He also called for a thrust to be given to contract farming and underlined that mandis needed to be privatised.
"Contract farming must be given a thrust. Mandis should have private participation and retail trade in agriculture should be opened to FDI," Chidambaram said.
"The Agriculture Produce and Marketing Committee Acts must be amended and the country should have an integrated food law," Chidambaram said in his address to the Agriculture Summit 2005.
Chidambaram also said a conference of chief ministers will be convened next month to try and impress them of the need for efficiency in cooperative banks so that cheap credit were available to farmers.
In this regard, he said, he had sent letters to all chief ministers for implementing the recommendations of the Vaidyanathan committee on revitalising the cooperative sector.
Highlighting the high cost of finance to farmers, Chidambaram said, "Re-finance from National Bank for Rural Development can be lent at closer to 8 per cent interest but is given at 12 per cent as each stage in credit delivery adds one per cent. The rates at which commercial and rural regional banks are giving rural credit are also high and should be tightened."
"I am determined to ensure that the interest spread is reduced. This responsibility squarely lies with state governments," he said asking states to "wake up" and improve the efficiency of their respective cooperative banks, which were not delivering cheap credit, " he added.
"Nearly 196 cooperative banks do not comply with the Banking Regulation Act," he pointed out.
"I believe, we have exceeded the farm credit target and achieved about Rs 1,08,000 crore (Rs 1080 billion) in 2004-05 (against the target of Rs 1,05,000). We will talk to banks and we hope to set a target of at least Rs 1,40,000 crore for this fiscal," he said.
Expressing concern at the declining share of capital formation in agriculture as a proportion of farm GDP, from 1.92 per cent in the nineties to 1.28 per cent in early 2000, the finance minister said this was largely because of a decline in public investment.
Increasing public investment was largely the responsibility of states, he said. Chidambaram's views were echoed by Minister of State for Food Processing Subodh Kant Sahai.
Speaking on the occasion, Sahai said, "The group of ministers on this subject had met two days ago and agreed that a draft be sent to the Cabinet on the proposed Integrated Food Law."