A win win for farmer & consumer

Mumbai: The Chairman of Hindustan Lever Limited (HLL), Mr. M.S. Banga, addressing the company’s Annual General Meeting today, presented an action-plan for a ‘Food Revolution’ to sustainably accelerate agricultural growth which, in turn, will regenerate and sustain demand across the economy. With over 70% of the population being dependent on it, agricultural growth has a multiplier effect driving demand across all sectors of the economy and overall GDP growth. He announced that HLL’s modelling had shown that a 3% incremental growth in agriculture will lead to a 2.6% growth in the manufacturing sector, taking overall GDP growth closer to the 8% mark.

Food Revolution

Mr. Banga outlined a strategy which will lead to a significant reduction in prices of food, making food more affordable and thereby increasing consumption. The growth in food consumption in turn will increase farmers’ incomes, the slowdown of which is a key reason for downturn in Indian industry. “We as a country have responded to crises through concerted action born out of national consensus. The success of the Green Revolution and the White Revolution are proof of this. Now, we need a Food Revolution to foster a virtuous cycle of regenerative, broad-based growth,” he said.

Calling it the paradox of Indian agriculture, Mr. Banga pointed out that while godowns were overflowing, about 42% of the rural population and 49% of the urban population received less than the accepted daily calorie intake norm. This is because these consumers cannot afford food at the current prices. Since food consumption has hit a plateau, farmers’ incomes have stagnated, despite rising procurement prices.

Mr. Banga said that the policy framework has so far sought to increase agricultural income by increasing minimum support prices or subsidies. But with food going out of the reach of large sections even at current prices, the only way to increase farmers’ income is to increase consumption of food. HLL’s modelling has demonstrated that if, for example, the price of wheat can be reduced by Rs.2 per kg, consumption will increase by 25% (about 41 million tonnes) among the lower income groups.

Challenge Cost

To reduce costs, Mr. Banga said that agricultural pricing could be guided by HLL’s philosophy of ‘Challenge Cost’, instead of the prevalent cost-plus model. The company first determines what the consumer is willing to pay for the benefits a product offers. It then determines an appropriate margin. The target consumer price less the target margin gives the ‘Challenge Cost’ that HLL achieves through its expertise in R&D, manufacturing and supply chain.

Mr. Banga presented a strategy and action-plan to determine and achieve such ‘Challenge Costs’ in the country’s agriculture. He said that HLL’s modelling had shown that if such a strategy is implemented, the cost of wheat, for example, can come down by Rs.2.50 per kg, If the saving is shared, it will both increase consumption and farmers’ incomes.

Mr. Banga proposed a three-pronged strategy encompassing a) Precision Farming to improve farm productivity within the current land-holding pattern; b) creating a structure to facilitate growth of a vibrant food processing industry and c) identifying various enablers for the model to work.
   Precision Farming: Under Precision Farming, a farmer adjusts farm practices to match the variation of soil and terrain across time and the area of his plot rather than following the current practice of a “one size fits all” approach which manages crops at the lowest common denominator.

  Farmer Service Centre: A close linkage between agriculture and industry should be forged through the establishment of Farmer Service Centres. These would be partnership webs between the farmer and agri-input companies, banks, insurance companies, grain handling and storage companies, and food processors. To be run as a private enterprise, Farmer Service Centres would have an appropriate radius of operation.

  Enablers for the model: The model can be implemented with reorientation of Government policies towards promoting efficiencies and value addition; amendments in the legal framework; rationalisation of fiscal levies; and progressively making packaging of food products mandatory.

The other suggestions, outlined by Mr. Banga include:

Common Indian Market

Movement and storage of foodgrains must be freed, creating a Common Indian Market. A Futures Market should be created for more demand-driven crop planning. The role of agencies like the FCI should be changed to administer the Futures Market and the Common Indian Market, and coordinate exports.

For free movement of agriculture produce and to enable the food processor to directly purchase the farmer’s output, the Market Committee legislation of various States need to be dropped. Forward contracts, backed by assured enforceability, should be permitted so that the processor can enter into a contract even before sowing.

Harmonised laws, single Ministry

Equally essential would be harmonising the various food laws, which often have contradictory requirements, and housing them under a single Ministry. India’s food laws, which restrict innovation, should be brought in line with the widely followed international Codex. It would encourage innovation, without diluting consumer protection in any way, Mr. Banga said.

Rationalisation of fiscal levies

The various taxes and levies imposed on commodities at various stages have a cascading effect on prices, and also hinder free flow of output from the farm to the factory. Mr. Banga suggested that they be replaced with a uniform additional excise duty.

Summing up, Mr. Banga said, “The model I have outlined would increase agricultural productivity, which would in turn increase farm incomes and make food more affordable. Increased farm incomes would drive demand for the rest of the industry and services sectors, leading to a sustainable growth cycle. The creation of a vibrant food processing industry would add further value, generating employment and prosperity.”