Analyzing the Complex Interconnections of India's Wheat Value Chain

The wheat crop has tremendous importance in ensuring food and nutritional security in the nation. The value chain of wheat is complex and is intermingled with various issues. Given the crucial importance of the wheat crop, there is a need to study the value chain of wheat in India and identify the core actors, processes involved, and the major constraints faced at various stages of the wheat value chain.

The most common challenges faced by the wheat sector include water quantity and quality issues; Inappropriate and excessive use of pesticides and fertilizers; Biodiversity depletion; Inadequate primary processing facilities; lack of storage and transportation infrastructure; Lack of access to the market information system; Price volatility and market uncertainty; Low incomes realized by the smallholder farmers. The article also tries to highlight the strengths, weaknesses, opportunities, and threats for the wheat value chain and suggests some strategies to overcome the identified issues and strengthen the wheat value chain.

Introduction

Indian economy is majorly based on agriculture, which is also helpful in promoting inclusive growth, enhancing the livelihood of farmers, and national food security. In order to enhance the income of farmers and other stakeholders, value chain analysis is gaining importance in present times. The concept of value chain was pioneered by Michael Porter in his book ‘Competitive Advantage: Creating and Sustaining Superior Performance’ (Porter, 1985). Kaplinsky and Morris (2000) defined value chain as the full range of activities required to bring a product or service from conception, through the various phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers and final disposal after use.

Actors of the Value Chain

The value chain comprises the stakeholders and their collective actions including input and support services for the production, marketing, and distribution of the product till it reaches the final consumer under an enabling environment like research institutions, policies, etc. It includes all the input suppliers, producers, traders, transporters, processors, wholesalers, retailers, and buyers supported by a range of technical, business, and financial service providers. Value chain analysis is vital to get an understanding of the farmer practices in production methods, commodity linkage to markets, and critical constraints that limit productivity and farm efficiency. The role of extension personnel and development functionaries in strengthening the value chain and realizing the potential of a commodity; deserves special mention.

Wheat Value Chain

Wheat is an important cereal crop in India, which has great potential to ensure food and nutritional security among the masses of a country. This crop has a 36 percent share of the total food grains produced from India (Sharma and Sendhil, 2015). India stands 2^nd after China in the world in wheat production. In 2017-18, it was grown in 29.58 million hectares area, and the production was 99.7 million tonnes which was 12.91 percent of the total world production (DAC&FW, 2018). India is a big exporter of wheat; in 2014-15, of the 90.8 million tonnes of wheat produced in the country, 28 million tonnes were procured for the central pool, and 29 million tonnes were exported (DAC&FW, 2018).

Wheat value chain is an economic unit of analysis of a specific commodity (e.g. Wheat) that encompasses a meaningful grouping of economic activities that are linked vertically by market relationships. Mainly it includes the linkage between input supply, production, aggregation, transport, storage, processing, wholesaling, retailing, and utilization, along with the export of products destined for international markets.

Core Actors of the Wheat Value Chain

The major actors in the wheat value chains include input suppliers (manufacturers, input wholesalers and input retailers), cultivators, a large number of intermediaries (collectors, traders, commission agents, and brokers), wholesalers, processors and retailers.

1. Input Suppliers:

Input suppliers comprise of major chemical companies, government distributors, agricultural implements and farm machinery companies, input wholesalers/retailers, all those who manufacture or sell seeds, fertilizers, bio-fertilizers, plant protection chemicals, insecticides, pesticides and farm implement to farmers at the village level. The seed varieties are developed by government agencies like ICAR Research Institutions, National Research Centres, National Seeds Corporation (NSC), State Agricultural Universities, State Departments of Agriculture, State Farms Corporation of India (SFCI), State Seeds Corporations (SSCs), Krishi Vigyan Kendras (KVKs). They are also developed by private seed companies such as KRIBHCO, MAHYCO, Syngenta India Ltd., Monsanto, Pioneer, Bayer Crop Science, Namdhari Seeds (P) Ltd, Rallis India Ltd, etc. Farmers also take up seed production on their fields. The requirement and availability of certified/ quality seeds of wheat over the years have been shown in Table 1. Fertilizers widely used in the production of wheat are urea, DAP, Muriate of Potash (MOP), and micro-nutrients such as zinc and sulphur. The government sells subsidized fertilisers through government cooperative societies and the Indian Farmers Fertilizer Cooperative (IFFCO).

