India in Transition: International Agricultural Development
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India in Transition:
Challenges and Opportunities in Fresh Produce Marketing and
Agricultural Technology
George Alexander Wilbanks
University of California, Davis
M.S. International Agricultural Development
Capstone Report
Advisory committee:
Travis Lybbert, J.K. Ladha, and Jeffrey Williams
Page 1 of 69
Acknowledgements Thokchom Sony, I cherish all our adventures in Delhi (past, present, and future) and the warmth of your friendship (and space heater) after long days spent traipsing to far flung meetings throughout NCR. I am still thankful for your family’s kindness nursing me through fevered tropical illness during my time in Imphal. Abhimanyu Singh Ranawat, Aditi, Ameera, Aryan, and Twitch, I cannot thank you all enough for the delicious meals, winter fires, storytelling, and the warm guest room – thanks again for taking a third child into your home! Rinchen Norbu Wangchuk, inveterate newspaperman and beloved conversationalist, I am thankful for your (and Sharon’s) gracious hospitality and connections in Bangalore. I will be continually in your debt for the invaluable insights you continue to provide on both hiphop and the Indian political and media landscape (and introducing me to Mangalorean cuisine). To the Chakraborty Clan, our excursions in Bombay were lovely but forced a devastating re-examination of the lies we told ourselves about living in Delhi. Anindita and Ipshita, you are both marvelous women, thanks again for never missing an opportunity to inform me I’m wrong and that my Hindi is garbage. Etrajisahibsir, India Hand and global financial sage, your wisdom and patient guidance have provided invaluable context for my experiences in India. Page 2 of 69
Preface
In the Spring of 2012, I quit my job in New York working for a family office investment
advisory consultant and boarded a flight to Hyderabad, India.1 I spent several months visiting a
friend who was working for an impact investor, Bob Pattillo, through the IDEX Accelerator.
IDEX is a unique social enterprise fellowship program which, at the time, was matching young
professionals with executive teams at social enterprises (primarily affordable private schools)
throughout Andhra Pradesh to serve as management consultants. Bob is an interesting
character who, I would come to learn later in my career, has had a hand in guiding the careers
of several prominent figures in the impact investing and social enterprise space through his
various endeavors IDEX, Gray Matters Capital, and Gray Ghost Ventures (including, in no small
part, influencing my own professional trajectory).
My first two months in India I interviewed with firms across several industries and was
offered a role with a newly launched Delhi-based boutique corporate sustainability and
development finance consulting firm. cKinetics was founded by two of the original partners at
the Aavishkaar-Intellecap Group, a prominent Indian impact investment advisory firm. During
the two years I spent with cKinetics, frequently working 80-100 hour six day weeks, our projects
fell into four areas:
• Operational consulting work in textiles funded by Stockholm International Water Institute
• Informing the design and adoption of non-financial (ESG) disclosure regulations promulgated by
the Indian Institute of Corporate Affairs and funded by the German development agency GIZ
• Leading field operations and data collection efforts for a Rockefeller Foundation funded project
exploring rural electrification
• Conducting due diligence for a €20 million KfW (German development bank) loan facility
targeting conventional energy service companies (ESCOs), micro-grid companies, solar irrigation
installers, and telecom developers/tower managers.
1 Out of college, I worked as a personal research assistant to Jed Emerson
Page 3 of 69
On a daily basis, I was a voracious consumer of India’s vibrant English language media landscape and an avid spectator of Indian politics during what would turn out to be some of the more contentious and transformational years of the past several decades.2 Food and agriculture dominate India’s political discourse in a manner which is difficult to convey to American audiences. On a nearly monthly basis, newspapers would run front page stories about volatility in onion markets and critiques of recent political pandering to farmers. Lal Bahadur Shastri, the second Prime Minister of India, coined the political slogan “Jai Jawan! Jai Kisan!” [“Salute the Soldier! Salute the Farmer!”] rallying the nation at the outset of the Indo- Pakistani War of 1965.3 Some fifty years later, this mantra seems strangely apropos in India’s current political environment, as the Bharatiya Janata Party (BJP)-led Union government has faced election defeats stemming from agricultural economic distress, the Congress Party’s Rahul Gandhi is videotaped on social media driving a tractor through campaign events in Punjab, and both parties clamor to support farm loan waivers (writing off nearly Rs. 1.9 trillion, or approximately $27B USD) (Bera 2018b and Scroll 2019). Simultaneously, the country finds itself again embroiled in a series of military engagements with Pakistan along the Line of Control. In 2019, while delivering a speech to the 106th Indian Science Congress, PM Modi explicitly appropriated Lal Bahadur Shastri’s words while asserting his government’s commitment to supporting scientific research.4 2 Narendra Modi (right wing Bharatiya Janata Party) was swept into office in 2014 amidst the considerable ascent of Hindu nationalism throughout the country. Arvind Kejriwal assumed office as Chief Minister of Delhi in 2013 and his newly launched populist Aam Aadmi Party has won numerous seats in several critical Delhi Assembly elections, carrying 67 of 70 seats in 2015. Modi’s “Make in India” initiative was launched in 2014. Foreign direct investment (FDI) restrictions were also relaxed in several sectors while I was there. 3 You will also frequently see this translated as “Hail Soldier! Hail Farmer!” 4 https://www.outlookindia.com/website/story/india-news-pm-modi-adds-jai-anusandhan-to-jai-jawan-jai-kisan-and-jai- vigyan/322875 Page 4 of 69
During a consulting engagement with cKinetics, a colleague and I sat in the office of an
executive at ITC (India Tobacco Company) pitching a sustainability reporting project within their
agricultural supply chains which spanned multiple businesses from tobacco to branded foods,
personal care products, and hotels. It became clear very quickly that the firm was not
interested in having us uncover Environmental, Social, and Governance (ESG) irregularities
within a supply chain encompassing some several million smallholder farmers. During my
numerous visits to India, I have ridden approximately 20,000 miles by motorcycle through
Manipur in the Northeast, coastal Tamil Nadu in the south, from Manali to Leh, Uttarakhand
and Himachal Pradesh, throughout Hyderabad, in addition to daily commuting throughout Delhi
NCR. India’s last mile challenges in agricultural value chains were brought into sharp focus
while stopping at roadside dhabas (truck stop/restaurants) next to smallholder operations hand
harvesting rice and sugar cane, riding through fields in Punjab where one farmer is irrigating
with diesel pumps while his neighbor drives cattle around a water lift, avoiding tractor and
bullock carts hauling sugar cane loaded twenty feet high, or passing overturned trucks with
workers shoveling rice and wheat back into large woven polypropylene bags.
