I have been thinking about writing this for a while - the future of India’s agriculture - farmers and farmlands. And I believe the future could be drastically different. It is impossible to predict the future, but we can get a definite sense - if we remove the lazy thinking, not include personal biases, and consider all the possibilities. So, what is my process? If I think this would be the possible future based on data, firstly: I write about that, and secondly: I browse history to validate similar events and facts. But while doing that, I keep my personal experience of India at the centre. In this essay, I have painted the future state of agriculture using 3 tables.
But not many will agree with the possible future of India's agritech except for the part - it shall contribute an additional ~$1 trillion (total = $1.5 trillion) to India's economy. I think predicting the future is relatively easy but building that future is hard. And therefore, the salute should be to the participants who are building the future - I aspire to build that future. I write because this gives me clarity about the future I want to build.
The food has been super near to my heart. And retail (Grocery), Online & Offline, is just a part of the entire food value chain. Of course, we operate in the distribution part - but I understand the layers above and below. Of course, production is one of my interest areas and hence a keen interest in farmers, farmland and entire value layers. In that regard, here is an interesting future state of India's agriculture.
If we consider 100 years a cycle and take the USA, China, and India as three countries - there is an obvious outcome. We will see a sharp decline in % of employment dependent on agriculture. If the progress footprint is going to be followed the same for India - in the next ten years, there would be an almost 50% reduction in the total number of active farmers and employment dependency on agriculture. This is significant because, currently, India has 150 million direct and indirectly associated farmers with 50% employment dependency. But there will be no impact on the net production - we might create 3X of the current productions.
Here's How: If India’s agriculture becomes as efficient as the USA, we might only need 5 million farmers (You can refer to the below tables). This is significant because we would have to look for a method to replace 140 million farmers in another sector that can provide sustainable employment.
But there is a fundamental difference between the USA, China, and India agriculture market. For example, in the US: the average farmland size is 445 acres (180 hectares). In China - the average farmland was 0.96 acres till 2010, and in India - 93% of the landholding is below 1 acre. The farmers and farming operating agricultural processes in farmland less than 5 acres are called marginal farmers/farmers - and marginal farming has been super inefficient.
According to a recent survey, the average farmers' household income in 2018-19 was INR 10,218/month. If a farmer could have earned 10,218/month from farming, this could have been a respectable earning. But this is not the case in farming - they have earned: only ₹3,798.
What is not visible in this chart is that to generate INR 3798 monthly earnings from Crop Production, farmers must have invested a minimum of INR 1500 as a farm input. This makes the earnings from Crop Production effectively INR 2298.
At this rate, it is highly unlikely that we can achieve $10,000 GDP per Capita soon because current marginal farming is super inefficient, and significant populations are involved in India’s inefficient agriculture. Let's say, an agritech company promises to improve the earnings of marginal farmers by 30% means - the net earning would only be INR ~3000, not enough.
This brings us to ask ourselves a few pressing questions.
Are we going to promote Marginalize farming and keep the entire system inefficient or invest in technology to achieve an efficiency level like the USA and China, free up the human capital and use them where they can bring higher efficiency?
If we are following a, what sector could be best suitable to shift this massive human capital where they can contribute +vely to the economy and also have higher monthly earnings?
History indicates that point (a) seems to be inevitable. Almost every developed country achieves massive agricultural efficiency by freeing up their human capital and using it in a different sector - where they can be efficient.
Let me prove this using just three tables:
Share of Population - % and in million - involved in Agriculture
The Population of USA, China, and India in millions
GDP contribution by agriculture (Numbers in Billion Dollars)
If trends are to be followed, India shall generate an additional ~$ 1 trillion economy through agritech in the next 15 years. This is significant, but it can’t be generated with the current state of Indian farmland ownership and farming processes. The future state of India’s agriculture shall not be the same. The farming process has to be efficient this means the farmland has to consolidate (or a method must be developed to convert small farmlands into large chunks), and inevitably employment dependency in agriculture will reduce.
If you look closely, this will also solve India’s 14% supply chain contribution to GDP: massive dependency on the supply chain compared to average developed countries, it has to come down to 7%. The free-up resources will give enough room to flourish: agriculture and retail. This shall ultimately create a strong flywheel among Farmers, farmlands, production, retail, and supply chain.
Larger Size of Farmland - Lager production aggregation - Automatically reduction in supply chain cost - an investment of free up resources in farming/agriculture.
The future flywheel of farmers, farmlands, agriculture, and supply chain
Note: Chain government and policymakers invested $12.8 billion in land consolidation policy between 2006 to 2010 and a similar investment was made in 2020 just to solve this problem. The aftermath result has been satisfactory.
The future state of agriculture makes the entire market interesting. Because almost all, current, agritech investments are to improve the state of marginal farmers and farming. If there will be land consolidations, that seems inevitable, the KPI would not be around the number of farmers/farmers reach/loan disbursements etc. There would be a new North Start for India’s agritech companies.
“The bottom line is that $1 trillion of value addition to India’s economy is inevitable in the next 15 years through agriculture. Agritech, supply chain and retail all are part of the same problem if a company Target Group is non-metro consumers. Today’s investment in building capabilities should be aligned with a. Future use-cases and b. The future state of all three layers - agritech, supply chain and retail.”
Published on 31-07-2022 at 17:21 PM