IMA
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Research for Strategy
Indian Agriculture
Challenges and Prospects
IMA India
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© 2009, IMA India
Research for Strategy
Disclaimer
This document has been prepared by International Market Assessment India Private
Limited. It provides an analysis of the key challenges facing the agricultural sector in India
and IMA’s assessment of the sector’s prospects in the years ahead.
This report is not intended for decision making purposes. Whilst the information contained
in the following pages is accurate to the best of our knowledge and belief, IMA India cannot
assume any responsibility for the outcome of actions initiated, or decisions taken, as a
result of this document. Moreover, IMA’s assessment is based on conditions as they
existed at the time of writing this report, and these may no longer be applicable consequent
upon changes in political, economic or trade conditions within the Republic of India or
elsewhere.
The contents of this report are the intellectual property of IMA India and are copyright
protected. Unauthorised copying, reproduction or distribution of the information contained
in this report would amount to an infringement of law and would invite applicable penalties,
as per Indian laws.
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Contents
1. About IMA India
4
2. The Scenario Planning approach for building
strategy: an overview
7
3. Indian Agriculture: challenges and prospects
12
4. Summary and drawings
40
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I.
About IMA India
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What IMA Does…
• Undertakes in-depth market studies and opportunity
assessments for individual companies: leveraging a full
range of business and market research capabilities
• Provides ongoing market intelligence and risk
assessments to country managers; offers researchbased interpretations and top-level forecasts of the
operating environment in India: economy, politics, key
sectors, emerging business issues, etc
• Provides closed-door discussion platforms that
enable focussed and high quality intellectual exchanges
between senior executives on current and strategic
business issues
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Four Business Streams
• Research and Advisory Services
– Proprietary studies for individual clients across issues and sectors
– Leveraging a unique methodology comprising extensive desk
analysis complemented by expert insights obtained from internal and
external domain specialists
• Peer Group Forums
– Membership-based executive briefing and research services: a
platform for obtaining country intelligence and exposure to
authoritative minds; access to top-level India research
– An extensive corporate network: a forum for sharing experiences and
learning from peers and pioneers
• Conferences and Business Meetings
– Closed-door Roundtables for senior executives
– Driven by research-based agendas and intense interaction
• CFO Connect:
Connect first-of-its-kind thought leadership journal for
CFOs
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II.
The Scenario Planning approach for
building strategy: an overview
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Understanding the drivers of agriculture
•
•
The performance of the agriculture
sector depends on several drivers,
which, rather than impacting the
sector in isolation, interact with each
other and also depend on subdrivers, consequently strengthening
or weakening specific trends
Policy
factors
Macroeconomy
Market
forces
The key drivers that directly impact
output can be grouped into 6 categories
Global
factors
Technology
Climatic
factors
Performance of the agriculture sector
– Technology (farming and crop technology)
– Government policy (availability of credit, crop specific programmes, etc)
– Cropping pattern (which depends on profitability, awareness, etc)
– Environmental factors (water availability, soil degradation, climate change, etc)
– Market forces (market openness, pricing, transparency, integration with
downstream sectors)
– Global factors (supply-demand, trade norms and restrictions, etc)
Source: IMA research and analysis
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But they cannot be examined in isolation…
One factor alone – cropping patterns – is a function of several
inter-related drivers and sub-drivers