Frequenting fresh produce markets (subzi mandis), joking around with the local
vegetable stall owner (subziwallah), and cooking in Delhi were central parts of my life and
favorite topics of conversation with my colleagues and friends. In numerous discussions with
Indian professionals ranging from academics at prominent economic think tanks, investors,
NGO staff, and a cohort of visiting Fulbright scholars I solicited perspectives on how agriculture
in India might modernize in the coming decades, and the subsequent impacts this might have
on the economy and politics as rural communities transitioned into new professions (and
Page 5 of 69
potentially resettled). There was a consistent skepticism around the idea that India’s structural
transformation would resemble anything like the path to modernization in agriculture
elsewhere. I have spent a great deal of time attempting to deconstruct the various anxieties
that are baked into this commonly held belief – that there is something inherently different
about the role of agricultural productivity in India’s ongoing, very unique, path to structural
transformation.
Introduction
India’s unique path toward structural transformation is captured in myriad contrasts
between public and private, old and new, analog and digital, biological and mechanical, rural
and urban. This capstone is the culmination of my struggle to comprehend the astonishing
scale and scope of India’s impending structural transformation and contextualize my own
experiences witnessing the rate of modernization in Indian agriculture. This paper explores the
historical roots of several central structural challenges which currently impede improvements in
India’s agricultural productivity. Through the course of my research, it is clear many of these
same challenges have been identified by Indian agricultural technology entrepreneurs as
central opportunities to innovate within fresh produce value chains (Appendix 1).
I examine land reform as a domain with particularly salient historical roots and an
enormously complex contemporary political legacy. This paper provides analysis which
contrasts traditional models of uncoordinated, smallholder, production with the increased
popularity of contract farming networks as a strategy developed by large processors to
maintain consistency and predictability in their supply chains.
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As India’s economy continues to liberalize, many of its legacy socialist institutions have
struggled to remain relevant and responsive to market-driven trends. I examine the Indian
agricultural research and extension model and provide case studies highlighting the Indian
Government’s attempt to promote technology adoption among smallholder farmers. In
contrast, the project introduces a new paradigm, in which private players in the processing
space have stepped in and are actively providing extension services and introducing technology
platforms within their contract farming networks.
Finally, this paper will examine the historical motivations behind government
intervention in markets and subsequent public policy reforms in recent years. Produce markets
in India, through their unique function, provide a useful means of contrasting traditional
markets, where smallholders are disadvantaged through fraught credit relationships and
information asymmetries with the advent of large-scale, technology-enabled, coordination of
downstream processors and demand aggregators reaching upstream to the farm gate.
Methods of Analysis
This project provides an analysis of India’s unique agricultural political economy through
a review and synthesis of the literature, case studies, and key informant interviews. Several
case studies are introduced around land holding, agricultural extension, and fresh produce
marketing to examine the motivating factors underlying several key government interventions
in the function of these markets.
To supplement this analysis, from December 9th, 2018 through January 11th, 2019 I
spent five weeks in India visiting Bombay, Delhi, and Bangalore to conduct key informant
interviews with a diverse group of Indian agricultural business, policy, and finance stakeholders
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(Table 1). These conversations were structured around identifying the underlying challenges to
improving agricultural productivity on a per hectare basis, soliciting detailed descriptions of the
organization’s function or business model, and attempting to capture existing efforts to
promote technology adoption with key fresh produce value chain participants.
For simplicity, I have opted to focus my analysis primarily on activity in fresh produce
value chains targeting large metropolitan areas in India. While this focus arguably captures
trends largely driven by demand from wealthier urban consumers, the share of smallholders
operating in fruit/vegetable cropping systems is higher than in food grains – so there may very
well be important trends captured here. Additionally, high-value horticultural production in
India has witnessed substantial growth in both volume and value over the past two decades,
overtaking food grain production in 2010. Furthermore, the feedback that I received
throughout my conversations in India indicated that fruit and vegetable production had the
highest levels of private sector investment and entrepreneurial participation with relatively low
levels of government intervention.
Indian Agriculture: A Primer
“Reality is not a function of the event as event, but of the relationship of that event to past, and future, events.”
