Covid-19 update: unlocking Indian Agriculture Sector

A contracting economy and a rapid rise in Covid-19 infections is making it challenging for governments in many countries including India to decide between life and livelihood. Still, India’s agriculture sector over the last few months experienced a positive growth. Moreover, the Government of India announced a financial package for investment in post-harvest infrastructure to generate employment and increase efficiency in the agriculture sector.   

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Being such a populous country, it may not come as a surprise that India has the world’s third largest number of reported Covid-19 infections (over 4 million) and the largest number of new cases (85,000 a day). Fortunately, the recovery rate is high.

Over the past months, the virus has spread from big cities to small cities and rural areas. After 2 months of the world’s strictest lockdown, the Indian government started to reopen parts of the economy. In the current, fourth stage of the reopening, metro services will resume and e-passes will no longer be required for inter-district travel. Schools and colleges will remain closed. Although the Centre has asked state governments to not enforce lockdowns without prior consultation, some state governments have taken to extend the existing curbs. The ongoing suspension of scheduled international passenger flights has been extended until September 30. However, international scheduled flights may be allowed on selected routes by the competent authority on a case-to-case basis. The situation in ports has improved, although trucks and labour are still scarce.

Agricultural exports reach new heights

India’s agricultural exports during the months of April, May and June stood at nearly 3 billion euros; a growth of 23% compared to the same period last year. The increase in exports was led by (non-basmati) rice, refined sugars and different varieties of lentils. Exports of potatoes and soybeans dipped a little. As reported in our aquaculture article, sea food exports saw a 7.4% drop in quantity while only 0.74% in US dollar value for the year 2019-20 due to sluggish demand in export markets and reduced catching in the West Coast of India.

The Indian government wants to further boost its agricultural exports. The Agricultural and Processed Food Products Export Development Authority (APEDA) is therefore engaged with all federal states of India to finalise state–specific action plans for agriculture export policy (AEP). The objective of the larger AEP, of which state plans are a part, is to double farmers’ incomes as well as agricultural exports over the next few years. In this regard APEDA has signed MoUs with various organisations, such as the Small Farmers Agribusiness Consortium (SFAC), AFC India Ltd and NCUI (National Co-operative Union of India), to utilise their expertise in forming co-operative and clusters. This drive to boost exports and promote food processing provides an opportunity for Dutch companies.

Roll-out of support schemes

Since the announcement of the 47 billion euro financial package in May, more clarity has been obtained on how the package will be deployed for schemes like the Agri–Infrastructure Fund and Animal Husbandry Infrastructure Development Fund. In both the schemes, Primary Agriculture Co-operatives, Farmer Producer Organisations and any grassroots entrepreneurs investing in developing post-harvest or processing infrastructure will get interest subvention of 3 to 4% on the loans taken. So far, 27 projects have been approved under the Scheme for Integrated Cold Chain and Value addition infrastructure.

The financial package will be implemented over the next seven years. According to a speech given on the occasion of Independence Day (August 15), Prime Minister Modi exhorted that these funding schemes are part of several steps that his government is taking to generate surplus income for farmers and making agriculture a sustainable and self-reliant sector. The next step that the government will look into is how to stem the rising cost of agriculture inputs. It is to be hoped this will not lead to price caps on inputs such as seeds, which would harm the sector.

Micro Finance Institutions (MFI) that operate in rural hinterlands and serve farmers, traders, rural businesses and households were left in lurch during the pandemic.  MFIs had been excluded from the moratorium benefits from the banks that created a dip in collection resulting in widening of asset liability mismatch, credit downgrades and spike in cost of fresh funding.  To deal with the current situation, the National Bank for Agriculture and Rural Development (NABARD) has unveiled a structure finance and credit guarantee program for Non-Banking Financial Institutions and MFI. According to NABARD, “The program entails providing partial guarantee on pooled loans extended to small and midsized MFIs. It will help facilitate INR 2,500 crore (approx. 280 million euro) funding in the initial phase and is expected to be scaled up. The program is expected to cover over 1 million households across 28 states and 650 districts.”

Economic developments: retail consolidation and negative growth

During the lockdown, not all is gloomy. Some companies have used this time to actually take big steps, most notably Reliance. Future Group, one of India’s earliest brick and mortar retail companies, was recently bought by Reliance Industries for USD 3.4 billion. Reliance Retail was already India’s largest brick and mortar retailer but will now control about one-third of India’s brick and mortar retail stores in an otherwise fragmented organised retail sector. Prior to the Covid-19 crisis, India’s retail market was worth an estimated USD 850 billion a year, of which 10 percent was modern retail formats, while the rest of the industry was dominated by small, independently owned “mom-and-pop shops”. However, in the coming years, modern retail is expected to grow at the expense of smaller shops. Future Group over the years had accumulated debt and without a good ecommerce platform was struggling in an increasingly fierce competition from Reliance Retail and others, as well as from the likes of Amazon and Flipkart (which has a Joint Venture with Walmart).

India’s GDP has shrunk by 24% in the second quarter, when the lockdown was in full swing. However, agriculture (aided by a good monsoon), forestry and fishing grew around 3.4% - even though this is lower than the two previous quarters. Farm income growth has slowed compared to the first quarter of 2020 (especially in rural areas where many urban workers returned home) but not like the rest of the economy. Moreover, the first positive signals can be observed after the changes in agricultural marketing policies. For example, the Agriota platform was established to provide Indian farmers the opportunity to connect directly with food processing companies, traders and wholesalers in the United Arab Emirates. Still, it remains to be seen how the spread of Covid19 in the countryside will affect production. During the past months a record acreage of summer crops was planted.

Awareness for nutrition and food safety

The best way to protect oneself from getting ill, may be by eating well. In India, September will be celebrated as a nutrition month. Prime Minister Modi has said that schools need to have a nutrition card for every child. He also stressed the necessity to create awareness about nutrition. A database will be created to provide information on the nutrition aspects of foods produced in every part of the country.

paneer pack

Also private companies are doing their bit to improve awareness about food safety and hygiene. Mother Dairy, India’s leading milk and milk products major, has announced the introduction of a new campaign - #PaneerPackedHaiTohSafeHai, which encourages consumers to opt for packaged paneer (Indian cheese) over loose paneer options. An increasing appetite for safe, nutritious food means more avenues for Dutch involvement.

Looking ahead

Over the next few months there is expected to be a re-opening of more segments in the economy like hotels, restaurants and office canteens. They are the institutional buyers for commodities like milk, imported food products and many other food items. It is to be seen how long it will take for demand from these organisations to reach pre-Covid19 levels and how agro–food companies will be able to normalise their supply chains. With a normal monsoon season coming to an end, it is to be seen how prices of agriculture commodities will behave as the harvesting season nears. As travel to India is likely to remain difficult for the coming months, the agricultural team will continue to support you in digital ways. For example through a digital innovation mission on climate smart agriculture, development of reports on opportunities in aquaculture, poultry and plant-based proteins, roundtables on food losses and waste, logistics for e-commerce and horticulture, and a digital mission on food processing. Stay tuned for updates and feel free to reach out to with any questions or comments.