The Agricultural Economy Growth of the 21st Century

Agriculture plays a crucial role in the 21^st century economy of developing countries, and provides the main source of food and inclusive economic growth in India and other developing countries. According to the 2011 census about nearly 60% of India’s labor force is employed in agriculture. The majority (~80% in 2006) of small scale landholdings and farms less than two hectares occupied 40% of India’s agricultural land [1].

The India has been achieved impressive growth in agricultural production, boosting national food security and reducing poverty after independence [2]. But the agricultural sector still faces crucial challenges. Growth in agricultural production continues to lag behind the targeted 4%, poverty and malnutrition remain widespread.

Figure 1. Small scale agriculture lands in Karagoor, Dharmapuri, Tamil Nadu, India. Image credit to SNB team.

Agricultural Finance (AF):

AF is crucial to support the growth of the agricultural sector. The five important key research areas presented in the AF:

Understanding demand of smallholder households.
Digital financial services.
Financing for women in the agricultural sector.
Value chain finance.
Agricultural insurance.

The above five key research areas of emphasis each will examine the innovations and trends, with the first three looking at the needs and opportunities for small farmers and women and ways in improve their inclusion into the financial system.

The fourth area presents an approach and innovative tools for effective agricultural lending and market inclusion, and the fifth area focuses on innovations in using agricultural insurance as a tool to address one of the most important risks that inhibit agricultural finance, especially for smallholder households.

Fourteen years ago, Byerlee and Pal (2006) point outed; the focus of agricultural research in India has widened and become more complex [3]. The research system now struggles with the need to incorporate following issues: sustainable management of natural resources, food quality and safety, household food and nutritional security, and poverty reduction.

Notwithstanding the rising trend in government funding for Agricultural Research and Development (R&D), more resources will be needed for growing population.

Agriculture economy in global context

India, China, and Brazil have become major forces in the global agricultural economy. Therefore, it is useful to compare Indian agricultural R&D investment trends with those in these two other emerging economies [4]. China spending almost doubled during the same period. Brazil has one of the most well established and well-funded research systems in the developing world, although the spending levels there have been fluctuated over the past two decades. Rapid growth, particularly in China, has meant that investments by the three countries combined and accounted for at least half of the developing world’s total public investment in agricultural R&D in 2000 [5].

Digital Financial Services (DFS): Developments in Serving Smallholder Farmers

The DFS through mobile channels offers a great promise for improving the lives of smallholders and their families, significant challenges remain.

(a) Agriculture credit: It is relatively of rare drawn from financial institutions. The cost of assessment of the client risks and transactions costs of providing loans by conventional means is too high for most financial institutions.

(b) Insurance: It can reduce the negative impacts of crop failure and livestock illness. It may also improve a farmer’s ability to access credit and willingness to invest in labor and inputs. There is a need to better understand the impact of insurance for product design and how best to target support.

(c) Payments: There is a fast-growing trend in mobile money transfers.

(d) Regulation and Protection Considerations: The role of digital innovation in agriculture and finance is critical and opens many opportunities. DFS for smallholders have raised many of questions for policy makers and regulators.

Financing assist to Women in the Agricultural Sector

Women face some unique challenges for get financing support. Their roles in economic and financial contributions are often invisible. As such, women have lower access to economic and financial services (World Bank 2015).

Three main factors are identified, induce the challenges for women in agriculture field. (i) Women often have limited control and ownership over large assets such as land. (ii) They also lack the ability to post hard collateral for loans. (iii) The literature points out those women have limited opportunities to develop human and social capital. These unique challenges make access to finance a much bigger challenge for women compared to men in the agricultural sector.

The new opportunities to offer financial services to female clients to grow their businesses and purchase additional products for their households, such as establishing savings accounts, buying insurance products and pension annuities, among others. In this regard, some of the financial institutions perceive women as valuable and profitable clients. In this context, it is very important for most of the agriculture research institutions to fully understand women’s needs and preferences and to strategically target them.

Closing financing gap for women requires a call to action by policy makers, the private sector, and civil society to prioritize, advocate, and devise solutions for reducing and eventually closing the gender gap in access to finance in the agricultural sector. Promote women’s legal, economic, political, social and cultural rights.

Emerging Trends in Financing Agricultural Value Chains (VC):

Some trends have significant influence on emerging market economies. These are fundamentally altering the way in which agribusiness cooperates with the financial sector including: value addition, the emergence of supermarkets, and agro-industries emerging as a major source of income and livelihood development.

Our SNB team recommended this research article to help the reader to know about that VC are ever more important to the understanding of agricultural markets. Producers that are left out of value chains run the risk of being marginalized in terms of prices and market integration. In addition to these cash requirements, chain actors closer to primary producers often do not have sufficient own liquidity and need financial backing by the wholesale buyers, processors and chain actors closer to the end consumer. Commitment, governance and standards are essential at all levels; the functioning of the agricultural VC finance system has to be understood by farmers, financial service providers, and policy makers.

References

GoI (Government of India). Agricultural Statistics at a Glance. New Delhi (2011).
S. Fan, A. Gulati, and S. Thorat. “Investment, Subsidies, and Pro-poor Growth in Rural India.” Agricultural Economics, 39, 163 (2008).
S. Pal, and D. Byerlee, The Funding and Organization of Agricultural Research in India, Evolution and Emerging Policy Issues. In Agricultural R&D Policy in The Developing World: Too Little Too Late? (2006).
S. Pal, M. Rahija, and N. Beintema, India Recent Developments In Agricultural Research, Agricultural Science and Technology Indicators (ASTI) initiative (2012).
N. Beintema, and G. J. Stads. Public agricultural R&D investments and capacities in developing countries: Recent evidence for 2000 and beyond. Background note for the Global Conference on Agricultural Research for Development, Montpellier, France, March 28–31, (2010).

Blog Written By

Dr. A. S. Ganeshraja

National College, Tiruchirappalli

Tamil Nadu, India

Author Profile

Editors

Dr. S. Chandrasekar

Dr. K. Rajkumar

Reviewers

Dr. Y. Sasikumar

Dr. S. Thirumurugan

Dr. K. Vaithinathan

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