Agribusiness

The way forward for Indian Agriculture

The below article is written by Mr S S Sangra, retired Chief General Manager of NABARD. Mr S S Sangra holds an  M.Sc. in Agriculture Economics and has worked for 30 years in various development related fields and is currently a freelance consultant in the field of Agriculture , Micro Finance sectors and livelihood programmes. He may be contacted at sssangra@gmail.com.

indian agriculture 2013

The Way forward for Indian Agriculture

By SS Sangra

Agriculture in India has a long history, dating back to ten thousand years. Today, India ranks second worldwide in farm output. Agriculture and allied sectors accounted for 18 % of the GDP in 2007, employed 52% of the total workforce and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-economic development of India.

India is the largest producer in the world of fresh fruit, fennel, coriander, tropical fresh fruit, jute, pigeon peas, pulses, spices, millets, castor oil, sesame, safflower seeds, lemons, limes, dry chilies and peppers, chick peas, cashew nuts, okra, ginger, turmeric, guavas, mangoes, cow’s milk, goat milk and buffalo milk and meat, Coffee. It also has the world’s largest cattle population (281 million). It is the second largest producer of cashews, cotton seed and lint, fresh vegetables, garlic, egg plant, goat meat, silk, nutmeg. mace, cardamom, onions, wheat, rice, sugarcane, lentil, dry beans, groundnut, tea, green peas, cauliflowers, potatoes, pumpkins, squashes, gourds and inland fish. It is the third largest producer of tobacco, sorghum, rapeseed, coconuts, hen’s eggs and tomatoes. India accounts for 10% of the world fruit production ranks first in the production of mangoes, papaya, banana and sapota.

India occupies 2.4% of the world’s land area and supports over 17.5% of the world’s population. However India has more arable land area than any country except the United States, and more water area than any country except Canada and the United States. Indian life therefore revolves mostly around agriculture and allied activities in small villages, where the overwhelming majority of the population live. As per the 2001 census, 72.2% of the population lives in about 638,000 villages and the remaining 27.8% lives in more than 5,100 towns and over 380 urban agglomerations.

Indian Agriculture has made rapid strides in taking the annual food grain production from 51 million tones in the early 50s to over 200 million tons per annum in the recent years thereby contributing significantly in achieving self sufficiency in food for all in the country. In other words agriculture is the backbone of Indian economy as over 60% population is dependent on the agriculture and the sector contributes 18% to the GDP of the Nation. The green revolution had shown a handsome growth of 4% per annum during the 1980s on an average. The same came down to 3.32% during 1990s and less than 2% in the last decade except a few exceptional years in between. The present five year plan and the National Agriculture Policy documents envisage a growth of 4% in agriculture sector so as to sustain an overall growth of 9%. However it is seen that the agriculture sector is marked by Post Green Revolution fatigue and plateauing yield levels in many parts of the country. There has been sustained deceleration in the growth of agriculture sector for the last 10-15 years in India which needs an urgent attention and corrective measure.

The rising population is leading to fragmentation of land holdings when land is divided between the future generations. The resultant effect is that the no of land holdings in India have increased from 11.558 crore in 1995-96 to 11.923 crore in 2000-01.
Resultantly, India has become a land of small farms, of peasants cultivating their ancestral lands mainly by family labor and by pair of bullocks despite the spread of tractors in the 1980s. About 50 percent of all operational holdings in 1980 were less than one hectare in size which had increased to 62.3% in 2000-1. About 19 percent fell in the one-to-two hectare range, 16 percent in the two-to-four hectare range which reduced to 11.8% in 2000-1, and 11 percent in the four-to-ten hectare range which had also reduced to 5.5% in 2000-1. Only 4 percent of the working farms encompassed ten or more hectares in 1980 but this had also reduced to barely 1% in the year 2000-1. This amply speaks of the dwindling size of the landholdings in India.

