September , 2018
Better infrastructure holds the key to higher farm income
11:31 am

Tushar K. Mahanti

To make agriculture sustainable, the grower has got to be able to make a profit,” Samuel Sharon Farr, an American democratic politician, farm sector’s growth dynamics. 

In India, every government, irrespective of political hue, agrees with Farr’s observation, talks of farmers’ plight and the need for raising their earnings. But more often than not these good intentions remain in policy documents. The saga of farmers’ distress  continues due to the piling up of debts or crop failures.

Agriculture plays a crucial role in India’s economy and polity. The sheer size of the farm population makes it the biggest vote bank while its obligation to provide livelihood to a vast population makes it the single most important economic agent.

No wonder, Indian Prime Minister Narendra Modi too began his journey by promising to uplift the sector’s economic dynamics. Soon after taking over office in 2014 he called for converting farmer’s challenges into opportunities and urged policy makers to give priority for boosting the agriculture sector with a target of doubling the income of the farmers by 2022. Agriculture should be made employment-oriented to make it attractive to the new generation cultivators and its growth must keep pace with that of the manufacturing and the service sector, he insisted.

India holds the second largest agricultural land in the world. It is the largest producer of spices, pulses, milk, tea, cashew and jute; and the second largest producer of wheat, rice, sugarcane, cotton and oilseeds. It is second in global production of fruits and vegetables, and is the largest producer of mango and banana. It also has the highest productivity of grapes in the world. And yet it has the largest number of undernourished children in the world and the largest number of hungry mouths. Sadly most of these hungry people live in rural areas which produce such huge amount of foodgrains and fruits.

According to the latest FAO estimates in ‘The State of Food Insecurity in the World, 2017” report a huge 190.7 million people are undernourished in India. By this measure 14.5% of the population is undernourished in India. Also, 51.4% of women in reproductive age between 15 to 49 years are anaemic. According to the report, 38.4% of the children aged below five are stunted (too short for their age), while 21% suffer from wasting, meaning their weight is too low for their height. And since a majority of these hungry people live in villages where agriculture is still the primary economic activity, the onus to provide food to these people fall on the sector.

Low productivity is behind poor farm income

New Delhi aims to double the income of the farmers. And if this move would include larger investment in the sector and shifting to high value crops, the primary objective must be to raise the crop yield of Indian farms. The negative consequences of low agriculture yields extend from precarious incomes of farmers to large tracts of land locked in low value agriculture, despite growing demands for high value products. According to NSS data, the average annual income of the median farmer net of production costs from cultivation is less than Rs 20,000 in 17 states. This includes produce that farmers did not sell (presumably used for self consumption) valued at local market prices. Given high wedges between retail and farm gate price, this might underestimate income but it is still low. Moreover, the variance in agriculture income between the more and less productive states is also very stark.

The lower yield has been affecting the overall production leading to a steady decline in agriculture’s share in national income. The growth rates in agriculture fluctuated at 1.5% in 2012-13, 4.2% in 2013-14, - 0.2% in 2014-15, 1.1% in 2015-16, 6.3% in 2016-17 and an estimated 3.3% in 2017-18. The uncertainties in growth in agriculture are explained by the fact that 60% of agriculture in India is rainfall dependent and there have been two consecutive years of less then normal rainfall in 2014-15 and 2015-16.

An increase in farm productivity will not only raise overall foodgrains production in the country but it will also increase the earnings of the farmers, the precondition for energising the rural economy. As it is, yield rates of major cereals in India are precariously low when compared with the global averages.

Take the case of rice, India’s main cereal; in 2016-17 the country produced 110.15 million tonnes rice from 43.19 million hectares of land at an average yield of 2.5 tonnes per hectare while world yields remain little varied year-to-year at a robust 4.6 tonnes per hectare in 2016.

China and Brazil had yield rates of 4.7 and 3.6 tonnes per hectare respectively, in 2015. That is, if India’s productivity was equal to that of Brazil, it would have produced 155.48 million tonnes of rice in 2016-17 with the same amount of land. At China’s yield rate the Indian rice production during this period would have been a mind-boggling 203 million tonnes. Egypt leads the world in rice yields currently and at Egypt’s yield rate, India could nearly triple its rice production devoting the same amount of land.

If the yield rate of wheat is somewhat higher than that of rice, it is still considerably lower than most of the big global producers. With 98.8 million tonnes of wheat from 30.59 million hectares, India’s yield rate of 3.22 tonnes per hectare in 2016-17 was higher than that of Brazil’s 2.73 tonnes per hectare; it was lower than South Africa’s 3.4 tonnes per hectare and China’s 3.4 tonnes per hectare. If India were to have a yield rate equivalent to that of New Zealand, the highest in the world, the wheat output would be two and a half times that of the present level.

Higher yield rate would increase farm output raising farmers’ income. It would make available larger grains for the Indian masses. But what is probably more important is that it would drastically reduce the amount of land needed to produce the current quantity releasing a vast amount of land for other purposes.

