By Lutz Goedde, Avinash Goyal, Nitika Nathani, together with Chandrika Rajagopalan
Several megatrends may motility the adjacent moving ridge of growth inwards Indian agriculture. Focusing on a position out of investible themes could heighten farmers' incomes together with transform their character of life. India’s determined pursuit of agricultural self-sufficiency since independence has led the dry soil to get got a high-growth agriculture sector today. Despite this, India’s farmers are non faring likewise good together with alone a tertiary of all agriculture companies posted a turn a profit inwards recent years. The government’s recent shift inwards approach, past times adopting the destination of doubling farmer incomes, is a welcome endeavor to transform the sector. There is reach for agriculture companies together with the authorities to ride emerging megatrends together with successfully endure a constituent of this transformation.
The outlook for Indian agriculture together with farmers
Minimally subject on imports, India’s agriculture sector’s gross domestic product stands at an impressive $262 billion. This is due inwards neat stair out to the agribusiness companies which get got demonstrated higher growth than several other sectors inwards the concluding few decades. Growth inwards the total render to shareholders inwards agriculture inwards the concluding 10 years is 28 percent, an impressive 17 percent higher growth than that earned past times the Indian market.
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Around 33 percent of the agriculture companies get got generated positive economical turn a profit over 2010 to 2015 (Exhibit 1). These companies get got used several strategies to generate value, such every bit de-risking the trouble concern through diversifying geographies, ensuring proximity to customers, together with achieving operational excellence to motility profitability.
Exhibit 1
Recent trends are prompting an increasingly urgent query some the sustainability of value creation inwards the future. The extreme conditions volatility, growing nutrient demand, together with broad gap inwards productivity betwixt Bharat together with its closest peers, together with the withdraw to care nutrient prices together with import pulses to come across demand get got all highlighted that Bharat needs to rethink its approach.
In a pregnant mindset shift, the government’s focus is moving from increasing farm output to improving farmer incomes—it has laid an aspiration to double farmers’ incomes past times 2022. This volition heighten productivity together with get got multiplied effects on the larger ecosystem.
Boosting farmer incomes inwards India
Indian farmers confront multiple challenges, primary with these are excessive stress on land, H2O together with soil health, lack of knowledge/information virtually high value/growth products, express exposure to high productivity practices, weak marketplace position linkages, inefficient furnish chains with high levels of nutrient wastage, together with an needlelike dependence on rainfall.
Increased farmer incomes will:
foster the utilisation of mechanized techniques to efficiently utilisation stressed resources
increase farmers’ cognition of the high productivity practices together with high value production choices available to them
help farmers to meliorate navigate marketplace position inefficiencies rather than settling for lower prices laid past times the middlemen
To increment farmer incomes, Bharat needs to adopt a higher value mix of farm output, capture greater value through meliorate storage together with processing, together with build marketplace position mechanisms to a greater extent than efficient for farm inputs, financing, together with sale of output. Doing this volition require all stakeholders to build bold bets past times edifice partnerships, adopting granular crop together with micro-market approaches, together with developing novel trouble concern models. We justice that such measures could unlock roughly $175 billion of agriculture gross domestic product together with increment farmers’ income past times 85 percent past times 2025 (Exhibit 2).
Exhibit 2
Understanding the megatrends
While pursuing the objective of doubling farmer income, it is of import to hold an oculus on the emerging trends inwards Indian agriculture. These volition piece of work on to shape growth together with volition atomic number 82 towards the themes for transforming the sector:
Additional nutrient demand of some 400 1000000 tons past times 2025: Influenza A virus subtype H5N1 four-fold growth of the Indian oculus degree inwards the concluding decade, combined with urbanization together with higher GDP, get got prompted a higher demand for food. If electrical current trends continue, nutrient demand is probable to grow past times over 2.5 percent year-on-year over the adjacent 10 years (Exhibit 3).
