Outline•Agriculture - Overview
• Issues and Concerns
•Agricultural Lending – Concepts, Methods
•Agricultural Lending – Trends & Overview
•Policy Initiatives: Doubling Farmers’ Income
•New and Emerging Agriculture and Agrifinance
•Agrifinance: Challenges and Way forward
Share of Agri-GDP
1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2010-11 2013-14
Agriculture 51.88 47.65 41.66 35.69 29.53 22.31 14.51 13.9
Industry 11.1 13.68 15.98 18.05 20.56 20.69 19.95 19.5
Services 34.63 36.6 40.91 45.26 49.61 57 65.54 65.95
0
10
20
30
40
50
60
70
Agriculture Industry Services
Source: Economic Survey, various issues
Importance of Agriculture in Indian Economy- Role in Employment and Trade (% share in economy)
Year Export Employment
1950-51 --- 69.4
1960-61 44.3 69.5
1970-71 31.7 67.8
1980-81 27.8 60.5
1990-91 18.5 59.0
2000-01 17.6 58.4
2014-15 12.0 48.0Source: Economic Survey, various issues
India’s position in world Agriculture
Rank• Total Area Seventh• Irrigated Area First• Population Second• Economically Active population Second• Total Cereals Third•Wheat Second• Rice Second• Total Pulses First•Oil Seeds Second• Fruits and Vegetables Second• Implements (Tractors) Third •Milk First• Live Stock (cattles, Buffaloes) First
Mile Stones in Agricultural Development
•Green Revolution (1968)
•Blue Revolution (water, fish)
•White Revolution (Milk)
•Yellow Revolution (flower, edible)
•Ever-Green Revolution (2004)
•Bio-Technology Revolution
• ICT Revolution
Agriculture Sector - Issues
• Declining operational holding
• Declining farm income & profitability.
• Dominance of dry land agriculture.
• Degradation of soil & biodiversity.
• Regional disparity & uneven growth.
• Declining land, water & capital investment.
• Huge price spread – market imperfections
• Threat of climate change - temperature, weatherunpredictability, drought & flood.
Average Land Holding Size
1970-71
1975-76
1980-81
1985-86
1990-91
1995-96
2000-01
2005-06
2010-11
Avg. LH Size 2.28 2.00 1.84 1.69 1.55 1.41 1.33 1.23 1.16
0
0.5
1
1.5
2
2.5
S
i
z
e
i
n
H
a
.
Source: Agriculture Census Division, Department Of Agriculture & Co-operation, Ministry Of Agriculture, Government Of India, 2014
THE FARMER’S PLIGHT
•The farmer is trapped in a vicious cycle……
Low risk taking ability→ Low investment→ Low productivity→ Weak market orientation→ Low value addition→ Low margin→ Low risk taking ability
This situation makes the farmer and the Indian agriculture globally uncompetitive despite abundant natural resources
Problems of the Agri-economy
Economic Disadvantage
Ecological & Regional
Disadvantage
Social Disadvantage
Economic Disadvantage
Marginal & Small Farmers account for 85% of the operationalholdings and 44% of the operated area
Reduces the farmers ability to invest in inputs, gain fromeconomies of scale, have necessary bargaining power inmarkets & service agencies
The plot cultivated is not owned and therefore cannotserve as collateral for credit or provide security of tenure
Social Disadvantage
Gender related:
- Few women own land in their own right
- Few women have financial resources for leasing inland of their own
- Little access to the basic means of production
Caste, Community and Social status related:
- Incidence of landlessness is relatively higher
- Inequality in the delivery of public services such as
credit, information, extension services etc.
Ecological & regional / locational disadvantage
- Located in arid or semi-arid regions, inremote areas or in regions with pooragricultural and infrastructural development
- States have relatively poor agriculturaldevelopment
What was favorable during Green Revolution?
Perfect blending of 4 Is’1. Innovation: improved technology• High yielding: significant incremental gains
2. Incentives: favorable policy environment• Assured prices and procurement
3. Institutions: pro-agriculture institutions• Seed sector
• Financial sector
• Food Corporation of India
4. Infrastructure: agriculture driven infrastructure
• Irrigation
• Power
What ails Agriculture now?
Complete disintegration between 4-Is in agriculture•Confronted with 3 shocks
• Price shocks, financial shocks, climate shocks
•Smallholder agriculture• Low volume of production; low bargaining power and high transaction costs
•Declining and deteriorating soil & water resources• Soil erosion, soil salinity, waterlogging & falling water table
•Deteriorating governance of past institutions• Seed sector, extension sector, grain mismanagement
•Growing subsidies and slowing down investments
MEETING THE CHALLENGES• Increasing production,
productivity
• Diversification of livelihood activities
• Drought proofing – Watershed devt.