Cropping intensity
Cropping pattern
Profitability
Irrigation
Market price
Yield
Market
openness
Govt policy
on trade
Economic
growth
Consumption
pattern
New crop
technologies
Cost of cultivation
Input usage
(fertiliser, seed, CP
products, etc)
Demand
supply
situation
Quality of land
Changes in land use
Source: IMA research and analysis
Availability of
credit/insurance
Contract farming
Crop-specific
programmes
Contract
farming
Labour cost
Govt policy on
rural finance
Input cost
Cost of fertiliser,
electricity, water,
etc
Technology
(Hybrid, GM crops,
etc)
Procurement
by food
processing
industry
Awareness
Input usage
intensity
Cost of living
(CPI AL)
Public & private
investment in R&D
Penetration of
financial sector
Penetration of
media/IT
Alternative
occupation
Govt policy on
crop focus
Demand
supply
situation
Political
outlook
Food retail
Economic
growth
Urbanisation
Policy on CF
Migration
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Indian agriculture is not ‘one’ concept
• The dynamics for each crop are different in each state –
yields, acreage, farmer awareness and psyche, cost
structures, Government infrastructure
– Upstream issues vary substantially – labour availability, credit,
soil fertility and agronomy, irrigation, input and technology
availability, training
– Downstream markets are even more varied across states and
crops – market openness, procurement chains, processing
infrastructure, food retail, etc
Hence, there is a need for a granular assessment (by
crop, by state/region, by issue) if a business or
investment decision is at stake
Source: IMA research and analysis
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‘Scenario planning’ is therefore, a useful tool
The scenario matrix
Effective implementation,
hand holding for farmers
A market economy with
excessive regulation and
intervention (both institutional
and arbitrary); political
leadership is strong and
enlightened
Pro-equity,
interventionist
orientation
Each driver and its
impact on the business decision
under consideration is subsequently
examined for each scenario
Scenario II:
Nehruvian
Agronomics
Liberalisation of
Scenario III:
Sleeping
Giant
Scenario-based forecast of each driver is
woven into a complete market picture,
based on which the business decision is
Business as usual (BAU)
evaluated
Source: IMA research and analysis
Implementation of agri technology
An evaluation of all driving forces yields
two dominant themes that will guide the
future development of Indian agriculture
– Agricultural policy and
Implementation of technology
A quadrant matrix of these two
overarching issues provides four
possible scenarios
Overall priorities are growth and
employment, with high focus on agrobased industries as one of the means to
achieve this
Progrowth,
marketorientation
agricultural policy/markets
Scenario I:
The Tiger
Uncaged
While growth is a key priority, political
dynamics and immature institutions prevent
the emergence of a clear cut approach on
complex issues such as agriculture
Scenario IV:
Crony
Capitalism
Ineffective implementation,
farmers left to their own devices
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III. Indian Agriculture: challenges and
prospects
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The overriding challenge is ‘sustainable
and profitable growth’ in agriculture…
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But that’s where the generalisation ends
There is a complex web of inter-related causal relationships* which impact
growth – and must be evaluated
Crop Technology
(Hybrid, GM crops,
etc)
Crop
yields
Land degradation
Water availability
Farm technology
(fertiliser, seed, CP
products, etc)
Environmental
factors
Irrigation
Climate change
Government
policy
Public & private
investment in R&D
Crop-specific
programmes
Credit availability
Contract farming
Cost of cultivation
Market price
Farmer
profitability
Sustainable
growth
Food retail
For the sake of convenience,
the issue of crop yields has
been taken as a starting point
for this analysis…
* The schematic diagram shown here is largely illustrative. Sub-drivers of each high level
driver can be further delineated to demonstrate the complexity and inter-relatedness.
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1. Crops Yields: Patchy improvement over
the years…
Rice (kg/ha)
600
3,000
500
2,500
2006
2004
0
2002
0
2006
2006
100
2004
2002
500
2002
1998
200
2000
1994
1,000
1998
500
300
1996
