India: Supply Chains During a Health Crisis

02 Apr, 2020    ·   5673

Dr Shoumitro Chatterjee looks at how India can address supply-chain bottlenecks in agriculture as COVID-19 unfolds

One silver lining for India during the current pandemic is that there is no aggregate food shortage in the near-term. The stocks of the Food Corporation of India (FCI) are almost three times the buffer stock. Therefore, although India does not face a “supply crisis,” it might face a “supply chain” crisis as it figures out how to move food from one part of the country to another. In the last week, the retail prices of perishables like tomatoes and onions have spiked by about 25-30 per cent. How can India swiftly address these supply-chain bottlenecks in agriculture?

First, administrative barriers to food movements across all political boundaries need to be removed. By-and-large India has not faced local price shocks in recent years. This is due, in large extent, to marked improvements in rural road and highway infrastructure in the last two decades. However, recent episodes of state border closures and excessive policing undermine free movement, making the country more vulnerable to local price shocks. The central government must coordinate with the states to facilitate the movement of all essential goods such as food across the country.

Second, the government will need to waive the multiple embedded statutes that force agriculture trade and procurement through official agricultural markets or Agricultural Produce Market Committee (AMPC) mandis. State governments should waive any state or mandi taxes until this crisis is over. This will remove bureaucratic hurdles, especially at state borders, and ensure that physical congestion, the antithesis of social distancing, does not occur.

The congregation of people, especially during peak marketing season, can risk mandis becoming a hotspot of virus transmission. Ensuring social distancing protocols within mandis will be a severe challenge. Since agriculture marketing practices vary significantly across states, even for commodities that are procured by public authorities, governments should encourage all decentralised approaches that encourage sales at the farmgate as much as possible, with the help of Farmer Producer Organisations (FPOs), Self-Help Groups (SHGs), co-operatives, arthiyas, etc.

As India moves to off-mandi sales, it is important to remember that the mandi performs two essential functions. One, it serves as a node for information exchange. This is where farmers meet, learn about prices, and aggregate market conditions. Information about market prices is the basis of the bargaining power of farmers. If farmers do not know the market value of their produce, they do not have an anchor to bargain on. The state agricultural departments should, therefore, push daily information on local market prices of commodities to all cellphones via SMS or WhatsApp.

Mandis also serve as a site for benchmarking product quality. Market intermediaries often underpay farmers (below market prices) by making deductions based on the quality of their produce—shape, size, dust content, and extent of damage. In the absence of any benchmark, farmers have to accept what intermediaries offer. Thus, there is a need to quickly innovate on transparent sampling at the village level in a way that ensures sanitisation, safe handling, and reduced contact. For this, moisture meters could be provided to villages for collective use. Visual sampling can be done using images taken on smartphones. In the medium-term, the government can also explore artificial intelligence (AI)-based detection. Such software, for example, by IntelloLabs of Gurgaon, is being used in India, albeit on a small-scale.

Third, changes in procurement must be accompanied by changes in payment systems. State governments need to ensure that payments are made on time. This writer’s research shows that a delay of six months in payment, even in Punjab, is commonplace. Timely payment will ensure the flow of credit in the supply chain and assure rural consumption. Some states require documentation to prove that the farmer is a resident of their state before they can sell and impose limits on how much they can sell. All such procedures need to be waived, with an emphasis on facilitating quicker transactions with minimal contact. It is possible that the country could end up with excessive procurement, but that can be off-loaded in the global market, which is likely to see a shortage amidst this crisis, later.

Fourth, the government must ensure adequate supply of credit for the farming sector. The agricultural supply chain functions on credit rotation. Moreover, this will leave farmers exposed to local money lenders who are likely to charge exorbitant rates. Anantha Nageswaran and Gulzar Natarajan, among others, have argued that there needs to be debt forbearance, interest-free loans for a year to small and medium-sized enterprises (SMEs), and advance market commitments (AMCs). Similar policies are required in the agricultural sector. A more extended moratorium on payment of agricultural loans, extending the credit on Kisan Credit Cards to those farmers who haven’t excessively defaulted in the past, and ensuring a credit line to co-operatives who finance the input costs of many farmers, is worth considering. Based on past data, advance Direct Benefit Transfer (DBT) payments can be made for input purchase; and if needed later in the year, advance payments can be made for Kharif procurements.

Fifth, as a result of the mass exodus of migrant labour following the 21-day national lockdown, rural labor wage rates will increase. This will be especially true in the key agricultural states of Punjab and Haryana. A major impact will be seen on the cost of procurement, as labour that performed the key tasks not only of harvesting but also of loading, unloading, cleaning, grading, and sorting of crops is now scarce. The government will have to bear this cost—otherwise farmers could just dump their produce.

Admittedly, these measures will not benefit each and every farmer. Unlike Jandhan Aadhar and Mobile Money, which have a much wider coverage, digital infrastructure in the agriculture sector lags behind. Not everyone has a Kisan Credit Card, and the landless are not covered under PM-Kisan. But, given the scale and intensity of the crisis, and the need to act rapidly, the best should not become the enemy of the good. And if this works, it will provide a guide path for the next generation of reforms in agriculture markets.


Dr Shoumitro Chatterjee is an Assistant Professor of Economics at the Pennsylvania State University, US.