• Shift in focus to post-harvest management (PHM)
• Increasing share of farmers in the consumer rupee;
• Upscaling agri-business activities
• Risk Mitigation through Insurance.
• Aggregation and marketing of produce of SF/MF
• Increase in government spending
• Increase in agriculture credit flow
• Supply of credit on cheaper rates of interest
• Creation of people’s organization in village level
Unleashing Opportunities in Agriculture
4 pronged strategy1. Innovations
2. Institutions
3. Incentives
4. Infrastructure
•Harness untapped yield reservoir
• Leverage power of improved technologies
•Utilize fallow lands
•Promote agricultural diversification• High-value & remunerative commodities
• Labor absorbing & water efficient commodities
• Produce for the market
Agri-lending - Features
Dispersion of client
Seasonality
Rigidity of cycles
Small size
Lack of assets
Information
Risk
Classification of Agrifinance
•Based on purpose• Production credit
• Marketing loans
• Consumption loans
• Investment credit
•Based on tenure• Short term
• Medium term
• Long term
• Based on security• Secured loans• Primary security• Collateral security• Mortgage• Hypothecation• Third party guarantee• Unsecured loans
• Based on approach• Individual approach• Area approach• DIR loans
F(Finance)
Credit availability should be timely and adequate and should include aholistic package of financial services including credit (production andpost-production), savings and insurance that needs to be kept in view.
A(Allied
Activities)
Allied activities act as a hedge against the downsides. It is also imperativeto encourage mixed / integrated farming
R(Risk
Mitigation)
Measures against price, production and personal risks are very critical formaintaining the health of the rural financial system and ensuring theviability of the agricultural sector.
M(Marketing
Access)
Efficient marketing viz., Producer Companies, Contract Farming, ValueChain Agro Processing are important for S/M farmers.
E(Extension of
Research)
Quality extension & research services in a cost effective manner isnecessary for productivity enhancement. The key to raising productivitylies in “thinking global and acting local”
R(Resourcesother than
finance)
Timely and adequate availability of other critical resources (water, seed,fertilizers etc.) are very important to ensure that agriculture remains aremunerative and attractive vocation
F-A-R-M-E-R
Agri-finance
Every 1% increase in real agricultural creditresults in an increase in agricultural GDP by0.22% with a one-year lag
Agricultural Credit- Target & Achievement(Amount in Rs. Billion)
Year Target Achievement % Change
2010-11 3750 4683 124.9
2011-12 4750 5110 107.6
2012-13 5750 6074 105.6
2013-14 7000 7116 104.4
2014-15 8000 8410 105.1
2015-16 (P)
8500 8770 103.2
Source: Economic Survey, various issues
Ground Level Credit Flow – Impressive Growth
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
Series1 0.53 0.62 0.69 0.87 1.25 1.80 2.29 2.55 3.02 3.85 4.69 5.11 6.07 7.30 8.45 8.77
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
TOTAL CREDIT FLOW TO AGRICULTURE (IN RS. LAKH CR.)
Source: Source: various Annual Reports, NABARD
Commercial banks leading the way…
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16(P)
CBs 0.28 0.34 0.40 0.52 0.81 1.25 1.66 1.81 2.29 2.86 3.46 3.69 4.32 5.28 6.04 6.05
Coops 0.24 0.24 0.24 0.27 0.31 0.39 0.42 0.48 0.46 0.63 0.78 0.88 1.11 1.20 1.38 1.53
RRBs 0.04 0.05 0.06 0.08 0.12 0.15 0.2 0.25 0.27 0.35 0.45 0.54 0.64 0.83 1.02 1.19
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00 Agency-wise credit flow to Agriculture (in Rs. Lakh Cr.)