1,250
1,500
1994
2,000
2000
400
2,000
1998
2,750
3,500
1996
South
West
700
1994
North
East
Cotton (q/ha)
Wheat (kg/ha)
• Mainstream food crops have seen a plateau-ing of yields after the
effects of the Green Revolution subsided in the late 80s
• However, there are important exceptions – such as cotton, which has
benefited from the introduction of Bt Cotton
• Across the board, there are significant regional variations in yields
Source: Agriculture Ministry Statistics; Economic Survey 2007-08; IMA analysis
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…and still below world standards
Comparison of yields in selected commodities (Metric tonnes/ hectare)
Rice/paddy
Wheat
Maize
Cotton
Major Oilseeds
Egypt
9.8
UK
7.7
USA
9.1
China
11.1 Germany
4.0
USA
7.8
France 7.5 France
7.5
Brazil
10.9
USA
2.6
Korea
6.7
China
4.2 Germany 6.6
USA
9.5
Argentina 2.5
Japan
6.4
World 2.8
China
4.9 Uzbekistan 7.9
Brazil
2.4
3.3
Pakistan
7.6
China
2.0
World
3.9
India
2.7 World
Pakistan 2.3 Philippines 2.1
World
7.3
World
1.8
India
2.9
Thailand
2.6
Iran
2.0
India
1.1
India
4.6
India
0.8
Myanmar
2.4 Australia 1.6
Nigeria
1.0
• Despite 30 years of intense Government efforts, India’s yields
for most major crops are still below global averages, and far
below the highest standards
• Equally, this indicates the potential untapped opportunity –
for GM crops, better farming practices, improved input usage,
re-balancing of labour utilisation, etc
Source: UN Statistics Division
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There is plenty of scope for improvement
Wheat (kg/ha)
5,000
8,000
4,000
6,000
3,000
4,000
2,000
2,000
1,000
4,000
160,000
3,000
120,000
80,000
Uttaranchal
UP
J&K
Gujarat
40,000
0
Kar'taka
Uttar
Pradesh
Rajsthan
Madhya
Pradesh
Karnataka
Bihar
0
Actual 2003-04
TN
1,000
Improved Practice
Mah'tra
2,000
•
Sugarcane (kg/ha)
UP
5,000
Bihar
Karnataka
Uttaranchal
Maharashtra
Madhya
Pradesh
Gujarat
Rajasthan
Haryana
Bihar
Uttar
Pradesh
Punjab
Improved Practice
Actual 2003-04
Maize (kg/ha)
Chhattisgarh
0
0
•
Improved Practice
Actual 2003-04
Rice (hg/ha)
Improved Practice
Actual 2003-04
Even with current technology, yields can raised significantly: by optimising
farm practices – input usage, sowing techniques, timing, etc
In other studies (e.g. paddy cultivation in UP), it was found that the best
farmer’s overall profitability is 77% higher than the average farmer’s
profitability – purely because of better farming techniques
Source: Planning Commission; Steering Committee on Agriculture; TN Agricultural University;
Centad, Ramesh Chand, Joshi; IMA analysis
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But much else can and needs to be done
Fertiliser
(kg/ha) R2 =
0.93
HYV area
(ha) R2 =
0.92
Pesticides
R2 = 0.42
Irrigated
area (ha)
R2 = 0.34
Regression-based analysis of field data indicates that, when measured on an individual basis,
up to 93% yield variations can be ‘explained’ (accounted for) by fertiliser usage; 92% can be
accounted for by the area under high yielding varieties seeds; 42% can be accounted for by
usage of pesticides and 34% by greater irrigation
Greater fertiliser usage and area under high yielding
varieties can greatly boost yields; greater irrigation as well as
pesticide usage can help too
Source: Agricultural Situation in India, Directorate of Economics and Statistics
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2. Better seeds can raise yields by 40%
•
•
•
•
•
•
An effective means to raise yields is through better seeds – seeds
have an ~40% impact on yield variations
Development of dramatically better seeds has been almost nonexistent in the last decade – hence, greater focus on increasing
adoption rates of existing seed technologies
However, the key constraint is production/availability of certified seeds:
as compared to an ideal of 1:40, average multiplication ratios (for
certified good quality seeds) are 1:17 to 1:23
Meanwhile, GM seeds have fared well: bt cotton has seen rapid
adoption across states since its introduction in 2002; the launch of
Bollgard II in 2006 has given a new push despite higher seed prices
Most states are approaching 80-90% rates of adoption – this should
reach 100% in the next 2-3 years
The next in line is Bt Brinjal…
Key risks include price controls (e.g. Andhra Pradesh); regulatory
issues around GM technology in food crops; and activism
Source: Agricultural Situation in India, Directorate of Economics and Statistics.
