Biggest bottleneck in the upliftment of India farmers

Times of India's editorial asks a great question today:

Why does the hard-working Indian farmer — one of the world’s lowest-cost producers — is unable to compete globally.

For example, India is one of the world’s biggest producers of horticultural products; it grows nearly 11 per cent of all the world’s vegetables and 15 per cent of all fruit. And India’s production costs are less than half of those in other parts of the world.

But, despite being a large, low-cost producer, India’s share in the global market is insignificant — it accounts for only 1.7 per cent of the global trade in vegetables and 0.5 per cent in fruits.

A recent world bank study cites three reasons:

1. The biggest reason is the broken and inefficient supply chain we have. The high costs of getting agricultural produce from farm to market erode any advantage the Indian farmer enjoys by virtue of being a cheap producer. For example, it costs three times more to transport grapes from India to the Netherlands than it does from Chile to the Netherlands, although Chile is twice as far from the destination as India is. I am hoping with the new retail chains like Reliance Fresh, we will now start seeing some private investments in the creation of a supply chain.
2. Quality Control and Quality Assessment Methods are lower in India - a concern costantly raised by foreign consumers. The concerns voiced by foreign consumers today will be the concerns raised by domestic consumers tomorrow and players will have to adopt to this. We are already seeing leading players seize the initiative here. Haldiram already has some of the cleanest and high quality facilities in India now.
3. The third reason is the protection mechanisms from foreign regimes. There is no easy solution to it but WTO negotiations are a step in the right direction.

Remedying bottlenecks from farm to market is arguably a higher priority than raising farm productivity. Consider this: 20 per cent higher yields will only lower the final price by less than three percentage points.

In contrast, a 20 per cent reduction in transportation costs alone will reduce final prices by as much as 10 percentage points.

In fact, without more efficient logistics, increasing production — through subsidised credit, power and fertilisers — can lead to gluts that hurt rather than help farmers. Radical reform in services is also necessary.

Providing farmers better access to services — from transportation to distribution — will enhance the economic gains from, and strengthen the political case for, agricultural trade liberalisation.

A willingness to reform its own trade regime — which in any case subsidises the inefficient intermediary more than the farmer — will enable India to take a more forceful position in the WTO negotiations.

It can then more effectively secure not just lower levels of foreign protection, but also greater transparency, simplicity, and predictability in foreign trade regimes.