SAMSIDdHA

Institutionalizing Commercial Aggregation for Profitable, Scalable, and Inclusive Agriculture in India

Abstract

Despite decades of public investment, cooperative movements, and non-profit interventions, Indian agriculture remains trapped in a low-profit, high-risk equilibrium. Fragmented landholdings, weak market integration, limited scale economies, and asymmetric risk allocation continue to suppress farmer incomes and constrain rural economic growth. While Farmer Producer Organizations (FPOs), cooperatives, and NGO-led initiatives have delivered substantial social value, their predominantly welfare-oriented design limits their ability to generate sustained profitability, attract private capital, or compete in high-value markets.

This paper argues that the fundamental constraint facing Indian agriculture is not farmer capability, but the absence of commercially oriented aggregation and value-chain orchestration at the meso (block or sub-district) level. Farmers function as entrepreneurs in practice, yet remain institutionally constrained by fragmented services, infrastructure gaps, and volatile markets.

The paper proposes Krishi Value Hubs (KVHs) as professionally managed, for-profit aggregation platforms that integrate production, shared services, infrastructure, finance, technology, branding, and markets within agro-climatic enclaves of 10,000–50,000 hectares. Drawing on successful Indian examples—including dairy cooperatives, seed and tobacco contract farming, plantation crops, and corporate-led agri value chains—the paper conceptualizes KVHs as a deliberate mechanism to replicate these successes across regions where no natural value-chain orchestrator exists. A defining feature of KVHs is the development of KVH-branded, quality-hallmarked products marketed through B2B and B2C channels.

The paper develops the institutional rationale, theoretical foundations, functional architecture, and policy implications of KVHs, and outlines a framework for pilot evaluation. It argues that KVHs offer a viable pathway to transform agriculture into a profitable, demand-generating sector while preserving inclusion and resilience objectives.

Keywords: agricultural policy; value-chain governance; rural institutions; contract farming; scale economies; India

1. Introduction

Agriculture remains central to livelihoods in India, employing nearly half of the workforce, yet contributes less than one-fifth of national GDP. This persistent imbalance reflects not merely agronomic constraints but the institutional organization of agriculture as a fragmented and under-capitalized activity, rather than as an integrated economic enterprise.

Policy responses have emphasized price support, subsidies, cooperatives, and FPOs, alongside large investments in irrigation and extension. These interventions have strengthened food security and inclusion. However, they have not fundamentally altered agriculture’s position as a low-surplus sector. Rural regions remain net recipients of fiscal transfers rather than engines of demand-led growth.

This paper argues that the next phase of agricultural policy must focus on commercial aggregation and institutional orchestration, enabling farmers to operate within scalable, market-aligned systems capable of sustained value creation.

2. Contributions and Limits of Existing Institutional Models

2.1 Non-Profit and Cooperative Approaches

Non-profit and cooperative institutions have addressed market failures, built social capital, and integrated marginal farmers. Their role in extension, risk mitigation, and inclusion is well documented. However, when evaluated against objectives of profitability and scalability, structural limitations persist:

• Limited capital accumulation and reinvestment
• Weak incentives for operational efficiency
• Constraints on professional management and risk-taking
• Limited ability to develop brands and long-term market positions

These outcomes reflect institutional design choices rather than implementation failure. Importantly, profitability and inclusion are not competing objectives; profitability is essential for sustaining inclusion over time.

3. Farmers as Constrained Entrepreneurs

Indian farmers routinely make entrepreneurial decisions—allocating capital, managing production risk, hiring labour, and responding to price signals. Yet they operate in systems that penalize scale, fragment services, and externalize risk. The prevailing policy narrative of farmer victimhood risks obscuring the deeper structural issue: entrepreneurial potential constrained by institutional inefficiency.

The policy challenge, therefore, is not empowerment alone, but institutional emancipation—reorganizing agriculture around efficiency, predictability, and value capture.