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3. Balanced fertiliser usage is equally critical
30000
16000
N
P
12000
K
20000
8000
10000
4000
2006
2000
1994
1988
1982
0
1976
0
1970
•
Total consump. (left axis)
1964
•
Fertiliser consumption in India
('000 tonnes)
1958
•
Unbalanced fertiliser usage is one of the
biggest reasons for stagnant yield and
depleting soil fertility
Fertiliser usage continues to be skewed
due to irrational subsidy structure that
favours Nitrogenous fertilisers over others
Poor fund management by the Government
often leads to acute shortage as fertiliser
companies complain of delayed payments
The rising subsidy bill on this account has
reached worrisome levels – by issuing offbudget fertiliser bonds, the Government is
only postponing the inevitable
1952
•
The average NPK ratio in the past
two decades has been 7:3:1,
against the recommended 4:2:1
Lack of political will has been the single most important
constraint so far – with a strong Government now in
office, there is reason to hope for gradual improvement
Source: Agricultural Situation in India, Directorate of Economics and Statistics; Planning
Commission Sub-group on Fertilisers
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4. Irrigation can raise incomes
Fruits and vegetables can benefit
enormously from irrigation
Crop-wise irrigation availability (% of gross
cropped area)
92.5
28.0
72.4
7.4
20
8.8
15.0
40
15.9
21.1
60
1970-71
2005-06
54.3
80
38.4
56.0
100
17.3
36.1
89.5
Returns (Rs/ha) from F&V cultivation
Type of
irrigation
Irrigated
farm
Un-irrigated
farm
Flow
25,842
4,741
Tube Well
9,666
8,200
Lift
79,776
6,000
Tank (flow)
73,225
8,010
Tank (sprinkler)
64,685
10,188
0
Rice
Wheat
Maize Pulses Cotton S'cane O'seeds
Rice, wheat and sugarcane have received focus for irrigation
provision – largely the outcome of the government’s
paranoia about achieving ‘self-sufficiency in food’; other
crops have been neglected, despite the fact that irrigation
can generate enormous economic returns for them
Source: Agricultural Situation in India; Directorate of Economics and Statistics, Ministry of
Agriculture; IMA analysis
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2.6
Major and medium irrigation
2.5
3.6
Potential Created (m ha)
Potential Utilised (m ha)
2.3
3.5
2.9
4
Potential Created (m ha)
Potential Utilised (m ha)
3
Minor irrigation
0.9
0.7
0.7
0.6
0.5
0.4
0.5
0.6
0.5
1
0.7
0.5
1.5
1.2
1.4
0.9
1.1
0.6
1.1
0.7
0.9
0.6
2
0.8
0.5
2.3
2.1
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
4.1
But irrigation progress has been slow
0
199297
19972002
200203
200304
200405
200506
200607
1992- 1997- 2002- 2003- 2004- 2005- 200697
2002
03
04
05
06
07
• In the latter half of the 90s, the Government’s investment
efficiency (in terms of completing irrigation targets and
utilising potential) dipped to below 50%; in the 2000s,
efficiency improved marginally
• Overall, efficiency in minor irrigation has been higher than
in major and medium irrigation; hence, minor irrigation is
receiving increasing attention from policy planners
Source: Ministry of Agriculture; World Bank; IMA analysis
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5. Credit and land holdings are critical from
an economic perspective
Land size
(acre)
Profit/acre (farmers without
credit)
Profit/acre (farmers with
credit)
Non food
Food
Non food
Food
<1
42,500
4,000
73,500
5,900
1-2
60,000
4,500
70,000
5,675
2-3
62,000
5,000
65,000
5,200
>3
65,000
5,000
62,000
5,200
Avg
57,375
4,625
67,625
5,494
Overall profitability per acre rises with size of land
holdings, but access to credit can compensate for this
and raise profitability by up to 50%; with access to credit,
farmers with smaller land holdings were found to be
more profitable than those with larger farms
Source: Indian Journal of Agricultural Economics, December 2006; data pertains to West Bengal
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Fortunately, credit provision is improving
• Two important developments in
credit are the consistent
increase in penetration of
organised lending (institutional
finance) and the penetration of
the Kissan Credit Card
• Meanwhile, the success of
micro-finance initiatives and
joint industry financing
programmes, will be critical to
watch for