Table 1. Requirement and availability of Certified/ Quality seeds of wheat (in lakh quintals)

Source: Department of Agriculture, Cooperation & Farmers Welfare, 2018

1. Cultivators

The farmers generally practice rice-wheat cropping system for years rather than alternating with other crops such as pulses, oilseeds, or vegetables. The cost of production for wheat varies widely from Rs 8,800/acre to Rs 15,200/acre. 

1. Collectors/Traders

Aggregators consist of small collectors and large traders who deal in quantities ranging from 10 kgs to 10 tons. A farmer brings a sample of product to the market, or a collector travels to the farm to arrange a sale before harvest. Collectors/Traders check the quality of the product for grain size and damage and offer price accordingly. Traders sell the produce to millers or mandi wholesalers or retailers.

1. Brokers

Brokers or commission agents arrange deals between various players of the value chain, for example, between traders and millers and between millers and wholesalers. The primary difference between brokers and traders is that brokers occasionally, if ever, take physical possession of the produce. Brokers play different roles like ensuring payment and delivery, acting as a layer of trust between actors who are unaware of each other, triangulating price information and reaching distant and lucrative markets throughout the nation.

1. Wholesalers

Wholesalers operate through mandis through licensed traders or commission agents. They buy directly from farmers or collectors/traders and sell grain to millers and retailers. The buying and selling happen through the Agriculture Produce Marketing Committee (APMC) which is established in every state or in every major producing region by the Government.

1. Processors

Wheat is mainly processed into four products: bread flour (atta), cake flour (maida), semolina (suji), and bran. The by-products- wheat husk and bran cake can be used as animal feed. Millers pay the price for the produce by checking the quality for moisture content, percentage of foreign matter content, and pest damage (empty grains). Processed flour is used by food manufacturers heavily in producing wheat-based products such as biscuits, cakes, pastries, breakfast cereals, snacks, or bakery products (bread, semolina, pasta, cookies).

1. Retailers

ITC, a major Indian retailer of food products, procures wheat directly from farmers. ITC processes wheat into flour and markets it under the brand name of Ashirwad. Big Bazaar, Hindustan Unilever, Godrej- Pillsbury are some other major Indian retailers that sell different types of wheat products. Small and big restaurants like McDonald’s, Pizza Hut, KFC, Starbucks, and Subway are heavy users of wheat-based products. Retailers are sensitive to external pressures and have to be responsive towards market trends and consumer preferences. They indirectly influence the production practices and supplier standards and thus, play a major role within the wheat value chain.

Support Services

Support services are those services that assist in providing an enabling environment and enhance the operational efficiency of the different processes and the value chain as a whole. A representative diagram of various support services or the business development services available at different stages of the value chain has been represented in Figure 1. The following are some of them:

• Production services (input supply, research and development of high-quality genetic material, soil fertilizers and water testing services, weather forecast, farm machinery services on rent, public and private extension and advisory services)
• Infrastructural services (water supply, electricity supply, storage infrastructure, roads, and transportation, communication, marketplace, development)
• Marketing and business skills (market information, market intelligence, facilitation of farm-market linkages, mobilization of farmer groups and support for collective marketing)
• Financial services (credit, low-interest rates on agricultural loans, savings, risk insurance)
• Policy and regulatory services (property rights, market, and trade regulations, minimum support price mechanism, Subsidy on fertilisers, irrigation, equipment, seeds, export, investment incentives, legal services, taxation)

Fig. 1: Services at different stages of the value chain

Value Chain Mapping

It refers to the pictorial representation of the value chain structure showcasing the entire information on a particular commodity, including the core process, followed by core actors involved and then the core functions carried out by them, with an objective to strengthen or promote the existing value chain. Figure 2 portrays the value chain map of wheat.

Major constraints

The major constraints observed in the wheat value chain are categorized under different categories, i.e. Production-related constraints, Post-harvest-related constraints and Processing, and market infrastructure-related constraints.

1. Production-related constraints:

A large majority of wheat cultivation is being done by small and marginal farmers. Since smaller landholdings are either fragments of larger holdings that have been passed on within the family or have been informally leased by a large holder, farmers who cultivate these holdings often do not have a formal lease agreement.  The absence of such land records does not allow these farmers to access formal credit or be eligible for government benefits such as input subsidies or crop insurance schemes (RBI, 2015). The number of marginal landholdings increased from 36 million in 1971 to 93 million in 2011, as found in Table 2. This is mainly due to the fragmentation of farmland owing to the nuclear family system and the decline in cultivable areas due to urbanization. The NSSO survey reports state that the average operational holding in India has reduced from 1.16 ha in 2010–2011 to 1.08 ha in 2015-16, as shown in Table 3.  Marginal and small landholdings face a number of issues, such as problems with using mechanization and irrigation techniques.

