Indian farmers are still largely disconnected from the agricultural commodity value chains except for a few selected commodities such as sugarcane, milk, fruits, etc. mostly through farmers’ collectives. As a result, smallholder farmers, accounting for over 80% of agriculture sector, have remained as price takers with very low marketing margins due to lack of price setting power, unlike the producers in other sectors of the economy.

Indian agriculture has achieved many milestones and became one of the world’s top two producers of major commodities including rice, wheat, pulses, cotton, sugarcane, spices, etc. But, Indian farmers are still struggling to get remunerative prices due to lack of their direct connection with agricultural value chains.

As a result of such disconnect, farmers out of reach of the benefits derived from the growing consumer demand for value additions as simple as packaging and labelling with quality specifications. Under such a scenario, there is an urgent need to devise the necessary policy strategies to connect farmers to agricultural value chains so that farmers can receive better prices and marketing margins for their produce.

Opportunities for value added and processed agricultural produce

There is a notable increase in consumer preference for quality assurance and value addition in the last two decades or so with increase in urbanisation. The rapid growth in ecommerce platform use for buying groceries and essential food commodities necessitated the minimal value additions like grading, labelling with varietal and quality specifications, convenient and portable packaging for online purchase and doorstep delivery. Nevertheless, benefits from such value addition have not reached farmers so far and are largely confined to big food retail chains and ecommerce providers.

Further, agro-processing industry is also witnessing a rapid expansion and is estimated to double from about USD 307 billion in 2023 to USD700 billion in 2030 according to a research report by the PHD Chamber of Commerce and Industry. This is another avenue that can provide potential opportunities for farmers to connect to value chains through collectives either by supplying raw materials directly or by establishing processing units.

For instance, a major agro-processor, ITC is connected with 1.7 million farmers across 1700 FPOs on its meta market for advanced agricultural rural services (MAARS) network purchase of their agricultural produce. FPOs either independently or in collaboration can establish basic processing units such rice mills, daal mills etc close to production centres. This in turn can help in rural employment generation.

In addition to the domestic demand, agricultural exports are also increasing, particularly during the past two decades. This can further boost the opportunities for value added and processed agricultural produce in the country. In this regard, the success of one of India’s largest farmers’ collectives, AMUL is a good example. It has not only connected dairy farmers but also organic produce cultivators to value chains, demonstrating that collectivisation can be the potential solution for ensuring the outreach of benefits from value creation in agriculture to farmers, thereby enhancing their income.

Apart from product diversification and outreach in domestic market across the country, AMUL is successfully expanding to global markets like US and Europe.

Challenges and way forward

The successful completion of central sector scheme to form 10,000 new Farmer Producer Organisations (FPO)s in February 2025 is an encouraging first step towards linking small farmers to value chains. But, there are a number of challenges that needs to be addressed for the effective operation and success.

One of the major challenges is the lack of adequate infrastructure facilities for assaying, grading, standardisation, packaging and labelling of commodities close to production points or even at all mandis. Adequate availability of such facilities is crucial for enabling farmers to trade through digital ecommerce platforms or e-NAM. Thus there is an urgent need to create such facilities close to production centres, as it can facilitate value addition and direct sale of agricultural commodities especially those that do not require processing like whole pulses, coarse cereals, millets, etc.

Another major challenge is insufficient access to quality testing and certification facilities. Ensuring the access to quality testing and certification helps in facilitates building brands and creating trust thereby helping in seamless trade of farm produce by the FPOs. Further, certification and geo-tagging facilities can help creating sustainable organic produce marketing channels for farmers.

Limited access to adequate finance is another major challenge faced by FPOs due to the limited financial capabilities of the small member farmers. In addition, lack of storage facilities close to production centres is another important constraint faced by the FPOs. Strengthening rural storage infrastructure and facilitating access to warehouse receipt financing can help accessibility to adequate storage and scaling-up institutional finance for FPOs.

Further, it is vital to create widespread awareness among farmers about the formation and functioning of FPOs, various support schemes and agencies facilitating the process. In addition, there is a need for creating adequate capacity building and training facilities for farmers towards value addition, processing and brand creation. Creation of an apex body or FPO Board with regional and local centres to oversee the formation, operationalization, capacity building and imparting training of FPOs may ensure their success.

Thus, considering the growing demand for value addition in agriculture and the success of farmers collectives like AMUL, there is a need to strengthen and scale-up the requisite infrastructure, storage and finance facilities for successfully connecting farmers to value chains through FPOs thereby ensuring better prices and farm income.

A. Amarender Reddy, is joint director, School of Crop Health Policy Support Research (SCHPSR), ICAR-National Institute of Biotic Stress Management (ICAR-NIBSM), Raipur.

Tulsi Lingareddy is a senior economist, Sustainable Finance and Agriculture, Mumbai.

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