The share of institutional credit
has risen
Non-institutional
Institutional
100%
80%
60%
40%
20%
0%
1951
200,000
1961
1971
1981
1991
2002
Institutional credit: rapid increase (Rs
crore)
100,000
0
1985-86 1989-90 1993-94 1997-98 2001-02 2005-06
Source: Ministry of Agriculture; RBI
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Improved credit: an important achievement
Kissan credit cards (mn)
• Trend changes witnessed
– Commercial banks are
participating in a bigger way
– After initial hiccups, agriinsurance appears to be
improving as well
• On the horizon
– The Multi Application Smart
Card will create a billion credit
cards in circulation
– Tradeable deficits for directed
bank lending will deepen
commercial bank participation
2006-07
70.5
2004-05
44
2002-03
31
Credit disbursement (% share)
Coop banks
Comm banks
RRBs
2006-07
62
1992-93
8000
6000
4000
68
22
10
33
Sum insured (Rs crore, left axis)
Claims (Rs crore, left axis)
No. of farmers (100,000)
Area covered (100,000 ha)
Premium paid (Rs crore)
5
Insurance
2000
200
150
100
50
0
0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Source: ICREIR; Ministry of Agriculture; RBI; IMA analysis; RRB: Rural Regional Banks
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6. But land fragmentation is difficult to
reverse
•
% share of farmers by land holding size (ha):
Land holdings are becoming smaller
Below 1
1 to 5
Above 5
2000-01
4.3
62.89
32.82
1995-96
4.9
61.6
33.5
% share of area by land holding size (ha): Land
holdings are becoming smaller
Below 1
2000-01
•
The percentage of farmers with
marginal holdings (< 1 ha) has
increased from 61.6% to 62.9%,
while that of large farmers (> 5 ha)
has fallen from 4.9% to 4.3%
between 1995 and 2000
The reasons for this are intrinsic to
farming societies – fathers’ land
moves to children, who tend to
divide holdings amongst
themselves
To reverse this trend, the
Government will need to implement
far reaching changes in land laws
to encourage consolidation or
corporatisation – highly unlikely,
given the political ramifications
1995-96
•
18.88
1 to 5
Above 5
29.23
51.89
32.04
17.34
Source: National Agricultural Census; Department of Agriculture; NIC; IMA analysis
50.62
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7. Profitability is still poor, for many
reasons…
200
-200
-250
•
•
0
Uttar
Pradesh
-150
MP
40
Punjab
-100
Chatt'garh
-50
W Bengal
80
Orissa
0
T Nadu
120
AP
50
Haryana
160
Punjab
100
Haryana
150
Wheat profitability: MSP less cost
(Rs/quintal)
Rajasthan
Rice profitability: MSP less cost
(Rs/quintal)
The state of the two main food crops in India demonstrates the farmer’s
poor profitability: for rice, MSP doesn’t even cover cost in states like
Haryana, Tamil Nadu, West Bengal and Madhya Pradesh; wheat is
somewhat better, but still delivers only marginal profit in states like UP
The reasons are related to sharp increases in farming costs and
inadequate linkages with open markets where prices are typically higher
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8. …one of these is rising labour costs
Rice cultivation cost (Rs/ha)
Punjab
WB
UP
Wheat cultivation cost (Rs/ha)
MP
19,000
14,000
2002
2003
2004
2005
Male
22.5
13.5
Female
25.5
15.3
2002
13.8
2005
50,925
28.6
13.7
2004
60,638
33.5
25.9
2003
Agriculture employment projected to fall between
2006-2016 ('000)
The share of rural non-farm workers is rising (%)
20
UP
24,000
2001
30
Punjab
29,000
35,000
30,000
25,000
20,000
15,000
10,000
40
Haryana
Bihar
16.7
10
-3,967
0
1983
•
•
1987
1993
1999
2004
Agriculture
Manufacturing
Services
A key reason for rising costs is the increase in wage rates – a direct fall
out of falling farm labour availability
This trend will continue due to Government efforts (e.g. NREGA) and
other measures to reduce employment dependence on farming
Source: Directorate of Economics and Statistics, Min of Agriculture; P K Joshi, et al, Agr Eco Res
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9. …another is sub-optimal cropping systems
Less remunerative
system
Net return
(Rs/ha)
High profitable
system
Net return
(Rs/ha)
Kahikuchi, Assam
Rice-wheat
16,749
Rice-toria
22,333
Chhattisgarh
Rice-wheat
30,291
Rice-potato
67,496
Ambala, Haryana
Soyabean-wheat
29,851
Rice-wheat
36,399
Sorghum-wheat
13,602
Maize-wheat
22,188
Nasik,