Exhibit 3
Shift inwards consumption toward fruits together with vegetables (F&V) together with pulses:Unlike the consumption of rice or wheat, which is linearly related to GDP, the consumption of F&V together with pulses follows an S-curve relation to gross domestic product (Exhibit 4). Over time, the Indian diet has seen a pregnant shift to higher poly peptide intake. Bharat is entering a hot zone inwards this infinite with projected demand growth at a CAGR of 8 to eleven percent (Exhibit 5).
Exhibit 4
Exhibit 5
Stress on furnish due to scarcity of resources: India’s farm resources similar land, water, together with soil wellness are hugely stressed. More than one-half the dry soil faces H2O stress with withdrawals at xl to lxxx percent of available supply. Similarly, the labor furnish is stressed too; India’s labor marketplace position is making a natural structural transition from farm to non-farm jobs—agricultural jobs declined past times 25 1000000 betwixt 2011 together with 2015, spell non-farm jobs rose past times 33 million. The rise reward for farm labor larn inwards imperative to improve farm productivity through mechanization together with other measures.
Scope to improve yield: Indian crop yields are even thence significantly lower than Asian averages (Exhibit 6). For example, the average rice yield inwards Bharat is 3.6 ton/hectare compared to 6.7 ton/hectare inwards China. This could improve past times at to the lowest degree xl to seventy percent with suitable interventions. If productivity does non improve, the dry soil could neglect to come across the projected nutrient demand for 2025 together with stay subject on imports of rice, pulses, together with F&V. To come across the growing demand for pulses, Bharat volition withdraw to import some xiii 1000000 to 17 1000000 metric tons of pulses past times 2025. Bharat would together with thence constitute a real large per centum of global merchandise volumes inwards pulses.
Exhibit 6
Opportunity to cutting losses inwards the nutrient chain: Around lx percent of nutrient loss together with waste materials inwards Bharat happens betwixt the plain together with the end-consumer, together with this is concentrated inwards a few crops (Exhibit 7)—especially F&V together with cereals. Several challenges restrain mutual coldness chain penetration together with adoption—high cost of stable might supply, depression capacity utilization, together with express financing options. These challenges offering a pregnant chance to improve farmer incomes past times addressing the storage together with handling of nutrient every bit good every bit creating marketplace position linkages to customers.
Exhibit 7
Technological disruption reaching farmers directly: Several companies are using applied scientific discipline to disrupt existing models together with straight achieve farmers. While applied scientific discipline is helping some companies to strengthen their sales force, others are leveraging it to offering agri-advisory services to the farmers. These include providing weather-related information (e.g., Skymet), integrating mandis (e-NAM), offering agronomic advisory services, together with connecting farmers straight to consumers (e.g., farmerfriend.in). These innovations volition forcefulness incumbents to alter their trouble concern models, together with shift the focus to creating value for farmers together with increasing their share-of-wallet.
Successful agricultural transformations: Six center elements of planning together with delivery
Tapping 7 investible opportunities
All these megatrends assist to position 7 investable themes for companies. These could do value together with boost farmer incomes.
Invest inwards F&V together with pulses value chain to come across demand: These investments could unlock some $15 billion to $20 billion past times 2025 together with boost farmer income past times 35 percent. The value chain of volition grow disruptively (Exhibit 8), with demand concentrated inwards half-dozen crops—mango, tomato, potato, pomegranate, onion, together with grapes. By 2025, these half-dozen crops volition trouble concern human relationship for some 65 percent of the incremental make value, through a combination of exports together with nutrient processing (Exhibit 9). In pulses, the demand volition endure driven past times a withdraw for packaged together with branded pulses, fortified pulses, together with the marketplace position for ready-to-eat snacks, which is growing at xx percent CAGR.
