Strategies to Improve the Agribusiness Environment in India

India is the world’s second-largest agricultural producer, yet a significant portion of what its farmers grow never reaches consumers in usable form. Fragmented supply chains, outdated storage infrastructure, restrictive market regulations, and an underdeveloped food processing sector continue to hold Indian agribusiness back. Fixing this is not just about improving farm output – it requires building an entire ecosystem around agriculture, from the field to the final consumer. This post breaks down the key strategies needed to improve the agribusiness environment in India, spanning production technologies, post-harvest management, market reforms, policy interventions, and smarter taxation.

The current state of India’s agribusiness environment 🔗

Agriculture contributes around 16.5% to India’s GDP and employs roughly 42% of the country’s workforce. Despite being a global leader in producing milk, spices, cotton, pulses, and rice, India’s agribusiness sector remains structurally weak. The core problem is a persistent gap between what is produced and what is efficiently processed, stored, and marketed. Approximately one-third of total agricultural production is wasted every year due to inefficiencies in post-harvest supply chain stages. Meanwhile, only about 2% of fruits and vegetables are processed in India, compared to 65% in the USA and 23% in China. Closing these gaps requires coordinated action across multiple fronts.

Enhancing production technologies 🔗

The foundation of any strong agribusiness environment is efficient, high-yielding agricultural production. India has made progress since the Green Revolution, but per-hectare yields of major crops remain low by world standards, especially outside irrigated regions. Improving this requires investment in better seed varieties, precision agriculture, mechanization, and modern irrigation systems.

The government has taken steps in this direction. India’s agricultural policy emphasizes modernizing farm operations by introducing improved high-yielding variety (HYV) seeds, fertilizers, and mechanized practices. Digital tools are increasingly part of this push. Technologies such as blockchain, AI, GIS, drones, and remote sensing are being adopted to enhance efficiency and transparency in farm operations. Platforms like AgriStack and the Krishi Decision Support System are creating data-driven linkages across the value chain, from farm to fork.

For smallholder farmers – who make up the majority of India’s farming community – access to these technologies is still limited. Farmer Producer Organisations (FPOs) can play a crucial role in enabling group leasing of agricultural machinery, including combine harvesters and solar dryers, through Custom Hiring Centres (CHCs), making modern equipment financially accessible without individual capital investment.

Reducing post-harvest losses 🔗

Post-harvest losses are one of the most serious drains on India’s agribusiness potential. An ICAR-CIPHET study estimated economic losses from post-harvest waste at ₹92,651 crore. Losses in fruits and vegetables range from 10-15%, and in certain commodities like onions, they can reach 30-35% in the absence of proper cold storage structures. These are not just economic losses – in a country where malnutrition remains widespread, wasted food has direct human consequences.

Addressing post-harvest losses calls for a multi-pronged approach. Significant investments in cold chain infrastructure – temperature-controlled storage and transportation – are essential to minimize spoilage of perishable goods. With falling solar energy costs, investment in solar-powered cold storage can reduce both costs and losses of agricultural produce, making it viable even in remote areas.

At the storage policy level, the National Warehousing Receipt (NWR) system offers smallholder farmers a way to store produce in registered private warehouses and receive receipts – helping them avoid distress sales at harvest time. However, the persistence of outdated provisions in the Essential Commodities Act (ECA) continues to deter private sector investment in grain storage infrastructure. Reforming these provisions is critical to unlocking large-scale private participation in this space.

Boosting food processing and value addition 🔗

Processing agricultural produce is the most direct way to extend shelf life, reduce waste, and add economic value. Yet India’s food processing sector remains shallow. The Ministry of Food Processing Industries is mandated to create post-harvest infrastructure and processing facilities to boost sector development, reduce post-harvest losses, and enhance value addition.

The Pradhan Mantri Kisan SAMPADA Yojana (PMKSY) is a significant initiative in this direction. PMKSY has benefited 34.15 lakh farmers and generated over 4.33 lakh jobs through 1,601 projects focused on food processing infrastructure. Additionally, the Agriculture Infrastructure Fund (AIF), the Animal Husbandry Infrastructure Development Fund (AHIDF), and dedicated food processing funds through NABARD collectively reinforce a whole-of-government approach to modernizing the agri-food ecosystem.

Experts suggest that approximately one-fourth of produce must be processed at this stage of India’s development, consistent with levels seen in several Southeast Asian economies. Scaling up processing capacity – especially secondary processing, which adds more value than basic milling or extraction – is key to building competitive agri-food value chains. India’s food processing sector has attracted cumulative FDI equity inflows of approximately US$ 7.33 billion between April 2014 and March 2025, reflecting growing investor confidence when backed by stable policy and improved infrastructure.

Promoting contract farming 🔗

Contract farming is a practical mechanism to connect farmers with processors and marketers, reduce risk for both parties, and ensure consistent quality of raw material supply. The logic behind promoting contract farming is to encourage private investment in agriculture and to reduce price risks as well as post-harvest losses, especially in risk-sensitive crops like fruits, vegetables, and high-value commodities.