Maharashtra
Rice-wheat
33,378
Rice-groundnut
46,504
Wardha,
Maharashtra
Soyabean-wheat
25,008
Soyabean-gram
32,327
Faridkot, Punjab
Rice-wheat
50,388
Rice-mustard
66,887
Ludhiana, Punjab
Rice-mustard
52,537
Rice-wheat
63,352
If farmers shift away from the decades-old rice-wheat
cropping pattern, they can raise returns significantly – this
realisation is now driving shifts in cropping patterns
Source: Shukla & Shukla, Scope and Limitations of Crop Diversification in Indian Agriculture
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Cropping patterns are improving
Change in acreage between 2000 and 2007 (‘000 ha)
Rice
Wheat
Fruits
Vegetables
Cotton
Pulses
Maize
Sugarcane
Total acreage change
AP
-243
-2.0
405.0
16.9
-29.7
-122.7
192.0
46.6
72.5
Karnataka
-138.4
-21.0
-47.9
42.7
-176.8
-66.7
279.1
-151.1
-288.9
Tamil Nadu
17.99
0
49.3
76.0
-47.9
-157.9
203.5
70.7
144.69
Kerala
-80.5
0
85.6
67.7
-3.8
-9.9
0
1.6
120.3
South – change
-443.9
-23.0
492.0
203.3
-258.2
-357.2
674.6
-34.7
48.59
% change
-5.4%
-8.2%
39.4
18.8%
-14.8%
-3.4%
52.7%
-3.6%
Assam
-375.3
-10.3
42.7
155.2
-1.7
-111.5
-1.2
-1.0
-299.1
Bihar
-261.3
269.2
18.2
61.8
0
-117.2
119.5
23.5
78.0
Chhattisgarh
-39.6
63.2
98.2
242.6
-0.1
281.5
73.3
3.0
845.7
Jharkhand
153
-4.0
16.7
128.3
0
173.7
140.1
-0.1
596.8
Orissa
66
-8.8
52.1
5.8
19.6
205.7
135.7
3.2
590.1
UP
11.9
-293.3
-4.0
113.1
-5.3
59.3
116.2
308.6
320.2
West Bengal
384.8
-26.0
64.3
67.6
-1.2
-54.5
13.9
-4.6
381.3
East – change
-60.5
-10
293.7
774.4
11.3
437.0
597.5
332.6
2513.0
% change
-0.2%
-0.1%
24.3%
25.9%
xx
9.2%
33.2%
16.1%
A significant shift towards high value crops (2000-2007)
Source: Agriculture Statistics, Ministry of Agriculture; IMA analysis
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Research for Strategy
10. Contract farming can raise profitability
• India’s experience with contract
farming has been universally positive
in raising profitability – this is being
helped by the emergence of organised
food retail
• However, there are issues around
reneging of contracts and political
opposition that need to be addressed
In Punjab, private contract farming is best for all
sizes of farmers
Marginal
Medium
Very large
40,000
35,000
Gherkins in Karnataka
(profit/acre)
5,720
3,930
Non contract
Contract farming
Spinach in Delhi (profit/tonne)
1,762
1,169
Small
Large
Aggregate
30,000
25,000
20,000
Contract farmers led
by agribusiness farms
Contract farmers led
by PAFC
Non-contract farmers
Contract farmers
Source: Agricultural Economics Research Review, July-December 2006; Centad, India’s
Agricultural challenge; IMA analysis; PAFC: Punjab Agro Finance Corporation
Non contract
farmers
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11. Contrary to popular belief, ‘cereal’
sufficiency has been achieved
Demand-supply gap projections (mn tonnes)
Edible oil
Sugar
2026
Pulses
2021
40
30
20
10
0
-10
-20
-30
-40
-50
-60
-70
-80
Wheat
2011
Rice
The demand-supply gap is no longer foreseen in cereals
but in pulses and cash crops – a fact that is belatedly
being recognised by Government policies
Source: Demand-Supply Trends and Projections of Food in India, ICRIER, 2008
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1999
2004-05
Fruits
1993-94
Veg
1987-88
Fish
1983
Egg
1973-74
Meat
Milk
Pulses
2004-05
90
80
70
60
50
40
30
20
10
0
Wheat
1999
Rural population
(kg/person/year)
Rice
1993-94
Fruits
1987-88
Fish
1983
Egg
1973-74
Meat
Milk
Pulses
Rice
80
70
60
50
40
30
20
10
0
Wheat
Urban population
(kg/person/year)
Veg
But changing consumption patterns will put
supply pressures on other crops
A clear change in consumption pattern is visible in both urban and rural India –
declining/stagnant consumption of cereals accompanied by increasing
consumption of higher value foods – milk, meat, vegetables and fruits
Increasing incomes will drive greater consumption of high value food
and cash crops – this is creating economic opportunities for farmers
and businesses that did not exist in the aftermath of the Green
Revolution
Source: Planning Commission Steering Committee for Agriculture; IMA analysis
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12. Bio-fuels is one such ‘opportunity’
• Indian bio-diesel acreage (Jatropha) could rise to 5.6 mn
hectares by 2012 and 13 mn ha by 2018