CBs Coops RRBs
Source: Source: various Annual Reports, NABARD
Agency-wise share of credit flow to agriculture
50 54 57 6065 70 73 71 76 74 74 72 71 72 72 69
43 38 34 31 2522 18 19
15 16 17 17 18 16 16 17
7 8 9 9 10 8 9 10 9 9 10 11 11 11 12 14
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Agency-wise share (%)
CBs Coops RRBsSource: Source: various Annual Reports, NABARD
65.9 64.4 64.6 64.8 62.6 63.1 65.3 65.5 63.2 60.7 58.4 60.4
71.2 69.7 71.9 71.777.5 78.0 75.0 75.1
80.4
34.1 35.6 35.4 35.2 37.4 36.9 34.7 34.5 36.8 39.3 41.6 39.6
28.8 30.3 28.1 28.322.5 22.0 25.0 24.9
19.6
19
95
-96
19
96
-97
19
97
-98
19
98
-99
19
99
-00
20
00
-01
20
01
-02
20
02
-03
20
03
-04
20
04
-05
20
05
-06
20
06
-07
20
07
-08
20
08
-09
20
09
-10
20
10
-11
20
11
-12
20
12
-13
20
13
-14
20
14
-15
20
15
-16
SHARE (%) OF SHORT TERM AND LONG TERM CREDIT IN TOTAL AGRICULTURE CREDIT
Interest Subvention introduced
Falling Trend in Agri.Term Loans
Source: Source: various Annual Reports, NABARD
GoI Policy – NITI Aayog
• Two Pronged Strategy
1. Raising Agricultural Productivity
2. Making Farming Remunerative – Doubling Farmers‘Income (DFI) by 2022
• Five important aspects of agriculture that need immediateattention to bring economic advantages to millions of farmfamilies.
1. Raising productivity to Accelerate Growth
2. The Minimum Support Prices
3. Agricultural Land Policy: Leasing and Titling
4. Farmer Distress and Immediate Relief
5. Potential of the eastern region needs to be harnessed
Strategy for Doubling Farmer Income
• Seven Point strategy for Doubling Farmers’Income (DFI) by 2022
1. Growth in production and productivity
2. Effective use of inputs
3. Reducing Post-Harvest Losses
4. Value Addition and Agro-processing
5. Reforms in Agriculture Marketing and e-NAM
6. Risk, Security, and Assistance
7. Allied and Ancillary Activities
Budget Announcements - 2017-18
• Target of Rs.10.0 lakh crore agri credit in FY 2017-18
• Rural, agri and allied – Rs.1.57,223 cr 24% higher than last year
• Committed to double incomes of farmers in five years
• Fasal Bima Yojana allocation is raised to Rs 13,240 crore next fiscal, from Rs 5,500 crore now. Coverage to be 40% (vs.30% last year)
• Rs 5,000 crore Micro-Irrigation Fund to be set up by NABARD
• Long Term Irrigation Fund (LTIF) – corpus to Rs.40000 cr
• New minilabs in 648 KVKs for soil testing
34
• Continued thrust
on doubling
incomes
• Measures
covering water
saving, allied
sectors, market
reform, risk cover
towards that goal
• RA/DF product
for Minilabs by
NB?
Budget Announcements - 2017-18
• Dairy Processing Infra Fund - corpus Rs.2000 cr to grow to Rs 8,000 crore in 3 years
• Agri credit target: Rs 10 lakh cr (2016-17: 9 lakh cr)
• Model law on Contract farming
• Market Reforms
• Coverage of eNAM to expand from 250 to 585
APMCs - Assistance of upto Rs 75 lakh for cleaning
and packaging of farmer produce
• Market reforms will be undertaken, states will be
asked to de-notify perishables from Essential
Commodities Act
• eNAM to integrate with commodity exchanges35
• Increase in
credit target is
a necessary
condition. FI is
sufficient
condition as
40% of farmers
are out of insttl
network
• Persistent in
targeting agri
market reforms
• Growth in volumes impressive - physical outreach is a concern(40% farm households do not have access to Institutionalcredit)
• Only 2% of the food produced is processed while farmcommodities worth Rs.92,000 crores are wasted every year
• Inadequate post harvest infrastructure- as against requirementof 61 mln tonnes of cold storage capacity, only 32 mln tonnesset up so far. Deficit of 29 million tonnes
• Credit (input) intensity increasing rapidly, production response not commensurate.
• Flagging marginal productivity of credit – Issues in real sector –role of public investment.
• Credit focused on production (inputs) - income side of farmers – value addition & marketing - remains a concern.
Challenges and way forward
Emerging Agriculture and Agrifinance
• Financing High value agriculture:
Horticulture – growing fruits & vegetables, a wise & best option …
The new Green Revolution termed as ‘Organic Green Revolution’
High-tech agricultural projects – green house, floriculture, etc.
Livestock & Dairy – exploring livelihood Options
Plantations, agroforestry, wasteland development etc.
• Financing Urban and peri-urban agriculture:
scope for production of Organic Crops
Vertical farming Hydroponics/Aeroponics
• Agriculture to agri-business: Agriculture as an enterprise
• Financing the entire value chain – supply / value chain financing
Compiled by
Dr. Kanhu Charan BadatyaGM & Member of Faculty
College of Agricultural Banking (CAB), Reserve Bank of India (RBI), Pune