Table 2. Distribution of landholdings in India

Note: Marginal: <1 hectare, Small: 1-2 hectares, Medium: 2-10 hectares, Large: > 10 hectares

Source: Agriculture Census, 2011

Table 3. Average operational holdings in rural India

Source: NSS Report, 2016

Support Services

Support services are those services that assist in providing an enabling environment and enhance the operational efficiency of the different processes and the value chain as a whole. A representative diagram of various support services or business development services available at different stages of the value chain has been represented in Figure 1. The following are some of them:

• Production services (input supply, research and development of high-quality genetic material, soil, and water testing services, weather forecast, farm machinery services on rent, public and private extension and advisory services)
• Infrastructural services (water supply, electricity supply, storage infrastructure, roads and transportation, communication, marketplace development)
• Marketing and business skills (market information, market intelligence, facilitation of farm-market linkages, mobilization of farmer groups, and support for collective marketing)
• Financial services (credit, low-interest rates on agricultural loans, savings, risk insurance)
• Policy and regulatory services (property rights, market, and trade regulations, minimum support price mechanism, Subsidy on fertilizers, irrigation, equipment, seeds, export, investment incentives, legal services, taxation)

Fig. 1: Services at different stages of the value chain

Value Chain Mapping

It refers to the pictorial representation of the value chain structure showcasing the entire information on a particular commodity, including the core process, followed by core actors involved and then the core functions carried out by them, with an objective to strengthen or promote the existing value chain. Figure 2 portrays the value chain map of wheat.

Major constraints

The major constraints observed in the wheat value chain are categorised under different categories, i.e. Production-related constraints, Post-Harvest related constraints, and Processing and market infrastructure-related constraints.

1. Production-related constraints:

A large majority of wheat cultivation is being done by small and marginal farmers. Since smaller landholdings are either fragments of larger holdings that have been passed on within the family or have been informally leased by a large holder, farmers who cultivate these holdings often do not have a formal lease agreement.  The absence of such land records does not allow these farmers to access formal credit or be eligible for government benefits such as input subsidies or crop insurance schemes (RBI, 2015). The number of marginal landholdings increased from 36 million in 1971 to 93 million in 2011, as found in Table 2. This is mainly due to the fragmentation of farmland owing to the nuclear family system and the decline in cultivable areas due to urbanization. The NSSO survey reports state that the average operational holding in India has reduced from 1.16 ha in 2010–2011 to 1.08 ha in 2015-16, as shown in Table 3.  Marginal and small landholdings face a number of issues, such as problems with using mechanization and irrigation techniques.

Table 2. Distribution of landholdings in India

Note: Marginal: <1 hectare, Small: 1-2 hectares, Medium: 2-10 hectares, Large: > 10 hectares

Source: Agriculture Census, 2011

Table 3. Average operational holdings in rural India

Source: NSS Report, 2016

Wheat is a heavy water-consuming crop, which can cause groundwater depletion, thus leading to water scarcity. It takes on an average of 1500 litres of water to produce one kg of wheat. The cost of watering is almost one-third of the total cost of production and hence it is finding competition from less water-consuming cash crops like mustard, pulses, and barley. There is a lack of standard training and extension services regarding cultivation, proper land and water management, soil testing, and crop rotation. The use of fertilizers has increased in recent years, which contributes to negative effects like soil health depletion, greenhouse gas emissions, loss of biodiversity. The Economic Survey 2015-16 noted that the use of pesticides without proper guidelines has led to an increase in pesticide residue being found in food products in India. Excessive fertilizer application along with poor irrigation practices can lead to nutrient pollution. Farmers are lacking in knowledge about the plant protection chemicals that are safe or banned from use. Farmers lack knowledge about crop insurance schemes and very few insure their crop. The total wheat area insured under all insurance schemes has been shown in Table 4.

Table 4. Area insured under all Insurance Schemes (in lakh hectares)

Source: Department of Agriculture, Cooperation & Farmers Welfare, 2018.

Area under cultivation has reached its maximum potential and there is very little scope for growth. This might be due to the lack of access to quality seeds and inadequate research support. About 30-35 per cent of the total seeds available are produced by private and public sector companies, and farm-bredThe area seeds account for the remaining seeds (Economic Survey, 2015-16). While high-yielding varieties of seeds should be used by the farmers for higher yield and better-quality produce the cost of these seeds is too high for marginal and small farmers to afford, thus discouraging them from purchasing these varieties.

