of milk paid by all the players in the industry.
 
3. Non-existent of extension facilities: Lack of adequate breeding and preventive care services to improve animal health, along with low access to credit and risk-taking ability makes farmers unable to increase their herd size.

4. Taxation on value added products: Taxation on value added products would cause the industry to reduce the milk prices paid to the dairy farmers. High rate might also increase the consumer prices of dairy products substantially.

Budget Expectations

Milk is highly perishable, therefore value addition such as processing, packaging, and conversion to long life products, such as sterilized milks (UHT), dahi, paneer, chhachh, lassi, shrikhand and so on, is more a necessity than a luxury. It is crucial that a softer view is taken while imposing GST and imperative to create special class for dairy products with minimum value-addition.

The government should have a farmer-centric approach, as perhaps milk is the only industry that is able to pay to the dairy farmers more than 2/3 of price charged to the consumer. No other food processing industry in India is able to meet such high expectations of the farmers. Tax exemption on dairy industry should not be considered as a loss to the national exchequer but an investment that would spur growth in milk production, which eventually would enhance rural prosperity and increase the farmer’s income.

In addition, there should be level playing field for private players and the cooperatives. There is very low competition to cooperatives because private sector was not allowed to participate until recently. Lastly, grants to be provided to strengthen extension services in areas of animal husbandry. Budget allocation to develop infrastructure setup in the milk procurement area for small and medium size operations, and subsidies to encourage rural entrepreneurship in areas of milk procurement such as collection center setup and credit correspondents.

Sreeram Chellappa is ýChief Operations Officer at ýFarmlink and Gaurav Haran is Chief Operations Officer at ýMilkLane