—Robert Penn Warren, All the King’s Men
In the Zamindars’ Shadow
Rural land tenure is a subject of both tremendous complexity and considerable historical
import in India. Beginning in the medieval period, India’s rural land was administered through
the zamindari system, an agrarian feudal hierarchy which institutionalized the
disenfranchisement of a rural peasantry in a manner not dissimilar to the function of the
European system of serfdom (Bandyopadhyay 1993). Zamindars were an aristocratic ruling
Page 8 of 69
class which facilitated the administration of the Mughal Empire through taxing the peasantry, a
function which they continued to perform (largely unchanged) through British colonial
administration in India. While not a facsimile, the current function of traders is often viewed
rather unfavorably through this lens (essentially as a tax by wealthier merchants on the rural
poor). This paper will not attempt to describe in depth, or provide any critique on, post-
Independence redistributive land reform policies beyond noting that this process abolished the
zamindari system and has been differentially administered at the state level across four broad
categories laid out by (Besley and Burgess 2000):
i) tenancy reform (regulating contractual terms – often included efforts to transfer ownership to tenants)
ii) abolishing intermediaries (previously worked on behalf of Zamindars as rent collectors)
iii) implementing ceilings on landholdings (redistributing surplus land to the landless)
iv) consolidation of disparate landholdings
During my conversation in Delhi with Dr. P.K. Joshi (South Asia Director at the
International Food Policy Research Institute), in response to my line of inquiry regarding the
Land Ceiling Act’s continued relevance, he provided an invaluable perspective on the
importance of Indians’ connection to land and how the history of dispossession has played a
complex role influencing post-Independence land policies. Currently, several state laws only
allow individuals to acquire agricultural land with some that further restrict ownership to
residents of that state while other states allow companies and individuals both to acquire and
farmland (these include Delhi, Goa, Bihar, and Tamil Nadu). However, in all states, foreigners
are prohibited from buying agricultural land.
Land leasing reform has been the subject of some interest lately, an important white
paper was released in 2015 by Arvind Panagariya, then Vice Chairman of The National
Institution for Transforming India (NITI Aayog), encouraging the states to revisit their
Page 9 of 69
regulations to reduce barriers to leasing agricultural lands. This appeal seems to have gained
little to no traction in the ensuing 4 years. Farmer Producer Organizations (FPOs) and
cooperatives are other mechanisms for aggregating agricultural land into units large enough to
warrant the requisite investment in germplasm, inputs, mechanization, postharvest
storage/processing, transportation, and organizing aggregation of supply which allows farmers
to exert market power in channels outside of the traditional mandi/trader relationship. Given
that approximately 85% of farms are small and marginal (< 2 hectares) with 70% of holdings < 1
hectare, there is intense introspection around the viability of smallholders as India looks to
increase yields to meet domestic demand while also meeting goals the government has set to
increase participation in high-value export markets (Agarwal 2010 and Mehta 2013).
Similarly, restrictions around foreign direct investment (FDI) in agriculture have been a
highly politicized subject closely regulated by the Indian government. Only in 2011 did the
Department of Industrial Policy and Promotion allow 100% FDI in several limited areas of
agriculture (while it remains explicitly banned in any other activity), these include (Government
of India 2011):
• floriculture, horticulture, apiculture and cultivation of vegetables and mushrooms (under controlled
conditions: greenhouses, net houses, and poly tunnels)
• development and production of seeds and planting material
• animal husbandry and aquaculture (under controlled conditions)
• services related to agro and allied sectors
This is a significant consideration given the financing landscape for innovative businesses
addressing production, processing, and marketing challenges in India’s agriculture sector. For
venture capital funds with portfolio companies in the Indian agricultural technology space, a
significant percentage of the general partners (GPs) I spoke with were managing money from
limited partners (LPs) that included (mostly foreign): institutional investors, foundations,
Page 10 of 69development finance organizations, and large family offices. Several entrepreneurs I spoke
with had domestic Indian corporates, VCs, commercial banks, and ultra-high net worth
individuals, as well as foreign foundations (Gates Foundation) participating in various funding
rounds. Reliable data around LPs allocating capital with private equity and venture funds
focused on Indian agriculture is somewhat spotty with anecdotal coverage coming from media
outlets like AgFunder (US-based), VCCircle (Indian-based), Global AgInvesting (US-based with
minimal India coverage), and occasionally Indian financial daily newspapers. Admittedly, I also
have not consulted any legal professionals to determine precisely how these instruments are
impacted by FDI rules.5 Anecdotally, most of the capital fueling the innovation landscape in
Indian agriculture (horticultural production) appears to be foreign in origin – creating an
interesting tension with the intended political goals of FDI restrictions.
Public Law (P.L.) 480 – Food for Peace
India’s total export growth in agricultural products in the 2000s is astonishing, increasing
686% from $5B USD (2003) to $39.3B USD (2013) (USDA 2014). One of the regrettable state
interventions in the agricultural export market has been the occasional imposition by the
Commerce Ministry of either an ad-hoc ban (frequent in milk powder, wheat, edible oils,
pulses, and non-basmati rice) or what is known as the Minimum Export Price (MEP) for an
individual commodity (usually onions, potatoes, and basmati rice) (Saini and Gulati 2017). MEP
is usually fixed above actual export market prices, to disincentivize traders from exporting, with
the stated goal of stabilizing domestic prices in times of volatility (often citing food security
5
i.e., if you are an India-based VC or Non-Banking Financial Company (NBFC) – does it even matter if you are
managing foreign money?
Page 11 of 69concerns). As of 2018, there were indications emanating from both Arun Jaitley (finance
minister) and Suresh Prabu (commerce minister) that the MEP on onions would be lifted in an
effort to promote exports as part of Modi’s promise to double exports by 2022 (to roughly $60
billion USD) (Bera 2018a). Whether this is an indication of permanent reform or temporary
concession in the perennial political tug of war between farmer incomes (wholesale) and
enraged consumers (retail) remains unclear (The Hindu Business Line, 2018).
A scarcity mindset pervades the Government of India’s approach to regulating
agricultural markets, particularly in staple food grains. This commentary was voiced in virtually
every single conversation I had with investors and bankers throughout my last visit to India.
Several investors suggested that I dig into the literature surrounding P.L. 480 and indicated
their strong conviction that this experience had a profound psychological impact on the
Government of India’s agricultural policy in the ensuing sixty years. The broad argument is that
the bitter taste leftover from this experience was the impetus for successive regimes of import
substitution, export restrictions, and the operation of buffer stock schemes on a grand scale in
several staple commodities.