Climatic variability is also a major production constraint. In India, a significant part of the wheat area is under heat stress, like Gangetic plains and central and peninsular India (Joshi et al., 2007). It has been predicted that with every rise of 1°C temperature in India, wheat production will decrease by 4–6 million tonnes. With every 2–3.5°C rise in temperature, the rainfed wheat will experience a reduction in yield with a 9–25 percent profit loss (Aggarwal et al., 2009).

1. Post-Harvest related constraints:

There is a dearth of knowledge among smallholder farmers about the post-harvest practices. Non-availability of cleaning facility or storage facility near production centres, wastage during storage (estimated at 20-30 per cent) and transportation due to moisture and insect infestation, quality deterioration are some of the major post-harvest constraints. Processing of wheat needs high volumes, requires various licenses for processing and marketing and hence is out of reach of farmers/farmer institutions. However, with the direct involvement of companies like ITC, farmers can sell their produce directly to ITC with a higher margin after primary sorting and grading. Currently, there is lack of primary sorting and grading infrastructure at community level which forces the farmers to sell semi-graded produce to traders who later on sell it at a higher margin after doing sorting, grading and cleaning.

2. Marketing constraints:

a) Lack of market intelligence services:

Farmers do not receive adequate information on market prices. Farmers sell crops through village-level traders or through the MSP system but feel that they do not get a fair price for their produce. It was found that only 10 percent of farmers were aware of MSPs before the sowing season and 62 percent of the farmers came to know of MSPs after sowing their crops (NITI Aayog, 2016).  The pricing policy of MSPs would be useful only when the farmers are aware of it at the time of deciding what crops to grow. Farmers, many times are completely unaware of the quality grades and standards. The mandi system does not offer higher prices to farmers for higher-quality produce as alternative market channels would, such as direct supply to supermarkets. Over the past few years, the share of wheat exports has reduced from 1.9 percent in 2013-14 to 0.8 percent in 2015-16 (DAC&FW, 2016).

b) Lack of primary processing infrastructure:

   Non-availability of primary processing facilities like cleaning, grading, and sorting at the farm level, severely affects the quality of the produce and thereby fetches low market price. Farmers also lack awareness about the FAQ (Fair Average Quality) standards laid out by the Government every year before the start of the procurement season.

c) Distant markets:

Due to the distance of APMC from the farmers’ field, they resort to selling the produce to traders at non-competitive prices. Poor transportation infrastructure also increases the difficulty in transporting huge quantities of grain from the farm locations.

d) Seasonal price variations:

Generally, during the harvesting period, prices are on the lower side and reach their highest after 5-6 months of harvesting. However, farmers resort to distress selling as they need cash to meet out their household expenses. They might get a higher price for the same produce if they can hold the stock for 2-3 months more. It is a seasonal business, so it witnesses high concentration and competition during a short period.

e) Malpractices in markets:

Many malpractices prevail in the wheat markets like delay in weighing and auction, faulty weighing, delay in payment, high commission charges, different kinds of arbitrary deductions for religious and charitable purposes, cumbersome bureaucratic procedures, corruption, etc. A large number of traders, commission agents, suppliers, and other middlemen make the price discovery mechanism more notorious and opaque.

f) Infrastructure facilities:

Due to inadequate infrastructural facilities (roads, transportation, procurement platform, storage) available to the producers, traders, millers, and at the market level, marketing efficiency is affected adversely. Some of the issues with the state of storage facilities in the country are inadequate capacity and poor conditions of storage (CAG, 2015). Inconsistent electricity supply is also a major problem at the level of farmers and millers.

g) Weak Horizontal Linkages:

Although in some places, farmers' clubs have been formed it is limited only to sharing labour and for collective use of irrigation equipment they do not undertake collective trading and marketing, because of a lack of trust. This is the reason they do not achieve economies of scale.

