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India’s Agriculture on the Brink

Sound food policy should be a priority for India, on track for the world’s largest population by 2025. India has also achieved status as a major food exporter with rice, wheat and buffalo beef. Indian policies emphasize minimum support prices for farmers and subsidized crops for the poor, but these in turn spur food inflation, price volatility, overproduction of grains and overworked land. The government purchases about one third of all cereal output, yet pro-cereal policies hinder production of non-cereals like fruits, vegetables and dairy products, which benefits other export nations like Canada or Australia. Despite misgivings by economists, a food security bill guaranteeing low prices for more than two thirds of India’s population is winding its way through parliament. “The end result of these policies will be India’s forced integration into global agricultural markets, not only as a grain importer, but also as a leading buyer of non-cereal commodities,” explains Deepak Gopinath, director of a research service on emerging markets. Global markets won’t provide special pricing for India’s poor. – YaleGlobal

India’s Agriculture on the Brink

Misguided policies boost short-term output, yet may transform India into a food importer
Deepak Gopinath
YaleGlobal, 27 March 2013
Export boom to agricultural bust: Wheat, overproduced, stored out in open, then exported to cut waste (top); deep tubewell irrigates wheatfields of Punjab, draining aquifers

NEW DELHI: After decades on the sidelines of international agricultural trade, India was poised last year to become a major food supplier, overtaking traditional exporters of food grain and meat. This could prove to be flash in the pan. The sudden rise and fall of India as food exporter is of its own making: populist calculation by the ruling coalition, sacrificing sustainable policy. India’s shining as a grain exporter could also signal general decline of the country’s agriculture industry, with falling aquifer levels and degradation of soil.

India has long been the sleeping giant of global agriculture. Despite being the world’s second largest producer of agricultural goods, including rice and wheat, it’s been slow to integrate into global markets, preferring instead to maintain a relatively restrictive trade policy. The country limits imports to products such as oilseeds and high-protein seeds known as pulses, which cannot be produced domestically in adequate quantities. India tends to curb exports to safeguard domestic supplies.

That has changed. India overtook Thailand to become the world’s biggest rice exporter – shipments accounted for 25 percent of global exports. Wheat exports also rose sharply, with India’s share reaching 5 percent; the country also overtook Brazil to become the world’s biggest exporter of buffalo, capturing 24 percent of the global beef market.

India’s newfound position as leading food exporter will be short-lived, however. Government policies that prioritize the production of rice and wheat and a new right-to-food law that’s now before the parliament will not increase food security. Instead, policies will drive food inflation, accelerate India’s transformation into a net grain importer and increase its dependency on global markets for non-cereal foods. India will be forced into the global food marketplace and not on its own terms.

Growth in India's Total and Agricultural GDP. Enlarge Image

The main driver of India’s unusually large grain exports last year, and of its coming shift into a major food importer, is the government’s food procurement and distribution system, set up to provide subsidized rice and wheat to the poor.

The system is supposed to work like this: The government provides farmers production incentives by committing to open-ended purchases of rice and wheat at annually specified minimum support prices, or MSPs, with farmers free to sell either to the government at the MSP or at market prices, whichever is higher. MSPs are supposed to be floor prices, designed to provide farmers with a safety net in case of a collapse in market prices. The grain procured by the government, by individual states and also by the Food Corporation of India, FCI, is then added to a central pool managed by the FCI. Grain stocks in the central pool are then distributed to the poor via the so-called Public Distribution System, PDS.

In reality the system leads to a series of dysfunctional outcomes, including food inflation, overproduction of rice and wheat relative to non-cereal commodities, accumulation of excess grain stocks and rapid erosion of the country’s agricultural productive capacity.

Seeking to shore up its popularity, the government has rapidly increased MSPs of rice and wheat over recent years. The result: MSPs tend to exceed market prices during the procurement season. Selling to the government is the first rather than the last resort for farmers – especially in major grain-producing states such as Punjab and Haryana, where the government now procures almost all grain arrivals.

The pro-cereal policy has been successful in boosting output, but at a cost. Production of non-cereal foods such as pulses, oilseeds, fruits and vegetables – in increasingly high demand as incomes increase – has lagged, driving up prices and benefiting those countries that meet India’s growing demand.

Policies that prioritize grain production will force India into the global food marketplace, not on its own terms.