In fairness, this mentality is a conviction borne out of a fairly recent, valid, lived
experience by many policymakers in which food scarcity was a calamitous reality as recently as
the mid-1960s. India’s post-Independence years were racked by food shortages and as foreign
exchange reserves began to evaporate in the mid-1950s, the government, under Jawaharlal
Nehru took on politically sensitive negotiations around securing food aid and concessional sales
through the Public Law (P.L.) 480 program. Briefly, the function of this disbursement of aid
involved sales by the Indian government of imported commodities with the proceeds being
Page 12 of 69directed toward rural development projects to improve agricultural productivity. In what may
be one of the more elegant presentations of the calculating, Cold War containment, rationale
which ultimately brought the United States into negotiations with India, (Cullather 2007)
describes the coalescing around economic development as a bulwark against “an evolving
strategy of Communist subversion employing influence, negotiation, and economic
penetration.”
Ray Vickery, in his text The Eagle and the Elephant: Strategic Aspects of US-India
Engagement offers insight into President Johnson’s instructions to Secretary of Agriculture
Orville Freeman ahead of his November 1965 meeting with Indian Minister for Agriculture C.
Subramaniam in Rome. In Vickery’s account, Johnson left Freeman with “strict orders to ‘trade
hard’ to secure a written document setting forth Indian commitments on agricultural reform”
noting that the document which was produced from this meeting offered several key
concessions, “the first provision of the agreement was that India would double its investment in
agriculture during the Fourth Plan period as compared to the previous Five-Year Plan” this
agreement further spelled out that “India would be ceding to bilateral agreement with the
United States not only overall actions but also to internal governmental processes by which
those actions would be accompanied.” To add salt to the wounds, there were several hard
bargains driven which advantaged the US-based fertilizer industry (the leading importer to
India) with provisions that for any shortfalls in agreed upon application rate targets, the
difference would be made up in imports at unsubsidized market rates. It is the intention of this
capstone merely to provide a brief exploration of the potential relevance of P.L. 480’s legacy in
shaping India’s contemporary agricultural political economy rather than a rigorous evaluation
Page 13 of 69of the macroeconomic soundness and overall economic impacts of P.L. 480 regimes in the
1950s and 60s. However, a significant body of literature has set out to provide just such
analysis (Rath and Patvardhan 1967, Seevers 1968, Srivastava 1972, Shenoy 1974, Isenman and
Singer 1975, Hatti 1977, and Ahlberg 2007). However, the legacy of both land reform and P.L.
480 arguably loom large over policy responses to the seemingly intractable productivity
dilemma for India’s smallholder farming population.
“The Indian farmer is doing agriculture, not agribusiness.”
--Dr. P. K. Joshi, South Asia Director, IFPRI
I have seen derivations of the following yield gap table, sourced from what appears to
be 2011 FAO data, reproduced in at least three different slide decks presented by Indian
academics at global agricultural conferences and feel that it is invaluable for contextualizing the
productivity challenges facing India’s agriculture sector (Pandey 2009, Mehta 2013, Singh 2014.
FAO 2019).6
Crop Global Production Rank Global Productivity Rank
Fruits 2nd (10.9% global share) -
Vegetables 2nd (8.6% global share) -
Paddy Rice 2nd 30th
Wheat 2nd 22nd
Maize 6th 35th
Total cereals 3rd 36th
Groundnut 2nd 40th
Rapeseeds 3rd 28th
Pulses 1st 44th
Potato 4th 26th
Sugarcane 2nd 9th
6Singh 2014 has estimates which show significant improvements in Productivity Rank (however, it is unclear where he is
sourcing these numbers from) – the Production/Productivity numbers from Pandey 2009 and Mehta 2013 largely match up).
Exploring the most recent data from 2017/2018 would be an interesting comparison with the 2011 data I present here.
Page 14 of 69While estimates tend to vary, India’s net sown area is roughly 140 million hectares (42%
of India’s total land area) with 55-60% of Indians participating in agricultural production and
71% of the population living rural areas (Gov’t of India 2001, 2014, 2018 and Mehta 2013).7
Agriculture and Allied Sectors represent roughly 16% of GDP (as of 2015-16) representing a
significant decline from the 1960s, when it represented roughly 50% of India’s GDP (Gov’t of
India 2018). Provisional results from India’s Agriculture Census: All India Report on Number and
Area of Operational Holdings (covering 2015-16) does not paint a very optimistic picture
regarding the viability of many of the country’s farming operations (Rao 2016). Operational
holdings in the Agriculture Census 2015-2016 are broken into the following classes:
2015-16
Group Size of holding
Operational holdings (% of total)
Marginal 0.5 < 1.0 ha. 69%
Small 1.0 < 2.0 ha. 18%
Semi-medium 2.0 < 4.0 ha. 9%
Medium 4.0 < 10.0 ha. 4%
Large 10.0 – 20.0 + ha. 1%
An alarming pattern can be observed in a 176% increase from 1970-71 to 2015-16 in the
number of Marginal operational holdings throughout the country (Figure 1) while the average
size of holdings dropped over the same period from 2.28 ha to 1.08 (Figure 2) with the area
operated under Large holdings falling by 71% (Figure 3). As the average area under cultivation
has been on a decline, so too has the availability of labor in peak season. Several bankers I
spoke with indicated this trend resulted from a combination of migration to cities and the
relative vitality of employment in rural non-farm economy in recent years (in part bolstered by
7 I have seen this Ag labor force participation number vary somewhat, from (56.6%) in the 2001 Census data, (this 2001 number
is then cited as 58.2% and then as 55% in the Ministry of Finance’s Economic Survey 2017-18) and (59%) in the National Sample
Survey Report No. 554: Employment and Unemployment Situation in India, 2011-12
Page 15 of 69MNREGA: the Mahatma Gandhi National Rural Employment Guarantee Act). With 87% of
farming operations under 2 ha., economically viable investments in the underlying agronomic
resources to increase yields (e.g., mechanization, high quality germplasm, nutrients, herbicides,
pesticides, fungicides, irrigation, and harvesting labor) can be a challenging proposition.