Exhibit 8
Exhibit 9
Invest inwards the fast-growing mutual coldness chains together with cold-storage markets: Despite electrical current challenges, this segment is expected to taste pregnant growth on the dorsum of rise nutrient demand, furnish deficits, together with improved marketplace position economics. The mutual coldness chain marketplace position is expected to double inwards size to achieve $7 billion to $9 billion past times 2020 (Exhibit 10). Cold chain players could invest inwards alternate unloose energy technologies similar solar-powered systems, they tin explore chemic treatments to extend the shelf-life of produce, prepare pack houses, together with reefer transport. They could also optimize the utilisation of existing facilities past times opening them upwardly for multiple crops instead of a unmarried crop or product.
Exhibit 10
Establish marketplace position linkages betwixt farmers together with buyers: This volition constitute transparency inwards pricing together with meliorate value, especially for perishable products. It could also assist to increment farmer incomes past times at to the lowest degree 8 to 10 percent. In addition, it volition enable the downstream players to rootage to a greater extent than effectively past times eliminating intermediaries. Farmer–producer organizations (FPOs) are already aggregating furnish together with supporting farmers towards this goal.
Unlock a large chance through digital together with analytics: Digitization together with analytics volition play a critical purpose inwards edifice India’s farms of the futurity (Exhibit 11). Potential disruptions that could unlock value through the nutrient chain are:
precision farming including integrating plain data, conditions patterns to motility agronomic advice to farmers, together with yield forecasting
efficient farm lending with electronic applications, disbursal of loans, insurance payouts linked to weather, plain data, Direct Benefits Transfer inwards agriculture
universal platform integrating farmers together with wholesale markets, to provide timely information for cost realization
supply chain management
IoT-based advanced analytics inwards manufacturing plants to improve availability, throughput, together with relieve costs
commercial excellence inwards micro-markets, pricing together with channel management
Exhibit 11
Invest inwards ecosystem partnerships for disruptive solutions: Influenza A virus subtype H5N1 slew of startups are playing inwards 1 constituent of India’s agriculture value chain to disrupt prevalent trouble concern models. In response, larger players could partner with them or incubate their ain novel businesses. The travail would ultimately resultant inwards innovative solutions for farmers.
Enter the agriculture services market: Rising wages, growing awareness of farm mechanization, together with easier credit lending to farmers volition all boost the marketplace position for a shared farm-economy. There is potential to do a marketplace for equipment rentals. Given the small-scale together with scattered dry soil asset patterns inwards Indian agriculture, the services marketplace position is fountain to increment inwards the years to come. Such agriculture services volition increment the adoption of farm mechanization, which inwards plough could increment farmer income past times some v percent.
Offer agriculture financing together with crop insurance to strengthen the ecosystem:
Invest inwards end-to-end value chains, peculiarly inwards F&V together with pulses, where demand is expected to grow disruptively.
Provide innovative equipment-financing models to farmers through partnerships with manufacturers, conditions forecast agencies, together with digital partners.
Offer slowly financing for FPOs for community infrastructure for storage together with transportation.
Create digital ecosystems for financing together with crop insurance.
The government’s pivotal role
The authorities tin piece of work on to back upwardly businesses to do value inwards the agriculture sector. In particular, it could enable the shift towards improving farmer incomes through a focus on half-dozen crucial areas:
Modernization of farm production, agriculture input markets, storage, together with marketplace position access to serve local, national, together with export demand
Enable portfolio shift towards high value crops through differentiated value chain strategies
Shift inwards focus from primary production towards processing together with retail
Increase inwards dry soil together with labor productivity inwards agriculture
Greater private-sector engagement
Concrete projects together with well-defined performance indicators to runway transformation together with collaboration betwixt stakeholders.
An incremental agricultural gross domestic product of some $175 billion could assist almost double the farmers’ income inwards the adjacent 7 to 8 years (Exhibit 12). This volition require all stakeholders to tap emerging opportunities. Understanding electrical current megatrends inwards this context tin assist to nautical chart a clear course of report of activity towards achieving these aspirations.
Exhibit 12
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About the author(s)Lutz Goedde is a senior partner inwards McKinsey’s Denver office, Avinash Goyal together with Chandrika Rajagopalan are partners inwards the Bombay office, together with Nitika Nathani is a consultant inwards the Delhi office.
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