POPULARIZING FARM MECHANIZATION IN INDIA - A case study by

Intellecap Innovation Labs

Introduction

In September 2016, Kanika Banerjee, seeing the need for higher yields and better livelihoods
for farmers in India, decided to do something to improve the quality of their lives and increase
farm productivity. She wondered if she should focus on mid-sized farmers who would create
significant market-level gains from mechanization, or on small farmers who might not create
market-level gains in the short-term but would see livelihoods gains and reduction of
drudgery at individual and family-levels. Noting that close to 80% of Indian farmers fall under
the category of small or marginal with sizes of landholdings on an average less than 2 hectares
(ha.), Kanika decided that her objective should be to directly impact and benefit smallholder
farmers. Kanika had several choices in front of her when it came to what exactly her enterprise
would focus on ranging from input provision, to securing water for farming, and creating
post-harvest market linkages. She decided to focus on farm-mechanization because she
realized that while India is a global leader in manufacturing this equipment, less than 2% of
farmers use mechanized farming techniques and instead rely on manual labour for farming1.
This not only reduces the efficiency of farming but also increases the daily drudgery of farmers
(especially women who do the lions share of farm labour).

As she started to design her business model, Kanika began to appreciate the difficulty of
providing appropriate machinery under current circumstances to smallholder farmers, where
landholdings are too small for these farmers to make their own investments in modern
agricultural practices such as use of mechanization. Hence she decided to focus on leasing or
farming-as-a-service models to ensure that the right mechanization equipment is affordable
for small farmers to use, and set-up a social enterprise called M4I (Mech for Impact). Kanika
also hired a small core team comprising of a CTO, CFO, and field manager.

Figure 1 Bifurcation of Power in Indian Farms

11
Central Institute of Agricultural Engineering Annual Report, 2016; Govt. of India .
By combining the passion and social change expertise of the development sector, and the
technology and business model acumen of the corporate world, M4I set itself an ambitious
goal of shifting at least 15% of smallholder farmers from manual farming to mechanized
farming in low-income districts of Eastern India. M4Is identified its core value proposition as
provision of right-sized mechanization equipment to small farmers on lease basis through
farmer-friendly payment terms such as pay-per-use, pay-after-harvest and easy
installments.

The M4I team through their discussions with farmers and fieldwork identified two models to
provide mechanized equipment to farmers that could work at scale. These were (i) Peer-to-
peer leasing or an Ola-like model to formalize equipment leasing amongst farmers, and (ii)
Custom Hiring Centers (CHCs) which are physical facilities close to rural farms offering
equipment on hire. Given the low penetration of mechanized equipment in Eastern India it
seemed like peer-to-peer leasing would not be feasible in the short term. Hence Kanika and
her team decided to go with the CHC model instead. Exhibit 1 outlines the key aspects of M4Is
business model.

In order to validate the need for their services and refine their business model, M4I team
carried out a pilot test with paddy farmers in Burdwan, West Bengal. They realized that there
is a huge unmet demand for mechanization, and that their service offering created a positive
impact on small farmer livelihoods. However, they also realized there were several flaws or
weaknesses in their business model that they would need to address for it to be truly scalable
and sustainable. The following sections provide a background to the issue, cover the results of
M4Is pilot test, and outline the challenges that the test surfaced.

The focus of this case is to surface innovative solutions to address these challenges, and propose a
new/revised strategy for M4I with a 3-5 year business and operating model, financial projections, and
impact projections.

Exhibit 1: M4I's initial business model

M4I plans to set-up Custom Hiring Centers which provide tractors and implements for
planting, upkeep, and harvest of agri-produce on lease to smallholder farmers who cannot
afford to own equipment. M4Is hypothesis is that a single CHC can service ~10 hectares per
day, or ~300 acres in one seasonal cycle. M4I thinks these CHCs should have a multi-
commodity focus, and be operated by youths from the local community. M4I is yet to decide
if these CHCs should be company owned and operated, or franchisee owned and operated.

The newly hired CFO of M4I, Anwar Feroze, believes that the CHCs model will also benefit
from an enabling policy environment for such initiatives, especially in regions that are
dominated by smallholder farmers (SHFs). The Sub-Mission on Agricultural Mechanization
(SMAM)1 has explicitly stated one of its objectives as promoting Custom Hiring Centers
(CHCs) to offset the adverse economies of scale arising due to small landholding and high cost
of individual ownership [of mechanized farm/agricultural equipment]. Leveraging this, M4I
plans to set up CHCs in geographies where there is little/no adoption of mechanization by
SHFs.

