How can we make agriculture better?

With high food inflation the focus has again shifted to agriculture. The question is how to make Indian agriculture profitable. I propose a Smart Agriculture Management System to deal with this.

Food prices are in the news as the drivers of inflation. This has brought the question of Indian agriculture back into focus. On the one hand, we find food prices high. On the other, we see farmers committing suicide. It raises the question of what the problem with agriculture is and, more importantly, how to solve it.

I reviewed the research on this topic and summarised it in my paper. I found that agriculture faces a lot of problems. In short, Indian agriculture suffers from:

1. poor productivity,

2. falling water levels,

3. expensive credit,

4. a distorted market,

5. many intermediaries who increase cost but do not add much value,

6. laws that stifle private investment,

7. controlled prices,

8. poor infrastructure, and

9. inappropriate research. 

These are symptoms of two fundamental issues with agriculture. First, farm risk management has gone wrong. Second, there is a lack of coordination between various parts of the agricultural value chain. Thus, farmers do not respond pro-actively to changing prices and market dynamics. They also bear higher costs for post-harvest coordination in the value chain, like transportation, packaging, etc. 

Farmers needed to become better at risk management.

Farmers should use futures prices at the crop planning stage itself. At the harvest stage, a mix of contracted sales and spot sales can maximise realisations. They also needed more reliable availability of inputs, credit, etc. All this meant we needed information – different types and large quantum of information like futures prices, weather forecasts, demand estimations, pesticide usage guidance, seed knowledge, planting knowledge, etc. AND, this information had to be available to the farmer when he/she needs it. But information is only ONE part of the problem.

Coordination is critical.

Farmers also need physical inputs to reach their remote farms. So, fertilizers should be delivered on time, farm insurance should be approved, and seeds and pesticides should reach the farmer on time. All these activities are coordinated based on weather predictions. This means the value-chain partners must be available and acting reliably and consistently. It also means the value-chain participants need the farming process to be visible.

And there will still be risks.

There is universal agreement about risk associated with dealing with commodities. It means despite much effort many times farmers will fail. The question is then – can they fail safely? 

The corporate world has solved this issue through the use of limited liability vehicles. So, can we apply that to farmers? I believe a limited agricultural bankruptcy mechanism should act like a safety net for farmers. However, we don’t want farmers to hide personal failures within agricultural risks. Hence, we want farmers to separate personal and agricultural assets to limit liability.

The Solution - A Smart Agriculture Management System!

I think we can fix these using an information system –an ERP-like solution for agriculture to help assist the farmers. Such a system will reduce coordination costs, improve information availability and increase the scale of operation, allowing the formal economy to step in and help farmers. With ring-fencing of risks, low-cost collaboration, and timely information, we can help farmers get into a positive spiral of profits, investment, and productivity. I sketch out the schematic of such a system called Smart Agriculture Management System (SAMS) in my paper.

This issue is important. Please read the paper, I tried to keep it as short as possible. Please make suggestions for improvement. If you think SAMS will work then do spread the word.

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Notes:

Research Paper proposing Smart Agriculture Management System

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