The government’s commitment to open-ended purchases of wheat and rice at ever-higher MSPs has led to a cycle of ever-increasing procurement. The government buys approximately one-third of total cereal production. This also contributes to food inflation. Elevated MSPs and state taxes keep private traders out of the grain market and discourage high stock levels. So open market availability of wheat and rice falls after the end of the procurement season – thus boosting prices. Wheat and rice prices rose 23 percent and 10 percent year on year, respectively, through November 2012, even as the country was exporting. 

High levels of procurement have resulted in rapid accumulation of grain stocks, now 66 million tons, more than double the required buffer. To place this in perspective, India’s wheat stocks are equivalent to Australia’s entire annual production of the grain, while its stocks of rice are 50 percent more than Thailand’s yearly output.

The level of stocks far exceeds the government’s storage capacity and results in significant wastage. The government has estimated preventable post-harvest losses of food grain at about 20 million tons per year, equivalent to 10 percent of total production. Faced with excess stocks and need to make room for the next harvest, the government is forced to resort to exports.

Those exports, and the entire cycle of events making them necessary, are unsustainable. India’s breadbasket states are reaching the limits of productive capacity.The overproduction of grains due to ever-rising MSPs has rapidly depleted underground aquifers and sharply reduced soil fertility. With the government concentrating procurement activities and agricultural investment in terms of capital, fertilizers and infrastructure in northern and western states, productivity in the country’s eastern states, primarily rain-fed, has stagnated despite attempts to raise yields. The government will have no alternative but to increasingly depend on international markets when output in the major grain-producing states starts to lag demand.  

India’s breadbasket states – and its grain exports – are reaching the limits of productive capacity.

Perversely, the government’s planned National Food Security Bill will only accelerate this process. The bill creates a right to food for two-thirds of India’s 1.2 billion people and requires the government to distribute heavily subsidized food grain on a massive scale. The law is a major plank of the governing UPA coalition’s electoral strategy for 2014, and the government is pushing it despite well-documented failures of the public distribution system to get food to the right people. Almost 40 percent of the grain in the public system – which distributed 24 million tons of wheat and 32 million tons of rice in 2011-12 – does not reach intended recipients and is diverted to open markets.

The food security bill will increase procurement targets and require higher MSPs, further skewing farmer incentives towards cultivation of grains. The law will reduce exportable surpluses over the next two years because it will require the FCI to carry higher stocks of grains in order to avoid having to resort to large, expensive imports in case of a drought. The law will also hasten India’s transformation into a net grain importer by putting additional pressure on already overstressed farmland.

The end result of these policies will be India’s forced integration into global agricultural markets, not only as a grain importer, but also as a leading buyer of non-cereal commodities. This will benefit grain exporters in the Americas, pulse producers such as Canada, Australia and Myanmar, and palm oil exporters in Indonesia and Malaysia.

Indians will lose out. Food inflation, primarily driven by protein-rich foods such as pulses, dairy, meat and eggs, in addition to post-harvest shortages of grains in the open market, will continue to weigh on incomes. And price volatility will increase as the country’ import dependency increases exposure to the vicissitudes of global markets. The sleeping giant of global agriculture may be waking to a nightmare.

 

Deepak Gopinath is global markets director of the emerging markets research and consulting service, Trusted Sources.