Finally, the CTO, Kiran Andrews, believes that right-sized technology can be bought off-the-
shelf or even specifically ordered from agri-manufacturing belts in India and China. However,
he is keen for M4I to build a state-of-the-art technology platform which brings the small
farmers, CHC operators, and M4I together on one platform. He thinks this platform should
drive on-demand equipment booking, digital payments, and inventory management among
others. However, Kanika is skeptical whether farmers will adopt and use these technologies.

1The Sub-Mission on Agricultural Mechanization is one of the four sub-missions part of the
National Mission on Agricultural Extension and Technology. The mission was set up to
promote the use of farm equipment and raise the average farm power availability to 2 kW/ha
through its implementation.

Pilot Test & Results

M4I tied up with a local organization in the district of Burdwan to reach paddy farmers they
could interview and engage while setting up the pilot. The pilot began in November 2016 for
the kharif crop.

The M4I team set up a pilot-CHC with temporarily contracted resources led by the Field
Manager Sayan Mehta, and with the support of a local farmer-welfare promoting NGO called
Kisaan Saathi. The pilot began by providing input implements and harvesting equipment for
farmers within a 3-kilometer radius of the M4I CHC.

The pilot shed light on the dire need for mechanization across the paddy value chain process,
and revealed that there were significant gaps that needed to be addressed since the current
levels of mechanization were not sufficient.

Through its pilot, M4I gained important insights into the state of mechanization across the
paddy value chain, and how the lack of mechanization at certain levels of the value chain led
to massive losses of food pre-, during-, and post-harvest. Data from the pilot study indicated
that even though the mechanization rate for West Bengal was ~9%, the mechanization rate of
farmers in Burdwan was significantly lower. In addition, the pilot brought to light substantial
gaps in M4Is operating model for the CHC. It surfaced multiple challenges M4I would face
on its way to scale and success, yet validated the need for a CHC model in regions like
Burdwan present in Eastern India.

Identified Scale & Sustainability Challenges

The challenges M4I discovered serve as learnings to set up CHCs across their focus
geographies and crops. Banerjee, while assessing these challenges realized that until and
unless they were addressed mechanization, farm productivity, and smallholder farmer
livelihoods could not be improved. The challenges her organization faced are multi-layered
and require innovative solutioning so M4I can succeed at leasing mechanized equipment to
small farmers in Eastern India.

Since the pilot ran for the duration of the harvest of one specific commodity, Kanika and her
team realized that there is a high demand of equipment only during the harvest season, but
demand drops during other months. Hence, assets remain under-utilized. M4I needs to find ways
to make sure the equipment is used throughout the year and demand-spikes during harvest
season are managed better so they dont lose customers on account of unavailability of
equipment.

High physical and terrain variability the region made standardization difficult. The fine-scale
heterogeneity of landholdings and terrain across Eastern India thus turned into a problem as
M4I recognized the difficulty in standardizing CHCs across value chains. To address this, M4I
needs to build a target profile of states and districts, and calculate Total Available Market,
Serviceable Available Market, and Serviceable Obtainable Market for its target areas.

The equipment has to be low cost and accessible because a major problem that M4I faced
during the pilot was the smallholder farmers inability to pay. Small farmers were unable to pay
to lease equipment, since they had no free cash flows prior to the sale of harvest. To address this
critical challenge, M4I also has to discover innovative financing models so that farmers can
afford to hire its equipment.

One of the findings from the pilot study, and associated literature reviews was also that most
small farm labour is performed by women. Studying the SHF persona also revealed that there is a
lack of education and technical know-how on the part of the SHF in using the equipment, how should
M4I address this challenge? M4I needs to develop a women-friendly package of practices for
use of its equipment, as well as a capacity building program to train women smallholder
farmers. To do this, M4I will need to create innovative partnership programs with local NGOs
and Self Help Groups that provide incentives for them to support M4Is work, as well as keep
costs lean.

M4I recognized that it could not scale-up without a sustainable model to set up other CHCs
in the area that both address the challenges at hand, and ensure uptake in adoption of
mechanization. M4I needs to decide on the best model for setting up CHCs, should it invest
in and own each CHC, work through a franchisee model, or take a hybrid approach? Which
model would best suit the needs of the region, and increase mechanization for the benefit of
the smallholder?

Finally, while both Kanika and Kiran now agree that a technology platform is required, the
pilot tests also surfaced that the penetration of smartphones amongst small farmers is very
low. How should M4I think about overcoming this barrier?