It is observed that the all India average size of the landholding has also reduced from 1.41 ha to 1.33 ha between 1995-6 to 2000-01 and by all probabilities the average size landholding presently would not be more than1.25 ha. It is also seen that 62% of the total landholdings are marginal holdings below 1 ha with average size being .40 ha i.e.1 acre per family in the year 2000-01.One can imagine the situation prevailing now, after 10 years of the last census. Such small holdings are often over-manned, resulting in disguised unemployment and low productivity of labour. Irrigation facilities are inadequate, as revealed by the fact that only 52.6% of the land was irrigated in 2003–04, which result in farmers still being dependent on rainfall, specifically the Monsoon season. A good monsoon results in a robust growth for the economy as a whole, while a poor monsoon leads to a sluggish growth.

Productivity in agriculture is mainly dependent on two sets of factors, they are technological and institutional. Among the technological factors are the uses of agricultural inputs and methods such as improved seeds, fertilizers, improved ploughs, tractors, harvesters, irrigations etc. All these factors help to raise productivity, even if no land reforms are introduced. On the other hand the institutional reforms include the redistribution of land ownership in favour of the cultivating classes so as to provide them a sense of participation in rural life, improving the size of farms, providing security of tenure, regulation of rent etc.

The Green Revolution was aimed at the better-endowed regions. For millions of farmers languishing in the dry lands, constituting more than 70 per cent of the cultivable lands, it continues to be a futile struggle. Despite emphasis on dry land farming during the past several decades, the scenario still remains grim. The undulating topography and the irregular rainfall pattern have combined to aggravate the situation. That the dry lands produce about 42 per cent of the country’s food shows that the future of farming lies in these areas. Nearly 83 per cent of sorghum, 81 per cent of pulses and 90 per cent of oilseeds grown in the country come from these areas. The poor yields and the fluctuations in production are indications of the scant attention dry lands have received from policymakers and planners. The problem of increasing productivity on dry lands has serious socio-economic implications. With every passing year, the gap between the farmer’s yields in irrigated areas and in the dry farming region is widening. One year of drought is enough to push a farmer into a deep well of poverty for another two to three years.

Despite the production booms of the Green Revolution, Indian farmers are still primarily small land holders. In fact, in many countries the proportion of small farms is increasing. These aren’t quaint 10 hectare farms, either. Average farm sizes continue to hover around one hectare, and has even shrunk in some places. Average farm size in the U.S., by contrast, is around 170 hectares (418 acres). It’s difficult for farmers in India with such small plots of land to make a living, let alone a profit. A bit of consolidation would go a long way towards propping up incomes without turning Indian agriculture into a clone of Western factory farms.

The low productivity in India is a result of the following factors:

Priorities for Agriculture and Rural Development”, India’s large agricultural subsidies are hampering productivity-enhancing investment. Overregulation of agriculture has increased costs, price risks and uncertainty. Government interventions in land, labour, and credit markets. India has inadequate infrastructure and services. The allocation of water is inefficient, unsustainable and inequitable. The irrigation infrastructure is deteriorating. At the same time over pumping made possible by subsidized electric power is leading to an alarming drop in aquifers. The overuse of water is resulting in falling of groundwater each year, which is a limited resource. Adoption of modern agricultural practices and use of technology is inadequate, hampered by ignorance of such practices, high costs and impracticality in the case of small land holdings.

Illiteracy, general socio-economic backwardness, slow progress in implementing land reforms and inadequate or inefficient finance and marketing services for farm produce.

Inconsistent government policy- Agricultural subsidies and taxes often changed without notice for short term political ends.
The Indian Agriculture is also characterized by traditional agriculture practices on small land holdings, low levels of productivity and degradation of natural resources in some areas. Declining capital formation both in public and private sectors, lack of infrastructural, control on the agriculture produce movement, storage and sale of agriculture produce continued to affect the economic viability of agricultural practitioners. Thus, despite having achieved national food security the well being of farming community continues to be a matter of great concern for the planners and policy makers in the country.

For sustained 4% growth in agriculture, there is an urgent need to improve productivity, reduce costs and improve quality and efficiency. It is a great challenge and would require vision, policy orientation and re-channelization of resources. There is a great need for a definite change from subsistence farming to commercial farming in view of the ongoing rapid transformation under the spell of globalization. This transformation can be made possible through both financial and non financial support like creation of the infrastructure, supply of quality seeds, fertilizers, strong agriculture research and its outcome deliverables and the dissemination of the same through strong and effective extension services.

