The agricultural sector is one of India’s most vulnerable; it’s subject to market and financial risks like monsoon, low productivity, slow rate of growth, insufficient investment levels, and information asymmetry. In one way the sector closely resembles a perfectly competitive market in that it sells homogenous products in which the farmer accepts the price determined by the market. Another defining characteristic is information symmetry, where every entity operating in the market has more or less the same information. In this aspect, the sector diverges from the definition of perfectly competitive markets. Lack of and incomplete information is the foundation for most risks faced by farmers. In this first of two posts, we will examine the inefficiencies caused by information asymmetry and look at a few solutions that aim to reduce the market and financial risks besieging farmers today.
The Asymmetry of Information
A lack of information is the primary underlying reason for most risks faced by farmers. Often there is either no or incomplete information on weather, commodity prices, ideal use of inputs, etcetera, which has an adverse impact on critical farming operations. Digitalisation in the rural sector can mitigate this challenge. Placing new technology with real-time information will empower rural India. This will especially impact farmers who will then be better equipped to take timely decisions on farming operations.
E-agriculture has four main goals for farmers – it aims to bring information symmetry, better access to extension services, stronger market links and distribution networks, and easy access to finance and credit. As seen in the figure below, the effects of these efforts will be seen in products fetching higher prices, better farming practices, reduced exploitation of farmers, and fewer losses.
The Bi-lateral Relationship Between Internet Access and GDP
The Internet’s contribution to global GDP currently stands at 3%. The Internet’s contribution to India’s GDP is 1.6%, comparable in size to other key service sectors such as hotels, restaurants, and utilities. A 10% increase in Internet usage is expected to increase India’s GDP by 1.08%.
According to the World Bank, India has more Internet users than the United States. 34% of India’s population actively use the Internet though only 9.6% of our rural population uses mobile Internet.
There is great potential in expanding Internet access across the rural sector as seen in the figure above.
The Case for a Technologically Connected Agriculture Sector
A World Bank study looking at technology in the sector found that farmers already using extension activities (e.g., mechanisation) were more likely to adopt technology sooner, and that progressive farmers were more likely to use digital means to expand and promote their businesses. Several Information and Communication Technology (ICT) applications implemented over the last decade demonstrate these results.
Reuter Market Light (RML)
In 2007, RML launched an open-source, mobile-based information delivery system. The company spent a year researching farmer needs and developed personalised content that is delivered by SMS. Farmers subscribe to the advisory service for timely information on weather, crops, agriculture news, and market updates.
The Government of India (GOI) found that the impact of the RML SMS program was limited by illiteracy within the farming community compounded by most mobile handsets not offering a language option. In 2009, the GOI introduced an SMS and voice-based service called Kisan Sanchar. The program currently serves more than 62,000 farmers across 75 districts in nine states. Kisan Sanchar is a free SMS service with a call centre facility that, in local languages, educates farmers, collects feedback, and refers technical queries to collaborators for further information.
Changes in Connectivity
Mobile services have significantly improved information symmetry in the sector. The RML and Kisan Sanchar applications were useful given the increasing trend in mobile tele-density in the early 2000s. However, since 2010-11, there has been a shift in favour of mobile Internet.
In India today, more people own mobile phones than computers; mobile Internet is expected to bring in the second wave of the Internet. Mobile users have grown at a rate of CAGR 43% and mobile phones have become the primary platform for communication. Post 2011, mobile Internet is fast becoming the primary platform for communication.
As seen in the figure above, while total mobile Internet users in India grew at a CAGR of 45% between 2012-16, mobile Internet users in rural India grew at a CAGR of 85% in the last 5 years alone. Internet based communication is set to take over the mobile telecommunication forms of calls and SMS.
Advanced ICT applications increase awareness, adoption of technology, reduce transaction costs, build better market efficiency, and create better climate related risk management. These improvements will have a positive effect on the development and economic growth of the rural sector. In our next post, we will look at what the GOI has done to recognise and capitalise on the trends in mobile Internet, and what these trends will mean for established companies operating in the agricultural and rural sectors.