– Of this, the Government expects up to 3 mn ha to come from
currently cultivated area (i.e. diversion from one crop to another)
– The balance is expected to come from rejuvenation of fallow land
and diversion from non-agricultural sources
Acreage for bio-fuels: Government estimates
Year
Diesel
demand
(MMT)
Biodiesel
@5%
(MMT)
Acreage
(Mn ha)
Biodiesel
@10%
(MMT)
Acreage
(Mn ha)
Biodiesel
@20%
(MMT)
Acreage
(Mn ha)
2001-02
39.81
1.99
NA
3.98
NA
7.96
NA
2006-07
52.33
2.62
2.19
5.23
4.38
10.47
8.76
2011-12
66.90
3.35
2.79
6.69
5.58
13.38
11.19
Source: Planning Commission; Committee on Bio-Fuels
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13. The Government’s efforts towards pulses and
non-food crops are fragmented
•
•
•
In response to changing demandsupply dynamics, the Government
has increased focus on cropspecific schemes: National Food
Security Mission; National
Horticulture Mission; the
Integrated Scheme of Oilseeds,
Pulses and Maize
However, each of these suffers
from a variety of inefficiencies
As yet, there is no credible
strategy to address these i.e. we
should expect ‘more of the same’
as far as Government-sponsored
action and implementation is
concerned
Source: Ministry of Agriculture; Directorate of Pulses Development
NHM* allocations (Rs crores) aren't fully
utilised
Budgetary estimates
1951 1916.4
1405
2222.4
2176
1195.78
1202.9
2005-06
Actual expenditure
2006-07
2007-08
2008-09
Targets and achievement in pulse production
Production
target (‘000
tonnes)
Actual
production
% deviation
from target
2002-03
14,400
11,125
-22.7
2003-04
14,800
14,905
+0.7
2004-05
15,300
13,130
-14.2
2005-06
15,700
13,390
-14.7
2006-07
16,200
14,200
-12.3
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In fact, Government spending is inadequate and
ineffective across the board
Public spending on research and extension
% share of total revenue
expenditure, right axis
5,000
0.6
0.5
4,000
0.4
3,000
1,000
0.3
0.2
0.1
2004
2002
2000
1998
0
1996
0
1994
1971- 1976- 1981- 1986- 1991- 1996- 200175
80
85
90
95 2000 2003
Absolute spends (Rs
crore), left axis
2,000
1992
Investment as % of Ag-GDP
Subsidies as % of Ag-GDP
1990
8
7
6
5
4
3
2
1
0
• A Rupee spent on capital formation is 3-4 times as effective
as a Rupee spent on subsidies – but politics prevents reform
• Agricultural investment as a % of GDP has been falling;
instead greater expenditure is being incurred on subsidies
• Although allocations for research and extension programmes
have been increasing, there are inefficiencies that prevent
funds from being fully utilised
Source: RBI; Parliamentary Standing Committee on Agriculture; Steering Committee for the XI
Plan; IMA analysis
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14. Meanwhile, environmental degradation is
emerging as a major threat
• Soil degradation is approaching worrisome levels in most
parts of India; 50% of total land and 66% of cultivated land
degraded – the highest amongst Asia Pacific countries
• Water scarcity projected as the single biggest factor for civil
and social strife in the next decade
Land
degradation
Water scarcity
Physical water scarcity
Approaching physical scarcity
Economic water scarcity
Little or no scarcity
Not estimated
Source: FAO; Sara J Scherr; IFPRI, Ramesh Chand, Centad
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As are falling water tables
Minor Groundwater
Minor Surface water
70
60
50
40
30
20
10
0
Major and
Medium
irrigation
Million Hectares
Future sources of irrigation will
depend increasingly on groundwater…
Ultimiate irrigation potential
Irrigation potential created
…but the level of groundwater is already in a
critical condition in most states
Chattisgarh
Maharashtra
WestBengal
MadhyaPradesh
UttarPradesh
Uttaranchal
Kerala
AndhraPradesh
Karnataka
Gujarat
TamilNadu
Haryana
Delhi
Punjab
Rajasthan
5
9
14
% of blocks/talukas/mandals with
groundwater scarcity
16
18
30
33
38
47
50
61
63
78
82
86
Irrigation potential utilised
Increasing dependence on groundwater irrigation can be
a potential source of failure of future projects, due to
high levels of groundwater depletion
Source: Ministry of Water Resources; Planning Commission, FAO; IFPRI, Centad
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This will have serious long term implications