The emerging need in agriculture today is adoption of location specific skill and knowledge based technologies, promoting greater value addition to agriculture produce through improved post harvest technologies, agro processing, new partnerships between technology users and the corporate sector, input and output marketing chain, harness IT more effectively to realize financial sustainability and compete not in the domestic but also the international markets.

During 51st meeting of the National Development Council, the Hon’ble Prime Minister of India opined that the monsoon alone is not responsible for the stagnation in agriculture sector. He asserted that the problems with agriculture go beyond weather and that there has been a loss in momentum. He emphasized that there is a need to strengthen the entire chain of activities related to agriculture – the supply of inputs and credit, diversification of crops, better production practices and improved post- harvest management. He called for toning up the agriculture credit system so as to ensure supply of timely and adequate credit at reasonable cost. He further emphasized the need to double the annual food grains production from 210 million tons to 420 million tons by 2015, the bench mark to achieve United Nations Millennium Development Goal.

The agriculture extension support system, particularly the public network, in the country was considered to be effective tool in transferring the farm technology from lab to land of the farmer. But the extension system has almost collapsed because of variety of reasons. In fact, the strategy of the public extension services in India so far has been in the activities of technology transfer from agricultural universities/ research institutions to farmers regarding production practices, education regarding soil and water conservation, plant protection measures etc.

These basically aimed at directing the input supply in a desired manner to enhance the productivity of agriculture. Most of the departments entrusted with the responsibility of extension services are facing severe manpower and fund constraints and therefore hardly visit farmers at the time of agriculture operations. Moreover the additional responsibility of disbursal of subsidies devolved on majority of the departments has also led to their change in priority and use of available time which is hardly used for the technology transfer from agricultural universities/ research institutions to farmers regarding production practices, education regarding soil and water conservation, plant protection measures etc. The consequences of failure of public extension system network is felt now which is quite visible in form of decline in agricultural productivity and production.

Agricultural extension has now to be seen as playing a wider role by developing human and social capital, enhancing skills and knowledge for production and processing, facilitating access to markets and trade, organizing farmers and producer groups and working with farmers toward sustainable natural resource management practices.

Farmers require information related to the most appropriate technological options, management of technologies, including optimal use of inputs, changing farm system options (mixed farming and diversification, animal husbandry, fisheries),sourcing reputable input suppliers, Collective action with other farmers and estimation of consumer and market demands for products.

The declining technology adoption, low technology absorptions, adverse effects of technologies, infrastructural bottlenecks, lack of awareness, rising input prices, low level of net income margins and investible surpluses, commodity prices, rate of return, terms of trade, nature of commodity market etc., are all detrimental to the farmer interest and needs to be tackled in an effective manner.

Agriculture & Rural Financial system

Most of the suggestions made by various committees to improve functioning of rural credit system are in the nature of cautions and regulations on the supply side of credit. There is no denying that there are supply side problems. But there is also problem on the demand side of the credit. Generating demand for credit products and services need a suitable strategy at the bank/ NGO/ Developmental department level in the form of financial literacy & awareness creation among the client group on one hand and identifying worthy client on the other hand.

Emerging demands in India

Sustained increases in per capita incomes of about 4 percent per year during the past two decades, the consumption patterns in India are changing away from cereals to high-value agricultural products. How fast has the consumption basket of an average Indian changed? Data from the National Sample Survey Organisation (NSSO) show that per capita consumption of cereals from 1977 to 1999, for example, declined from 192 to 152 kilograms per year in rural areas and from 147 to 125 kilograms in urban areas.

The consumption of fruits, on the other hand, increased by 553 percent, of vegetables by 167 percent, of milk and milk products by 105 percent, and of meat, eggs, and fish by 85 percent in rural areas over the same period. Similar changes occurred in urban diets. These dramatic changes indicate a structural shift in Indian diets. Add to this the new export market opportunities for many of the said products, owing to trade liberalization, there is a happy match between the demands of the market and the need for farmers to diversify into high value activities.

Further, high-value agricultural products have higher employment elasticity and can be suitable for small holders, if they can participate. In this new situation, more of the energies and resources of the agricultural sector can be unleashed to produce the kinds of high-value foods and products that are now in high demand by India’s growing middle classes and urban dwellers and that have new export market opportunities. A reinvigorated agricultural and agribusiness sector could thus continue to be a major engine of income and employment growth for the country.