The government’s own Economic Survey has in fact, pitched strongly for such a transformation. Low productivity has required larger land to put under cereal production and agriculture “has become cereal-centric and as a result, regionally-biased and input-intensive (land, water and fertiliser). Rapid industrialization and climate change are raising the scarcity value of land and water, respectively,” the Survey has observed.

MSP raised but benefit will go to a few

But if low crop yield is affecting production, the unremu-nerative prices of farm produce seem to be the major cause of low earnings. This is reflected in steady decline in the share of agriculture in GVA – down from18.5% in 2011-12 to 15.2% in 2016-17. This happens despite considerable rise in agricultural production – foodgrains production increased 259 million tonnes to 276 million tonnes during this period. This was partly because the GVA is calculated in monetary value and the growth in crop production is not fully reflected due to poor prices of agricultural produce.

The government, as promised in the last Budget, has increased the minimum support price of crops, giving farmers the promised 50% return on input costs. But this seems to have been done only halfheartedly. The demand of farmers, based on the Swaminathan committee recommendations, was MSP at 1.5 times of the C2 cost (total cost including imputed cost), but what has been given is 1.5 times the A2+FL cost (paid out cost plus family labour cost). And thus, this will ease only a part of the farmers’ problem.

The question is: Will an increase in MSP help the farmers at large? As per the Shanta Kumar Committee, only 6% farmers get the benefit of MSP. If this is true, the raising of the MSP by 1.5% of input costs as proposed in the last Budget will have no meaning for the remaining 94% of the farmers.

Better infrastructure holds key to higher crop yields

The main question, however, remains as to how to increase crop yields? But before seeking an answer one must keep in mind that the increase in yield talked of is in relation to global standard. For, agricultural yield has increased over times but at a snail’s pace. To note, the yield of foodgrains per hectare has increased by just 25 kg in the last five years, from 2,128 kg per hectare in 2012-13 to 2,153 kg per hectare in 2016-17 (Economic Survey 2017-18).

If Indian agriculture has to be globally competitive, it needs investment in infrastructure such as irrigation, watershed development, rural electrification, roads, markets, in close coordination with institutional infrastructure, such as credit institutions, agricultural research and extension, rural literacy determines the nature and the magnitude of agricultural output in India.

Use of high yielding variety seeds, fertilisers and pesticides would increase productivity. But they need irrigation facilities, which India is lacking seriously. According to the latest Agricultural Census less than 40% of cropped area in India has irrigation facilities.

But for farmers probably more important than higher yield or larger output is higher return. After all, India has steadily increased its foodgrains output – up 46.71 million tonnes in last 10 years from 230.78 million tonnes in 2007-08 to an estimated 277.49 million tonnes in 2017-18.

What happened to this rise in production? Farmers were often compelled to sell them at unremunerative prices. The government bought them and staked at FCI warehouses to rot.  The stocks under public distribution system increased three times in the last 10 years from 19.75 mullion tonnes in 2007-18 to 57.80 million tonnes in 2017-18.

Distress sales apart, Indian agriculture needs investment in infrastructure that can promote efficiency by reducing transaction costs and market risks. It has been estimated that loss of primary produce before reaching the market due to lack of proper handling, cleaning, sorting, grading and packaging facilities at the village level is about 30-40% for agri produces such as grains, fruits and vegetables indicates the FICCI-KPMG ‘Enhancing Competitiveness of Indian Food Chain’ report.

A stimulus is needed for sectors that support the agricultural and farm sector such as warehousing, logistics, cold chain, transportation, etc. The agriculture sector cannot prosper unless these support sectors prosper.

India needs to explore export markets for its
surplus produce

India has come a long way from being a food-deficit to a food surplus country. With its varied agro-climatic conditions and large production base, the country has become a leading exporter of fresh and processed food products. Indian agricultural/horticultural and processed foods are exported to more than 100 countries/regions; chief among them are West Asia, Southeast Asia, SAARC countries, the EU and the US.

But Indian exporters of agricultural products continue to face rejections and bans in key markets and most of these are related to non-compliance with food safety and health standards. Such non-compliance is because of several reasons including pest infestations, presence of chemical residues that are banned by the importing country’s national food law, higher than maximum approved levels of chemical residue and food contamination due to germination of bacteria. Rejection and/or bans have not only led to loss of income for exporters, farmers and processors, but also loss of market to exporters from other developing countries who are able to meet the food safety and health standards of importing countries.

India’s agricultural exports declined to $33.87 billion in 2016-17 from $43.23 billion in 2013-14. The share of agricultural exports in total exports of the country has declined to 12.26% in 2016-17 from 12.59% in 2014-15. India needs to reverse this trend and this can be done with institutional support and government agencies vigilance to comply the international food standard.

Whether India will achieve Modi’s ambitious goal of doubling farm income by 2022 is a debatable issue. However, to reach anywhere near this goal the sector needs to generate a higher growth momentum. And this would require considerably higher investments in infrastructure such as irrigation facilities, warehousing and cold storage. The sector would also require to upgrade seed varieties continuously and to better marketing facilities to assure farmers’ justified returns on their produces.



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