Table 2: Mechanization Adoption Rates
Penetration Rate
Operations
(mechanization)
Cultivation and seed bed prep 42%
Seeding and planting 29%
Plant protection 34%
Irrigation 34.5%
60-70% for wheat/rice
Harvesting and threshing
andFigure 4: Land ownership and the probability of liking farming
Why should this matter? Plenty of people are unhappy in their chosen vocations! I
believe this reflects, in part, the lack of economic viability in marginal landholdings and a very
rational series of frustrations regarding smallholders’ inability to gain power in marketing,
access to affordable credit, and scale to profitability. Using World Bank workforce estimates
(around 510 million as of 2019) and assuming a 40% dropout rate (Agarwal and Agrawal 2016)
from India’s agricultural workforce (approximately 60% of total employment), this represents
approximately 122,400,000 workers who will need to be retrained, relocated, and reemployed
(World Bank 2019a). To put this in context, Japan’s most recent population estimate (as of
October 2018) is 126,443,000 (Government of Japan 2019). Researchers at the St. Louis Federal
Reserve Bank have provided an interesting analysis of India’s atypical structural transformation
by comparing it to the United States, where the percentage of the population participating in
agriculture went from around 50% in 1860s to under 2% by 2000 (Goel and Restrepo-Echavarria
Page 17 of 692015). If we look at the Indian agricultural labor force and apply that same percentage
reduction, assuming only 12% of the existing agricultural labor force is retained, you are talking
about transitioning almost 147 million people out of agriculture, which is roughly the
population of Russia.
Mechanization and Tractors: A Lens into Technology Adoption
What if there was a way to make farming more attractive to those who decide to stay in
the occupation? “Tractorization” in India is an area which has generated a substantial body of
academic literature in agricultural economics and is the subject of government promotion
schemes dating back to the Agro Industries Corporations (AICs) of the mid 1960s (Puri and
Gumpert 2016). Trends in mechanization offer an interesting perspective on adoption
challenges and opportunities in other realms of agricultural technology going forward.
Beginning in the 1960s, the government provided irrigation pumps, tractors, power
tillers/threshers on a rent-to-buy model through AIC-sponsored Agricultural Machinery Service
Centres. AICs were a spectacular failure and suffered massive losses from bad loans and were
eventually shuttered. Private entrepreneurs entered this segment and by the time the
Government of India introduced the Agro-Service Centre (ASCs) model in 1971, there was
already a burgeoning rental (custom hiring) industry in many parts of the country. ASCs
provided custom hiring (machine rental) services for tractors and tractor-operated equipment
in addition to input sales and servicing facilities for machinery (Puri and Gumpert 2016). In
2010, the government introduced 100 agricultural extension centers under the National
Innovations on Climate Resilient Agriculture (NICRA) program located throughout
“drought/flood/hill area and other difficult terrains” and these provided an important platform
Page 18 of 69for popularizing custom hiring services. As part of the 12th Five Year Plan, the Government of
India’s Sub-Mission on Agricultural Mechanization (SMAM) has been tasked with expanding
access to mechanization to small and marginal farmers through providing financial assistance
and expanding custom hiring centers (Government of India 2019). SMAM has laid out seven
components:
1. Promotion and strengthening of agricultural mechanization through training, testing, and
demonstration
2. Introduction of new postharvest technology and management
3. Financial assistance or procurement subsidy for selected agricultrural machinery/equipment
4. Establishing farm machinery banks for custom hiring by small/marginal farmers
5. Establishing hi-tech and high productivity equipment hubs for custom hiring
6. Enhancing farm productivity at village level through the introduction of appropriate farm
mechanization (in selected villages)
7. Promoting farm equipment ownership among small/marginal farmers in the east/northeastern
regions
Mechanization adoption rates are a significant indicator in the substantial productivity gains
which tend to accompany the deployment of equipment across all cropping systems, in cereals
for instance, this yield relationship is striking as presented in (Mehta 2013) (Figure 6). YES
Bank’s Food and Agri Strategic Advisory and Research unit, under Nitin Puri, has compiled a
comprehensive list of custom hiring programs as of 2016 (Puri and Gumpert 2016) (Figure 7).
Private sector participation through supporting platforms which promote adoption
through reducing financial barriers to entry is an important innovation to highlight with the
extension space. For instance, niche startups like Gold Farm (an Uber-type platform for
harvesting equipment) are actively working with sugar mills to try and scale a model to make
mechanized harvesting equipment more available to their contract farming networks. These
mills tend to run sporadically, through actively coordinating resources in the field these
processor players are working toward driving predictability into harvesting which, hopefully,
leads to more consistent mill operations (and higher profitability). Addressing the perceived
Page 19 of 69shortcomings of imported equipment manufactured in more developed countries, Kamal Kisan
is a small firm manufacturing mechanized tillage, seeding, and input application equipment
tailored to specifically to Indian smallholder management strategies. Mechanization presents a
compelling model where initial efforts undertaken by the Indian Government have laid the
groundwork for private sector distribution models to innovate. It will be important to track
how these platforms begin to incorporate technologies which move beyond mechanization into
geospatial imagery interpretation, precision agriculture, no-till seed drills, -- the challenge will
be to evaluate the ability of these firms to provide adequate customer training and support on
these newer technologies. This presents a unique opportunity for public private partnerships
to emerge around collaborations with technology providers, equipment manufactuers, and
India’s National Agricultural Research System (NARS).
