Sow wisely: India can reap a lot more from its agricultural sector

India has the benefit of favourable climatic conditions that enable diversity in crop production, routinely helping it rank among the world’s top two countries for arable land. The country also has the world’s second-largest agricultural crop output.

Yet, there are several markers that indicate significant headroom for growth. For example, India’s yield for cereals is 25% and 50% lower in kilogram-per-hectare terms than Brazil’s and the US’s, respectively; India’s share of processed food exports is about 25% of its total agricultural exports; and over 90% of Indian farmers are yet to adopt modern agri-technologies such as precision farming and remote sensing.

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While strong agri-production fundamentals and the high potential for growth point to greater gains to be made, sectoral challenges and geopolitical uncertainties need to be factored in for India’s agricultural sector to generate greater value for farmers, agri-markets and consumers.

Five tailwinds underpin an optimistic view on agricultural growth:

One, changing consumer demand has led to a sharper focus on high-value crops and livestock, like fruits, vegetables and dairy products. The government’s aspiration is to boost agri-exports by an incremental $40-50 billion by 2030; and India’s biofuel policy is driving expansion in the country’s output of key feedstocks such as corn.

Two, digital adoption in agriculture is growing, with around 40% of farmers using digital payments in 2024, an increase from around 11% in 2022. India’s digital push by the government and growing tech stack infrastructure are expected to continue accelerating this shift.

Three, the rise of agri-financing to ₹25 trillion, a 14% annual increase from 2021-22 to 2023-24, indicates widening access to credit. Recently expanded loan limits, such as for the Kisan Credit Card scheme and targeted subsidies like those for mechanization are expected to further boost credit access in India.

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Four, the streamlining of supply chains, particularly through cooperatives and farmer producer organizations (FPOs), is easing the journey of crops from the farm to the market against a backdrop of otherwise fragmented logistics. Organized trading networks and digital platforms like the Open Network for Digital Commerce (ONDC) and the government’s e-Mandi platform are improving market linkages and price discovery as well as transparency.

Five, the adoption of sustainable practices in farming has risen from around 10% of farms to 15% over the past two years: the use of agri-biologicals has grown from around 7% to 11% and could grow further, with almost 67% of farmers expecting to increase their spend on biologicals. This would also make it easier to tap global markets. Agriculture accounts for around 20% of greenhouse gas emissions (GHGs) and such eco-friendly shifts would help mitigate these.

Buoyed by these positive trends, agri-businesses could explore additional avenues, such as the following, to create additional value.

An integrated input-output approach for crop value chains: For example, in horticulture, some companies are innovating to improve farming practices and on-field productivity, as with high-yield varieties of seeds and advisory issuances on what crops to sow and when. Together with market-linkage support, farmers can expect better price realization. Export quality produce, for example, could command a premium.

Calibrated credit infusion enabled by analytics and the use of artificial intelligence: Many agri-fintechs are pioneering innovative credit models using data from FPOs and farmer cooperatives as well as alternative data. This makes a difference, as financial institutions can improve agri-financing by using enhanced creditworthiness assessments and risk-adjusted credit flows.

Ramped up crop diversification, value addition and exports: For example, India is prioritizing the production of crops that can take the place of large imports, like pulses, vegetable oils and nuts, and also enhancing its export readiness in fields where trade dynamics matter, such as aquaculture and millets. The opportunity for value addition is prompting the emergence of farm-to-fork direct-to-consumer (D2C) brands, as well as the expansion of dairy and poultry farming for value-added exports. In addition, India is well-placed to address global demand for ‘corn ethanol’ as an alternative to traditional fuels.

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Adoption of an ‘omni-channel’ approach to product and service delivery: As farmers around the country increasingly embrace digital tools, sustainable inputs and innovative practices, agri-businesses can blend digital interfaces with localized last-mile networks—which could be in-person or via call centres—to engage with farmers. This would not only create a seamless experience for farmers across multiple agri-business touchpoints, but also enhance engagement, stickiness and their openness to try new approaches and technologies. Managing network costs and optimizing service overheads hold the key to success in this endeavour.

By capturing such value-creation opportunities, India’s agricultural sector could contribute significantly more to economic growth and bolster the country’s position globally.

The authors are, respectively, partner & senior engagement manager at McKinsey & Company.