Climate change impact assessment
• The impact of climate change on the environment is
visibly obvious (IPCC, Working Group II, 2007)
• India’s overall crop yields could fall by 30% by 2050
according to the IPCC; other impact: coastal flooding,
greater drought incidence, reduced water availability
• Other studies suggest vulnerability of 5-15% in rice yields
and 25-42% in wheat yields (Parikh and Kumar, 2002);
response times of mitigation measures are 5-15 years
Climate change presents a ‘real’ and exogenous force
that will work against productivity improvement
measures locally
Source: IPCC; Parikh and Kumar, 2002; others
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IV. Summary and drawings
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In Summary: negative or stagnant trends
•
•
•
•
•
The lack of new technologies after the effects of the Green Revolution have
worn off, is becoming worrisome; very few promising seeds have been
commercialised and most other innovations are still languishing due to poor
extension or lack of investment
Corrective action regarding fertiliser subsidy, inadequate seed production,
market rigidities and other market-distorting policies is desperately needed
– but as yet, political commitment is not visible
Achievement of irrigation potential unlikely to surpass 50% of targeted
acreage, given the large backlog of previous projects to be completed and
the fact that no tangible change has been made in the strategy – hence,
monsoon dependence and erratic growth will continue to plague the sector
In general, the effectiveness of Government measures/schemes will remain
erratic across the country – private participation can help but this will
happen very slowly, at best (fundamental enabling measures such as land
reforms, corporatisation, taxation of agriculture do not look likely at this
time)
Fundamental degradation in environmental parameters and lack of Good
Agricultural Practices (GAP) are not likely to be addressed in the
foreseeable future – this will create a serious long term threat
Source: IMA research
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© 2009, IMA India
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In Summary: positive trends
•
•
•
•
•
Declining per capita cereal intake and rising F&V and other cash crop
consumption will continue on the back of rising incomes and
awareness – this will be helped by food retailing, bio-energy demand
and create new opportunities for farmers and businesses
A consistent movement of labour away from agricultural occupations
will lead to rising wages; this should prompt greater mechanisation
and productivity-enhancing measures
The provision of greater finance to agriculture will continue to
increase – through bank lending, the Kissan credit card scheme, and
the possible introduction of trade-able deficits (for directed bank
lending) as well as private-sector micro-finance programmes – this
will raise farmer incomes and hence, rural demand
There is a shift in Government priority from an overwhelming
emphasis on food-grains and cereals to a more broad-based focus on
profitable and sustainable farming – this will have cascading benefits
for the entire agriculture-to-food value chain in the long term
Individual states are taking the lead on issues like private
participation, land reforms and other measures – this can create
opportunities in the absence of a concerted push from the Centre
Source: IMA research
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Implications for business: general thoughts
• Indian agriculture presents several opportunities:
–
–
–
–
–
Contract farming
New crop technologies – seeds, fertiliser, crop protection
Trading and procurement
R&D
Retail and distribution
• However, most opportunities are at nascent stages – this
presents both an inherent advantage and a risk that must
be explicitly realised
• A granular analysis is critical before any business or
investment decision is made – generalisations are
hazardous in the context of Indian agriculture
• Given the complexity of inter-relationships, it is important to
be in sync with the broader economic, political and market
context, before initiating a new business/activity
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