Agricultural Research and Extension in India
National Agricultural Research System (NARS)
With 102 research institutes and 73 agricultural universities across the country, India’s
NARS is a bureaucratic undertaking on such a massive scale, and with such institutional
complexity, that even under close examination it remains a struggle to understand how all the
parts fit together (Figure 8). The Indian Council of Agricultural Research (ICAR) has a storied
history dating back to its founding in 1929 as the Imperial Council of Agricultural Research, the
organization played a key role during the Green Revolution and has continued to support
innovation in Indian agriculture (Figure 9). The Integrated National Agricultural Resources
Information System (INARIS) is a fascinating project which will make critical agronomic data
available to the public with the real potential to generate substantial economic value for
Page 20 of 69industry if the government can execute on generating up-to-date and accurate cropping system
maps, soil resource maps, GIS overlays for water resources and farm mechanization rates
(Figure 10).
Krishi Vigyan Kendras (KVKs)
According to the ICAR, there are currently 706 KVKs spread across eleven distinct
Agricultural Technology Application Research Institute (ATARI) zones through the country
(Government of India 2019d).8 Managed by State Agricultural Universities and volunteer
organizations, KVKs provide general extension services, field-level demonstrations of new
technologies, and on-farm trainings around agronomic best practices. KVKs also conduct on-
farm trials of specific technologies to collect data on their regional and site-specific
performance (Singh et al. 2013). Opinions were mixed in my conversations about the relevance
of KVKs for providing tangible value for disseminating new technologies and making meaningful
impact on adoption rates. Some key informant interviewees expressed opinions that the KVK
system was a hold-over from a bygone, centrally planned, socialist era whose function was
essentially to assist farmers with transitioning to new crops at the direction of a centrally
planned decision-making apparatus.
8
This is a number which varies depending on which government publication you consult (it ranges from the mid-
600s with 706 as an upper bound)
Page 21 of 69Figure 11: Agricultural Extension System in India
Adapted from (Balaguru 2015)
Staff at the National Bank for Agriculture and Rural Development (NABARD) and IFPRI
felt that KVKs would continue to play an important role in the adoption process through
demonstrating new technologies locally in farmers’ fields. Sentiment in the private sector was
overwhelmingly skeptical with numerous individuals indicating there was no clear channel of
communication around ongoing projects within KVKs and expressing dismay that there seemed
to be minimal accountability or interest in partnering with industry. There was, however, some
interest in the Agricultural Technology Management Agency (ATMA) as a promising district-
level mechanism for technology dissemination. An interesting development from my
interviews was the frequent mention of several very successful extension partnerships between
private sector food processors, ICAR Crop Science Institutes, and private agronomists engaging
directly with farmers to solve very specific crop quality and yield issues (case studies outlining
Page 22 of 69this extension work will be discussed at length in the “Emergence of Alternate Marketing
Channels” section).
Extension IT Projects: Experimenting with e-Extension
Limited resources available for farm-level interactions across both State Agricultural
Universities (SAUs) and the KVKs are a challenge which results in approximately 60% of farmers
in India having no access to extension services (Bhattacharyya et al. 2018). This shift to focusing
on e-Extension has significant implications for adoption rates based on my conversation with P.
K. Joshi at IFPRI in which he noted that, while KVKs were important for demonstrations, he was
observing adoption moving much more rapidly through farmer social networks than the KVKs.
While India’s smart phone penetration rate was only 27% in 2017, this number is predicted to
jump to 60% of the population by 2022 (Bhattacharya 2018). Coupled with the highly
competitive market for mobile data and relatively robust data network coverage, the ability to
effectively contact farmers via smartphone-enabled platforms, web portals, and social
networks all appear to be highly viable channels for communicating extension services.
mKisan is a SMS-based platform launched in 2013 to provide the roughly 380 million
rural cell phone users with the ability to send queries which, in turn, receive a response from a
wide swath of government resources relating to agriculture available in 12 different languages
with semi-literate and illiterate farmers targeted with voice message responses (Government of
India 2013). Similarly, Department of Agriculture & Cooperation, Ministry of Agriculture
launched twenty-five Kisan Call Centers in 2004 across the country which also provided local
language responses to agriculture-related questions from farmers. ICAR Central Institute for
Cotton Research’s CICR Cotton App for farmers provides weekly and daily updates and
Page 23 of 69extension information on cotton cultivation and is currently translated into Hindi, Marathi,
Gujarati, Telegu, and Tamil. In the NGO space, Digital Green was introduced as a platform
which spun out of Microsoft Research in 2008 and has worked with over 15,000 villages in India
and provides extension and marketing services across their Community Videos, data collection
efforts, Training Courseware, crop marketing ap, and innovation lab. Marketing is an area
which continues to benefit immensely from these types of farmer-focused digital information
exchange platforms which provide pricing information and low-cost, secure, payment systems.
Fresh Produce Marketing in India
Agricultural Produce Market Committees (APMCs)
APMCs are constituted by State Governments and oversee specific agricultural
commodities governed under that state’s Agricultural Produce Market Committee Act. APMCs
are tasked with ensuring price transparency, publishing daily arrival data, and same day
payments to farmers for their products across the 2,477 regulated markets and 4,843 sub-
market yards they operate across the country. These committees have several other functions
which include providing market-based extension services to farmers and promoting agricultural
processing to add value across all commodities (Government of India 2019b). The stated goals
and function of APMCs are laudable, to protect farmers from entering distress sales with their
creditors while ensuring transparent pricing and timely payment for their commodities.
However, the function of these committees has left much to be desired. Once market
committees define a market area or jurisdiction, wholesale marketing activities may only take
place under the aegis of the APMC by its licensed commission agents. This has historically
prohibited farmers from entering into contract farming arrangements with large processors or
Page 24 of 69manufactures. Furthermore, levies and other market charges vary widely between states which
has the effect of distorting prices and erecting barriers to entry. During my conversations with
technology entrepreneurs and investors looking at wholesale markets, there was consensus
that the role of APMC as regulator and market was fraught and they felt very often APMC
personnel were forming cartels with traders and commission agents, creating monopsonies
which put farmers at a significant disadvantage.