SWOT Analysis of the Wheat Value Chain

Strengths

Wheat is the main cereal crop in India and the staple food in North India

India is the second largest producer of wheat in the world after China and accounts for 8.7 percent of the world’s total wheat production

Huge scope of value addition – atta (flour), maida (white flour), suji (coarse semolina), rawa (fine semolina), vermicelli and noodles

Increased consumption of wheat-based products- wheat flour, bread, cookies, cakes, frozen doughs, and frozen baked foods among the Indian population

Diverse end products and their integral role in supplementing food and nutritional security

Varietal cafeteria for diverse wheat-producing zones found in the nation

Weaknesses

High water demanding crops and lack of sufficient irrigation at critical growth stages can adversely impact yield

Increasing cost of cultivation due to increased use of fertilizers and chemicals

Inadequate sorting, and grading facility near the production site fetched low price for the farmers

Significant post-harvest loss due to inefficient post-harvest handling practices

Lack of appropriate storage facilities near production centres for storing around the year

Opportunities

There is scope of increasing yields and incomes through improved knowledge of planting and cultivation techniques and post-harvest handling practices

Formation of farmer groups or Farmer Producer Companies to undertake collective input sourcing activities for seeds, fertilizers, pesticides, etc.

Establishing cleaning, sorting, grading facility through Farm Community Service Centres (FCSCs) at a common point for primary processing of the produce

Establish storage facilities on behalf of FCSCs

Custom hiring services can be undertaken by FCSCs and hence farm mechanization will get a boost

Scope for facilitation of agri-enterprises by the rural youth in wheat like fortified flour, baked products, wheat flakes etc.

Tie up of the farmers or farmer groups with retail giants like Aashirvad, Patanjali, Kellogs, etc.

Threats

Facing stiff competition from less water intensive crops like pulses, barley, cash crops

The crop is very vulnerable to the climate variability effects

Increasing competition for agricultural land due to urbanisation

Strategies for Strengthening the Wheat Value Chain

Strategies to be followed by the Government

Ensure timely availability of critical inputs like quality seeds, fertilizers, and irrigation at affordable prices

Increased spending on Research and development activities to develop climate-resilient and high-yielding hybrids and improved production technologies

Employ a greater number of efficient extension personnel who serve as change agents among the farmers and help in the transfer of technology

Farmer groups to be encouraged and facilitated to explore alternative marketing channels to supply directly to large retailers

Need for reorientation in Government price and procurement policy (devise a fair price system benefiting both producers and consumers, a deficient payment system for producers for the difference between the market and procurement price and cash transfers to producers under colossal loss, revamped public distribution systems) (Ramadas et al., 2019)

Ensure hassle-free and timely availability of rural financial services, particularly savings mobilization, linked to a credit facility

Encourage payment to farmers through the direct benefit transfer system, through bank accounts linked to their Aadhaar numbers

Devise strict systems to monitor produce quality as per the grades and specifications of international market and reward the farmers accordingly with premium prices

Strategies to be followed by farmers and facilitated by Extension Personnel

Training of farmers to impart knowledge of production and post-harvest management practices and skill development of the rural labour force

Better crop rotation regimes with leguminous crops like pulses to increase soil fertility

Integrated nutrient management after undertaking proper soil testing

Spread knowledge about the proper use of fertilizers, pesticides and storage chemicals

Promotion of resource conservation technologies like Conservation agriculture practices (Zero tillage of wheat)

Integrated management of pests and diseases through a proper mix of mechanical methods, biological control agents, bio-pesticides, etc.

Information on how to build on-farm storage structures and improve storage by incorporating local remedies and appropriate technologies

Insurance as an adaptation strategy for risk management

Participatory seed production

Modern extension strategies to disseminate technological interventions like cluster Front Line Demonstrations (FLDs) at farmer’s field, Participatory technology demonstrations

Focus on the quality grades and standards as per the market trends to fetch premium price for their produce

Establish strong vertical linkages between producer groups with traders and millers to enhance the bargaining power and achieve economies of scale for farmers

Use of ICT tools to fetch market information, consumer preferences and explore better market opportunities, for example, ITC’s e-Choupal and IFFCO’s Kissan Sanchar

Explore opportunities like e-NAM for realizing remunerative price for produce

Capacity building of the farmers as farm managers to view agriculture not as a profession but as a business, including detailed record-keeping, cost controls, and analytic tools that result in improved economic performance

Conclusion

Overall, understanding and analysing the existing value chain helps to identify the weak and strong linkages between the stakeholders involved. It will thus help in devising a plan, suggesting where to intervene by identifying the leverage points so as to enhance the overall efficiency and performance of the value chain. Strengthening of existing value chain needs a holistic multi-stakeholder process and a synergistic approach amongst the research-extension-policy institutions is the need of the hour to achieve the desired level of production and secure better social and economic impacts. Further, valand ue chain analysis helps to prioritize research and enhances the income of the value chain actors.