4. The Krishi Value Hub (KVH) Concept

4.1 Definition

A Krishi Value Hub (KVH) is a block- or sub-district-level commercial aggregation platform that orchestrates agricultural value chains within contiguous agro-climatic enclaves of approximately 10,000–50,000 hectares. KVHs are for-profit, professionally managed entities operating through contractual relationships with farmers, FPOs, cooperatives, service providers, traders, processors, financiers, and buyers.

KVHs do not own land; they aggregate coordination, services, infrastructure, brands, and market access.

5. Evidence from Indian Proto-KVH Models

India already hosts a limited number of highly successful value-chain orchestrators that validate the KVH logic:

5.1 Cooperative and Farmer-Owned Orchestrators

Large dairy cooperatives (Amul, Arokya, Nandini) and export-oriented farmer companies (Sahyadri FPC) integrate millions of smallholders into standardized, branded value chains with assured procurement and strong processing infrastructure.

5.2 Corporate-Led Value Chains

Basmati rice companies (e.g., India Gate) and food processors (PepsiCo, ITC, Nestlé, Balaji Foods) coordinate inputs, agronomy, procurement, processing, and markets under long-term arrangements.

5.3 Contract Farming Systems

India’s seed production clusters (e.g., Karimnagar), tobacco cultivation, and tea, coffee, and spices value chains operate under contract-based orchestration with strict quality protocols, assured buy-back, and premium pricing. These systems consistently deliver higher and more stable farmer incomes.

5.4 Replication Constraint

These successes arise organically due to historical, political, or capital-specific conditions and cannot be expected to emerge uniformly. Nearly 90% of agricultural regions lack a natural orchestrator, justifying the need for a deliberate KVH framework.

6. KVH Products, Branding, and Shared Services

A defining feature of KVHs is the development of KVH-branded products, marketed through B2B and B2C channels. Products include staples, fresh and processed foods, seeds, and allied products. All carry a KVH Quality Hallmark, enabled by digital traceability systems.

KVHs operate as shared-service rural enterprises, delivering:

• Improved farmer profitability and income stability
• Better business terms for traders and processors
• Improved bankability for financial institutions
• Year-round rural employment

Embedded services include crop insurance, health insurance (including free or subsidized coverage), and social security mechanisms.

7. Theoretical Framework

The KVH model draws on three strands of theory:

• Transaction Cost Economics: KVHs reduce coordination, search, and enforcement costs in fragmented markets.
• Global Value Chain Governance: KVHs function as lead firms that set standards and coordinate flows.
• Platform Economics: KVHs operate as multi-sided platforms linking farmers, service providers, financiers, and buyers.

8. Policy Design and Implementation Pathways

KVHs align with contemporary agricultural policy objectives by:

• Leveraging public digital infrastructure (e.g., Agristack)
• Crowding in private investment
• Reducing long-term reliance on price support and subsidies

Pilots can be structured around commodity clusters such as mango (Nuziveedu), rice (Nalgonda, Bhandara), seed production (Karimnagar), chillies (Ballari), tomatoes (Chintamani), onions (Lasalgaon), maize (Haveri), cashew (Ratnagiri), basmati (Rudrapur), and pulses (Kalaburagi).

9. Evaluation Framework

KVH pilots can be evaluated using quasi-experimental methods comparing KVH and non-KVH regions on:

• Farmer income and margin volatility
• Cost of production and logistics
• Price realization
• Employment generation
• Credit and insurance penetration

10. Conclusion

Krishi Value Hubs offer a policy-relevant institutional innovation capable of extending the benefits of India’s few successful agri value-chain orchestrators to the majority of regions that currently lack them. By embedding commercial aggregation, branding, and shared services within a scalable framework, KVHs reposition agriculture as a profitable, demand-generating sector while preserving inclusion and resilience objectives.

Author

Tarak Dhurjati
CEO & Founder, Dhoorjati Enterprises (OPC), Private Limited
dhoorjati@dhoorjati.com

References

Birthal, P. S., et al. (2019). Farmer producer organizations in India. Agricultural Economics Research Review.
World Bank (2020). Transforming Agriculture for Economic Growth.
Government of India (2023). Digital Agriculture Mission.
Porter, M. E. (1985). Competitive Advantage.