In response to the lack of integration and numerous distortions in state agricultural
marketing schemes, the Union Ministry of Agriculture introduced the State Agricultural Produce
Marketing (Development and Regulation) Act in 2003 (alternatively referred to as the Model
APMC Act of 2003) and subsequent Agricultural Produce and Livestock Marketing (Promotion &
Facilitation) Act of 2017. This key reform allows farmers to sell outside of APMC-administered
markets, gives wholesalers more options around where they can buy and sell, and loosens up
licensing and fees levied on sales (Government of India 2003). Because agricultural markets
remain a state subject, adoption of the Model APMC Act of 2003 has been uneven across the
country.
The National Agricultural Market (NAM) first appeared in the Union Budgets of 2014-15
and 2015-16 and became a highly publicized reform topic for the Union Cabinet (Government
of India 2019c). Launched in 2016, e-Nam (as it is known) is a national online trading platform
connecting APMC mandis with the goal of creating a single marketplace for some 90
commodities across India’s approximately 22,000 distributed agricultural markets by 2022 (PTI
2019). e-NAM’s potential, both to link farmers to buyers and provide a massive source of price
and transaction data holds tremendous promise for increasing the efficiency of marketing fresh
Page 25 of 69produce in India. Data generated on this platform represents an immense wealth of
information that would be invaluable for informing the more intelligent design of futures
contracts and the refining of agricultural credit and insurance products (both of which remain a
significant challenge in a data poor environment). However, with only 585 mandis up on the
platform as of January 2019, adoption continues to be a struggle – notably, as of December
2018, Delhi’s Azadpur Mandi and six other markets in the National Capital Region (NCR) have
yet to join the e-NAM platform (Sally 2018) (Figure 12).
Traditional Marketing Channel: Mandis and Arthiyas
Figure 13: Traditional Marketing Channels in India
Admittedly, the above rendering is a vast oversimplification which does not account on
myriad regional permutations nor does it account for multiple actors participating
simultaneously in multiple marketing channels (e.g., a potato farmer could be selling to a
commission agent (Arthiya) in Azadpur Mandi while at the same time contract farming and
selling directly to a processor (McCains or Pepsico), or directly to a large retail outlet (Big
Bazaar or Safal). These alternate marketing channels will be explored at length later in this
section. However, this model is instructive for providing a general framework for how fresh
Page 26 of 69produce is bought and sold in India metros. Typically, a household has three primary outlets
where they will be purchasing fruits and vegetables:
1. Push/Bicycle cart vendors are a ubiquitous feature of Delhi neighborhoods, these vendors will announce
their presence and wares early mornings and are a very convenient, highly affordable, and popular option
for purchasing staple vegetables and some generic fruits.
2. Vegetable traders in “wet markets” will typically all be located right next to one and other in single area
of a neighborhood. These very basic shops will tend to offer a wider selection of fruits/vegetables
(arguably, you can expect to see higher quality here versus pushcarts). Some vendors in more affluent
neighborhoods will also offer expensive imported items (mostly fruit).
3. Kiranas are local family-owned and operated small neighborhood grocery stores, not unlike bodegas in
New York City, which sell a wide variety of consumer goods and generally have fruits and vegetables
displayed out in front.
Disintermediation is a very sexy topic in both the value chains academic literature and
pitch decks from myriad private ventures vying to cut out middlemen and pocket some of their
margins through various efficiency-based business models. Price spreads between farmers and
consumers in emerging market value chains tend to be quite large and are often attributed to
postharvest losses (Murthy et al. 2009), trader margins (Mahalanobis 1972), and
transportation/packaging costs (Kumar and Arora 2003). During my conversations, a number
entrepreneurs were scaling demand aggregation models which sought to “cut out the
middlemen” and purchase directly from farmers, sort/grade, transport, store, and deliver
product directly to end consumers like Kiranas, large institutional clients (hotels, hospitals,
etc.), and newer branded grocery stores. Middlemen, particularly traders, are often maligned
in India and tend to be viewed as rent-seeking actors who are often instrumental in corrupting
government officials (weights/measures, false price reporting, etc.) and exploiting farmers by
leveraging information asymmetries and colluding with commission agents (Arthiyas). In
fairness, it does seem to be the case that in many mandis traders do, indeed, act as
oligopsonists (depressing prices paid to farmers).
Page 27 of 69(Ghosh 2013) makes a compelling case that traders provide several important functions
in fresh produce value chains which are often not well understood, these include:
• Bridging low information rural producers with urban center consumers
• Understanding government rules and regulations
• Assisting in physical exchanges
• Providing timely finance and inputs to producers
• Operating in markets and areas of tremendous uncertainty (willingness to undertake risk)
• Maintaining informal, highly personalized, relationships with producers
Traders tend to be located closer to markets (demand side) and have deeper “domain
knowledge” about consumer markets than do producers (and vice versa when transmitting
information back up the supply chain). While this information asymmetry can be a source of
margin for traders, traders can also play an important role as “knowledge transfer conduits” as
they disseminate market information to growers in rural areas (Mulky 2008). Traders and
Commission agents (Arthiyas) both play a critical role in a vast system of informal credit,
providing working capital loans to numerous participants throughout the value chain. These
actors will play the role of insurer (through preharvest contracts) and as merchant bankers,
extending informal credit down the supply chain to growers and up the supply chain to Kiranas,
Masakhors, and even push/bicycle cart vendors. (Celestine 2011) has done some fantastic
reporting on this, documenting that Arthiyas “say they are tapped by farmers for finance to buy
everything, from seeds to sacks to bag their produce, and even to finance weddings and
homes” while traders at the local level will run sometimes run shops and extend store credit to
farmers to purchase groceries. This credit comes at a price, while agricultural loans in India
average 8-9% informal credit will run farmers around 25% (it is still unclear to me if this is
annualized or is based on some much shorter tenure: 3 days, weekly, monthly) and represents,
Page 28 of 69according to official estimates, roughly 35% of the total agriculture credit industry (Yamunan
2017).