Situational Context

While smallholders form the largest segment of farmers in India, they benefit the least from
most schemes and activities because they cannot properly access or afford solutions in the
market. It is also for this reason that most equipment manufacturers are not incentivized to
produce for smallholder farmers, making farm mechanization a growing need in the SHF
contexts of Eastern India. Today, both private and public sector initiatives are attempting to
increase mechanization of small farms through CHCs and other mechanisms. The problem
however, is not in the objective but rather the way it is being implemented. Farm
mechanization is not taking place in areas where it is needed most, owing to several challenges
of access and affordability. Most mechanization is taking place in belts where the
landholdings are large and the number of small/marginal farmers is low. While activities
towards improving mechanization are supposed to be directed towards regions with higher
concentrations of smallholders, in reality, states such as Punjab, Uttar Pradesh, and Haryana
are seeing greater mechanization.
Though in the macro-context, farm mechanization in India has grown less than 5%2 in the last
decade. Only recent revisions of policies like SMAM have led to a shift in focus to promote
mechanization in small and marginal contexts in Eastern India through the set-up of CHCs.
Still, mechanization in India is mainly concentrated at the initial stage of the value chain,
where most farmers employ tractors to aid in farming activities. It is because of this, that
tractor manufacturers lead the sector, and farm implements remain an under-invested
segment of the market.

The Problem of Farm Mechanization

Even though India is the 3rd largest manufacturer of tractors in the world, only 2%3 of Indian
farmers used mechanized equipment for farming. While this impacts overall farm
productivity; it specifically creates situations that result in income loss for smallholder
farmers.

Not only do these situations create income losses, but also lead to the reduction of yield and
volume/value losses of harvestable produce given the inefficiencies involved in manual farm
preparation. Food loss through manual harvesting practices in grains, roots, and tubers are
also high since the produce is most often damaged during the time of harvest, reducing its
quality and quantity. Studies have also shown that manual farm preparation and seeding are
inefficient practices that reduce farm yield and productivity. This also increases the time
required for farming which in-turn results in a narrower window of time for small farmers to
aggregate, transport, and sell produce or even explore non-farm income generation
opportunities4.

The labour intensive nature of farming is also a cause for concern, many farmers today report
that a major worry for them is the lack of labour at the right time and in the right capacity5.
Especially in the case of women, who end up performing close to 70-80% of farm labour on
small and marginal landholdings, there is increased drudgery, which could be solved through
the provision of mechanized farm equipment.

Impact & Extent of the Problem

Precisely due to the lack of equipment and mechanization in the right contexts, SHFs have not
been able to improve the quality and quantity of produce to receive a better price for it.

To understand the socio-cultural and economic contexts of the SHF, M4I conducted studies
with farmers that came to their CHC who reported high production, but extremely low
productivity. This is a phenomenon that farmers across India are grappling with high
production and low productivity that is well below the global average tonne per hectare.
When asked about their livelihoods, the smallholder farmers in the region serviced by the
CHC stated, while they could not move out of the profession of farming, they didnt want their
children to stay on as agriculturists. This was for two reasons, the low return on investment,
and the high drudgery of farming, and its time intensive nature. The added challenges of

2
Mehta, C. R. et al. Trends of Agricultural Mechanization in India. CSAM Policy Breif. Jun 2 (2014).
3
Central Institute of Agricultural Engineering Annual Report, 2016; Govt. of India .
4
Non-farm activities account for up to 50% of annual income for farming households.
5
Kaundinya, Ram. The Difficulty of Being a Farmer. LiveMint. HT Media Ltd. 28 Jun. 2017. Web.
income instability, climatic variability, and the need for intensive labour on-farm (sans
mechanization) contribute to that disposition as well.

Learnings from M4Is pilot also led to the creation of an understanding of the social impact
and issues in livelihood that SHFs face in certain regions of Eastern India. Small farmers in
India face high costs of production, high drudgery, and low resource productivity in terms of
cultivated area and harvesting practices. As a result, farming only contributes to roughly 50%
of a typical farming household, necessitating alternate non-farm income generation even for
basic survival. High food losses due to manual inefficiencies, and the lack of incentive/ability
to invest in on-farm equipment disallow upward social and economic mobility for the farmer
as well, reducing their incentive to engage in farming activities too. However, if a farmer were
to try and acquire farm equipment, the process of acquiring it is extremely tiring and ungainly.
The first step is the verification of land records, once those are cleared, the approvals and
clearances for purchase need to be obtained; the process is highly bureaucratic and dissuades
the farmer from wanting to go forward with purchasing equipment (in the event that he/she
has the purchasing power to do so).

The pilot ended once the crop was headed and harvested, and now, using the findings from
the pilot M4I has to, through its work; attempt to solve these critical issues in the lives and
workflows of small farmers to be able to make an impact.

The Challenge

Design a scalable and sustainable business model for M4I that addresses the problems discussed above.
Specifically provide at least 3 high quality responses -

Recommended business & operating model for M4I for the next 3-5 years
Financial projections with clearly outlined and justified assumptions
Impact projections e.g. number of farmers supported, livelihood gains secured etc.

The solution document has to be in word/pdf within 1000 words (excluding exhibits and
excel sheets) in Book Antiqua font 11.