India’s Model Contract Farming Act of 2018 was introduced to simplify agreements, encourage private sector engagement, and provide dispute resolution mechanisms. Under this framework, contracts specify the quantity, quality, and price of the produce being supplied, which shields farmers from price volatility. The contract farming legislation allows farmers to enter pre-agreed price deals with agribusiness companies or large retailers, shifting the risk of market unpredictability from the farmer to the sponsor while also giving farmers access to new technologies and better inputs.

Well-known examples in India include PepsiCo’s potato contract farming and ITC’s arrangements with multiple crop farmers – models that demonstrate how this system can benefit both sides of the agreement. However, scaling these arrangements faces real challenges. Inadequate cold storage, rural roads, and processing units in key growing areas increase post-harvest losses and reduce the feasibility of long-term contracts. Enforcement of contracts also remains inconsistent across states, requiring stronger legal frameworks and dispute resolution systems.

Market reforms and digital platforms 🔗

One of the biggest structural barriers for Indian agribusiness has been its fragmented, state-regulated marketing system. Farmers were historically required to sell only through government-regulated APMC mandis, limiting competition and price discovery. Market reforms have tried to break this open. Enhancing the electronic National Agricultural Market (e-NAM), set up in 2016, should remain a priority to foster efficient markets and competitive agro-food supply chains across states.

e-NAM currently integrates more than 1,000 APMC markets across 18 states and 3 Union Territories, with almost 17 million farmers and 150,000 traders registered on the platform. Research indicates that farmers selling through e-NAM receive significantly better prices compared to traditional mandis. Strengthening e-NAM through investments in assaying, sorting, and grading infrastructure at mandis will reduce quality variance across markets and encourage more processors and retailers to procure through the platform.

The OECD has recommended that India prioritize institutional reforms to allow development of a single national market for agricultural products, streamline trade policy roles across ministries, and move away from export restrictions toward a more stable, predictable market environment. These shifts would directly benefit agribusinesses by reducing regulatory uncertainty and improving investment incentives across the supply chain.

Rationalizing taxation on agribusiness 🔗

Excessive taxation is a well-documented constraint on India’s food processing and agribusiness sectors. State taxes on transactions in regulated agricultural markets have historically been a major revenue source for state governments, but these taxes raise costs for processors and reduce competitiveness. India’s excise tax system has been steadily simplified, with peak rates reduced significantly since economy-wide reforms began in the early 1990s.

GST reforms have brought meaningful relief to the sector. GST reforms now favor the sector by reducing taxes on most processed food items and biodegradable packaging, supporting healthier and sustainable product markets. Additionally, next-generation GST reforms have enhanced investor confidence by streamlining tax structures, lowering input costs, and improving affordability for consumers.

However, more work remains. The OECD’s 2024 report found that India implicitly taxed its farmers by USD 120 billion in 2023 – the highest among 54 countries reviewed – largely due to export bans and duties that kept food prices artificially low for consumers while suppressing farmer income. Rationalizing these policy-induced tax burdens – particularly by easing export restrictions and aligning domestic pricing more closely with international benchmarks – is essential for creating a fair agribusiness environment.

Comprehensive policy reforms: building an enabling environment 🔗

No single intervention can transform India’s agribusiness landscape on its own. What is needed is a coherent, long-term policy framework that addresses constraints at every level of the value chain. The OECD recommends that India re-focus investments on fostering the agricultural enabling environment – particularly infrastructure and education in rural areas – and increase research intensity with stronger priority-setting processes.

India’s National Agricultural Policy targets growth based on the efficient use of resources while making provisions for the conservation of soil, water, and biodiversity. Recent budgetary commitments to rural infrastructure and digitalization are steps in the right direction. Complementing market reform programs with investments in transport infrastructure, marketing, training, and other general services to agriculture will help farmers reap the benefits in productivity and income.

Critically, central and state government coordination needs to improve. India’s federal structure means most agricultural policy decisions rest with state governments, creating a patchwork of regulations that complicates agribusiness planning and investment. Better market functioning requires greater integration between state and central policies to improve coordination, reduce fragmentation, and address sector challenges. Until that coordination improves, the agribusiness environment will remain uneven – more favorable in some states than others.

The road ahead 🔗

Improving India’s agribusiness environment is a multidimensional challenge. It requires better seeds and technology at the farm level, serious investment in cold chains and processing infrastructure, market reforms that give farmers genuine access to competitive prices, rational taxation policies that don’t inadvertently penalize producers, and a policy environment predictable enough to attract sustained private investment. The pieces of this puzzle are increasingly well understood. What has been slower is implementation – particularly the kind of coordinated, cross-state action that the sector genuinely needs. India’s large and growing consumer market, its agricultural diversity, and its expanding food processing capacity all point to significant opportunity. Aligning policy with changing market and climate conditions is imperative for India’s agribusiness sector to evolve into a more sustainable and globally competitive force.

What do you think? Given that India’s post-harvest losses alone amount to tens of thousands of crores every year, which area – cold chain infrastructure, processing capacity, or market reforms – do you believe deserves the most urgent policy attention? And how can state and central governments better coordinate to create a truly unified agribusiness environment across India?

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