Indian agriculture has undergone transformation from the traditional subsistence towards a market oriented sector. In this transition, dependence of rural economy on agriculture has diminished. It has become service dominated and is contributing towards stabilizing rural incomes. Though the agriculture’s share in GDP has decreased but it is still continuing to dominate as major employment sector. Nearly 55 percent of Indians are employed in agriculture sector. However, the share of income from non-farm activities has increased.
As agriculture runs agro-based industries and agro-services, it should be seen as a integrated value chain that includes farming, aggregating, processing, warehousing (including logistics) and retailing. Value chain encapsulates full range of activities needed to produce a product or service from conception, delivery to final consumers, and final disposal after use. Value chains have always been in existence in agriculture sector. Farms produced and the final consumer accessed the produce. In between the produce passes through several channels and middlemen. There is always a criticism that because of so many middlemen, producer in agriculture gets very low price for the produce and end consumer gets the produce at a very high price. The existence of several middlemen, lack of information about other links in the chain and inability to invest in improving the performance in almost every part of the chain has resulted in inefficiencies and lower incomes especially in the lower end of the chain. Therefore, it is a major challenge to effectively organize, manage and improve a value chain. Consequently, now initiatives are being taken to improve technology of production, processing, quality control, creating processing facilities near farms to ensure higher share of consumer prices for the producer. Investments in marketing infrastructure such as warehouses, cold stores, cold chain logistics, innovations in trade finance products such as collateralized warehouse receipts and institutional interventions such as farmer collectives are changing the quality of value chains in agriculture. In India, it is difficult to organize and stabilize value chains because of large number of small farm holdings. Small farms pose challenges in terms of highly dispersed collection of produce, transport arrangements, and quality assurance mechanisms at every level. This does not only increase costs but takes more time in the aggregation process. The production effort has to be organized in clusters so that the distances and time are kept within manageable levels. Therefore, it is necessary to make production and aggregation parts of value chains efficient to enable small farms get higher returns. Government must build trust among farmers to move away from subsistence farming to market oriented farming by effective communication with farmers. Awareness about application of improved inputs and adoption of higher technology of cultivation are need of the hour to create sustainable value chain.