Role of supply chain finance in shaping the future of agri finance

India plays a vital role in the global agriculture sector, providing a livelihood for a large portion of its population. In 2022-23, the agriculture sector employed around 45% of the workforce and contributed 18% to India’s gross value added (GVA), according to report by PRS India.

Yet, the complexity of agricultural supply chains remains a significant challenge. This value chain starts from suppliers and extends through production, trading, processing, food logistics, and finally, the retail sector. At each stage, the need for funding is both imperative and significantly challenging.

For example, farmers need substantial capital to buy essential inputs like seeds, fertilisers, and equipment—costs that can be particularly burdensome for small and marginal farmers. During production, they must also manage ongoing expenses, including labour, water, and machinery maintenance. These financial demands often create cash flow problems as farmers struggle to meet their obligations while waiting for their crops to be harvested.

The financial challenges don't just end there. A prominent issue is the difficulty in achieving economies of scale. Large-scale agricultural innovations require extensive farming areas to be cost-effective and justify their high initial investments. This presents substantial financial hurdles for small and marginal farmers, limiting their ability to grow and improve productivity. They also face difficulties due to poor credit histories and insufficient collateral, making securing loans from traditional financial institutions hard.

This often forces farmers to turn to money lenders, which can be both costly and risky. On top of that, they struggle to maintain funds for unexpected emergencies, further complicating their situation. To tackle these financial challenges, solutions like supply chain finance (SCF) are emerging, bringing much-needed innovation. While it has already proven effective in addressing funding issues across various industries, its potential in agriculture is still being fully realised. This gives farmers the necessary funds to purchase inputs, boosting production and, ultimately, their incomes.

Additionally, SCF solutions like payable finance enable traders to pay farmers and commission agents promptly, ensuring timely transactions. Sales bill discounting allows traders to receive early payments from reputable corporations, enhancing liquidity. Lastly, dealer finance supports retailers and distributors by providing the liquidity and extended credit they need to operate efficiently. This is how SCF not only addresses financial challenges but also inspires and motivates the sector's growth by increasing productivity and supporting the broader supply chain in India. The government has also been actively working to increase the accessibility of funds for the agriculture sector. The Ministry of Agriculture allocated Rs 1,32,470 crore for 2024-25, representing 2.7% of the total central government budget.