Rights:Copyright © 2013 Yale Center for the Study of Globalization

Comments on this Article

2 April 2013
The writter of the article seems to be a half knowledge person by saying that higher MSP is the reason for inflation , he does not even discuss about the high costs associated with production like cost of seeds etc.
Even in US goverment gives huge subsidies to farms without which they would go bankrupt
The writer fails to discuss the casino game played in derivatives (commodities) which determine the global prices
-Ram , Miami
2 April 2013
To learn more about the extraordinary ability of nopal (Opuntia) to produce energy can write to us biogas@elquiglobalenergy.com
and visit our web www.elquiglobalenergy.com
greeting
Rodrigo Wayland
-rodrigo wayland , La Serena, Chile
28 March 2013
What ails Indian Agriculture?
Norman Ernest Borlaug – the legendary American agronomist once commented, “Man's survival, from the time of Adam and Eve until the invention of agriculture, must have been precarious because of his inability to ensure his food supply”. Men have had always fought against nature and all odds to satiate that one universal need – the need to ensure his food supply and making his family food-secured.
Procurement of food is one of the bigger challenges that third world countries like India face. This is despite of the fact that India today ranks 2nd in the world in agricultural output. According to the World Bank standard index of international poverty threshold of $1.25 a day, close to 42% of the total Indian population lives below the poverty line.
Agriculture in India is the largest economic sector. Farm output in India accounted for 14.6% of the GDP during the fiscal year 2009-10. But the country is facing severe shortages in food supply resulting in continued inflation and increase in food prices. The country’s population is growing faster than its ability to produce.
Once an a noted Economist commented: Agriculture inspite of the glorious opportunities offered to it is sick because it is subjected to colonial economics which no one cares to study and supersede. It is not the resources but resourcefulness that explains why people perish in the midst of plenty.
Here are some solutions:
Lesser intervention from the Government in both factor and output markets and consistent policy formation by the Govt. keeping in mind the welfare of the farmers and not at the behest of mean political leaders
Easing regulatory norms in domestic agricultural trade
Taking non-evasive actions, designing proper incentivized framework for technology up gradation, water management and irrigation facilities to steer clear of infrastructure issues holding back the sector
Encouraging entrepreneurship amongst the farmer community by educating them about farming processes, providing marketing support to sell their yields directly in the market, helping them get access to credit and capital, newer technologies, encouraging non-farm activities, serving better amenities like electricity, water and helping skilled farmers get employment in the labor markets etc are all immediate measures the Govt. needs to take to revive the sector.
To support farmers in dry areas are care-free growth plants like Agave for Biofuel and Opuntia for biogas and subsequent power generation.
Agave(Americana),Sisal Agave is a multiple use plant which has 10% fermentable sugars and rich in cellulose. The fibre is used in rope making and also for weaving clothes in Philippines under the trade name DIP-DRY. In Brazil a paper factory runs on sisal as input. A Steroid HECOGENIN is extracted from this plant leaves. Since on putrification,it produces methane gas, it can be cut and used as input in biogas plants. Also in Kenya and Lesotho dried pieces of Agave are mixed with concrete since it has fibres which act as binding.
Here is an excellent analysis on Agave as a biofuel:
Agave shows potential as biofuel feedstock, Checkbiotech, By Anna Austin, February 11, 2010:
"Mounting interest in agave as a biofuel feedstock could
jump-start the Mexican biofuels industry, according to agave expert Arturo Valez Jimenez.
Agave thrives in Mexico and is traditionally used to produce liquors such as tequila. It has a rosette of thick fleshy leaves, each of which usually end in a sharp point with a spiny margin. Commonly mistaken for cacti, the agave plant is actually closely related to the lily and amaryllis families. The plants use water and soil more efficiently than any other plant or tree in
the world, Arturo said. "This is a scientific fact—they don't require watering or fertilizing and they can absorb carbon dioxide during the night," he said. The plants annually produce up to 500 metric tons of biomass per hectare, he added.
Agave fibers contain 65 percent to 78 percent cellulose,according to Jimenez. "With new technology, it is possible to breakdown over 90 percent of the cellulose and hemicellulose structures, which will increase ethanol and other liquid biofuels from lignocellulosic biomassdrastically," he said. "Mascoma is assessing such technology."
Another plant of great use is OPUNTIA for biogas production.
In the fields where Jatropha is being grown,Agave and Opuntia can be grown as Intercropping.
Agave is a CAM(Crassulacean acid metabolism) Plant. It can contribute to tackle Climate change if grown in vast areas.
As the CO2 content of the air progressively declined millions of years ago, certain plants evolved specialized biochemical pathways and anatomical adaptations that enabled them to increase their intracellular CO2 concentration at the site of its fixation, which allowed the primary carboxylating enzyme rubisco to function more efficiently. The CO2 concentrating mechanism possessed by these CAM plants operates by sequentially reducing CO2 into carbohydrates at two different times of day. The initial reduction of CO2 into a four-carbon sugar is done at night - when CAM plant stomata are open - by the enzyme PEP-carboxylase. Then, during the day when CAM plant stomata are closed, the four-carbon sugar is decarboxylated, increasing the plant's intercellular CO2 concentration, and the resulting CO2 is subsequently reduced back into a carbohydrate, but this time by rubisco.
Dr.A.Jagadeesh Nellore(AP),India
-Anumakonda , Nellore(AP),India
28 March 2013
In my opinion, Indian Government has now open their eye. BGREI is an example of that. Indian government has also initiated to promote non-cereal crops like pulses and oil-seed crop in Haryana and Punjab region. It will take some4-5 years to bring all the projects on track but it will happen. Days are not far away when India will have lion`s share in export of all agril commodities.
-keshav kumar , Darbhanga