Azadpur Mandi: Up Close and Personal
It is 1:00am on a weekday and the CH. Hira Singh Wholesale Vegetable Market (Azadpur
Mandi), Asia’s largest wholesale fruit and vegetable market, is teaming with activity as massive
trucks maneuver through tight alleys backing up and being offloaded by “palledars” carrying
loads atop their heads to market stalls and bicycle rickshaw carts. Motorbikes, rickshaws, and
small trucks zip in and out of storefronts laden with men and massive cargos of tightly packed
fresh produce. Delhi’s thick winter fog hangs in the covered stalls and mixes with the acrid
smell of beedi smoke, chai, frying parathas, and the sweet earthy smell of ripe fruit (Figure 14).
A 12 km drive from Connaught Place, Azadpur Mandi is located in Northwest Delhi on 76
hectares and handles roughly 15-20 MT of fresh produce on a daily basis. Trading in
approximately 60-70 vegetables and around as many fruits commences in the late evening and
runs through the early morning.
Around 2,000 commission agents (Arthiyas) act as brokers for farmers and will run
auctions on lot sizes greater than roughly 10 kg and charge the farmer a 5-6% commission
(fixed by the state APMC legislation) on the final sale price plus any costs associated with
loading/unloading and transport. However, we heard from several industry contacts that the
commission agents are frequently illegally charging higher rates of around 7-8%. Arthiyas are
market makers, providing liquidity using traders (to whom they extend credit) to buy from
farmers in the mandi (5% commission is paid) or directly at the farm level (no commission is
paid). I was unable to determine the interest rates charged by Arthiyas (a few people I asked all
Page 29 of 69said generally the same thing, “it depends” – indicating this is a very high touch, relationship-
based, business). Traders and Arthiyas will additionally provide some small value addition
grading/sorting functions, both are also acting as arbitrageurs attempting to profit from the
price spreads between different markets within the region, between the farm gate and the
Azadpur Mandi, and across markets in other states. As previously mentioned, Arthiyas also
provide a critical function up and down the value chain through extending informal lines of
credit.
Arthiyas were conducting bidding in two forms, the first was open outcry, although
voices were never raised, and several sources indicated they often ran auctions in code
(signaling in an effort to fix prices with other wholesale middleman buyers). The second, and
far more interesting format, is what one trader described as the “Under Cover Method” for
which price discovery involved a handkerchief and some hand signals with no public
announcement of a final sale price. If you are buying on credit, this latter method is
mandatory. This was a practice I witnessed multiple times but wasn’t eager to capture on
camera; however, (Ahmed and Siddiqui 2015) have some fantastic pictures documenting the
practice (Figure 15). To be very clear, this is illegal and should, technically, be cracked down on
by the 500-600 co-located Agricultural Produce Market Committee (APMC) staff who are tasked
with collecting price data and then listing the day’s “Model Rate” for every commodity (this
work is supported through a 1% fee charged on each transaction).
Page 30 of 69Figure 15: The “under cover” method of price discovery at Azadpur market
For lots smaller than 10 kg, Masakhors (or middlemen) will buy from Arthiyas (commission
agents) and then sell on to retailers and vendors (90% of whom are buying on credit) – at this
point, some additional level of sorting and grading is happening. As might be expected, prices
are constantly changing throughout the evening and according to several people we spoke with
the prices track quality and tend to decrease as it gets later into the morning (most Kiranas and
street vendors want to be back in their respective neighborhoods to capture early morning
footfall).
The Emergence of Alternate Marketing Channels
APMC reforms post-2003 have been critical to encouraging innovation in marketing
fresh produce through opening new channels for farmers to directly access buyers ranging from
large modern grocery chains, burgeoning e-grocers (BigBasket and Grofers) to multinational
corporate food processors (McCain Foods India and PepsiCo India). Demand aggregation
business models are driving efficiency into the fresh produce value chain across a number of
key metro markets (Ninjacart, Crofarm, Farm Taaza, and DeHaat), circumventing traditional
market yards by pooling various categories of buyers and providing end-to-end logistics from
farm to distribution center and local delivery (Figure 16). Lawrencedale Agro Processing (LEAF)
Page 31 of 69provides another example of business models actively disintermediating traditional marketing
channels. LEAF started in the value chain for carrots and the firm is now directly sourcing 7,000
tons of fresh produce across 55 commodities annually from farmers and working with over 300
store clients in south India (these include: Spar Hypermarket, Star Bazaar, Aditya Birla More,
Future Group, and Godrej Nature’s Basket).
ITC Limited’s e-Choupal platform connects to their Agribusiness Division’s supply chain
of some 4 million farmers covering soy, coffee, wheat, rice, pulses, and shrimp in 35,000
villages in 10 states. ITC is very careful to note that they are not disintermediating the physical
functions of agricultural marketing channels but rather “‘e-Choupal' makes use of the physical
transmission capabilities of current intermediaries - aggregation, logistics, counter-party risk
and bridge financing - while disintermediating them from the chain of information flow and
market signals.” ITC’s platform focuses on removing information asymmetries through
launching 6,100 village-level internet kiosks “sanchalaks” which provide farmers with local
language information on weather, updated market prices, agronomic extension information,
and connection to farm input sales channels (ITC 2019).
Despite being the second largest producer of fresh produce globally, less than 2% of
India’s fruits and vegetables are entering commercial food processing (Sidhu 2005). As the
country’s middleclass experiences an upward trend in income, purchasing habits shift away
from more traditional retailers and toward diets that incorporate a larger percentage of
processed food products. To meet this growing demand, processors are attempting to face the
challenge of how to source quality produce consistently throughout the year to keep their
manufacturing operations running smoothly. It bears mentioning that some of these “new”
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