Despite the tremendous opportunities ahead, success is not yet assured.

Important challenges will need to be overcome.

The first challenge is to further shift the government’s priorities from heavy support and protection of food staples to promotion of agricultural diversification, processing, and commercialization. Simply put, most farmers are not going to get rich by growing cereals when there are already national surpluses, demand growth is slow, and world markets are glutted with the subsidized production of rich-country farmers. Farmers especially the small farmers must shift into higher-value products to increase their incomes from the same unit of land. A set of public policies and investments is required to fully unleash this new potential.

This set must include additional public investment in the kinds of rural infrastructure and technologies needed for these new high-value activities, the Government need to develop an umbrella services like establishing infrastructure, improvements in marketing and distribution systems for higher-value and more perishable foods, and further liberalization of the agro industrial sector.

The private business sector can and should play a dominant role in these higher-value market chains, and public policy must strengthen the enabling environment. This change will require a fundamental shift in thinking in many public agencies that are still geared toward the dominant role that the state played in the market chains for food staples during the Green Revolution era. Although some of the funding for these new investments will come from the private sector, new public investments are also needed.

The needed funds might be obtained by reducing some of the huge subsidies that are still maintained on fertilizers, credit, and water for the food staples sector and that no longer serve a useful purpose. This could be a win-win strategy for farmers and the government and at the same time could contribute to national economic growth.

The second challenge for the “new” high-value agriculture is to make it pro-poor. Left to market forces alone, the major beneficiaries of the new high-value agriculture will be mostly the larger and commercially oriented farms, as well as farms that are well connected to roads and markets. The majority of the 300 million or so poor people in India are rural people who depend on agriculture for their living, and many live in the less-favored regions.

These people must not get left further behind during the next phase of India’s agricultural development. Fortunately, there is great opportunity to guide the new high value agriculture so that small farms and even many less favoured regions can be major participants. Achieving broad participation will require improving infrastructure and education in many less favoured regions and communities, ensuring that small farms get the technologies and key inputs they need, and promoting producer marketing organizations that can link small farmers to the new market chains (supermarkets, contractors, processors, exporters, and the like).

Small farmers cannot do all of these things on their own, and the public sector, private sector, and NGOs all have important roles to play singularly as well as jointly, because high-value agriculture demands more working capital, which small farmers often lack, a major effort must be made to reform the rural credit delivery system to reach smallholders.

Innovative institutions promoting vertical coordination between farms, firms, and forks (supermarkets) would reduce transaction costs and market risks and would also act as a conduit to funnel more credit into this venture, especially for smallholders. This system would help lay a foundation for globally competitive agriculture in which smallholders can also equally participate and prosper.

Public policy can make a major contribution by facilitating farmer organizations, standardization, transparent food safety policies, and contract security between farmers and the processing and retail industry.

A third challenge will be overcoming many of the environmental problems that now plague agriculture. Water scarcities will continue to grow, and farmers must learn to use less water and to be less polluting. Land degradation and deforestation must also be contained. A shift toward more diversified and higher-value farming systems will help, both because many of the new crops need less water and because, by increasing returns to land, small farmers will have less need to over exploit poor lands and soils. Although agriculture can make a significant contribution to growth, employment creation, and poverty reduction, on its own it will not drive the full economic transformation that is now possible for India.

A fourth challenge, therefore, is for policymakers to find ways of accelerating growth in the service and manufacturing sectors, which will require continued economic liberalization and privatization.

Lastly, India can harvest rich returns from trade liberalization, provided it also carries out large-scale reforms to streamline domestic markets and put in place the infrastructure and institutions to connect local markets with national and global markets. These reforms would involve removing all controls on the functioning of domestic markets, such as movement restrictions, stocking limits on private trade, levies on rice and sugar mills, control on investments in large-scale agro processing and on foreign investments in retail chains, and bans on direct buying from farmers by processors.

India should also introduce new institutions such as futures trading that can reduce market risk and promote investments. Further, to integrate the domestic markets with world markets smoothly and manage trade liberalization more effectively, India needs institutions that can closely monitor movements in world and domestic prices and take timely and appropriate actions to avoid major shocks.

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