The Hindu Business Line : Agriculture: No growth story

Agricultural policies have failed to build capacity among small farmers to grow more and respond to market needs. No wonder, farm growth has stagnated at a pitiable annual average of 2.3 per cent for the last ten years.

It is a sad commentary on our governance that even after 50 years of central planning, there are not enough investments in agriculture, which remains a gamble on the monsoon.

G. Chandrashekhar

The first advance estimate of kharif 2008-09 crop released by the Agriculture Ministry makes a few things clear. First, output of major crops is lower as compared with kharif 2007. This is in line with expectation in the case of coarse cereals, pulses, oilseeds and sugarcane.

Rice is the only exception; but even here there is nothing to cheer about, given the mere 0.5 per cent increase in output. A four lakh tonnes increase in an output of over 800 lakh tonnes is unlikely to make any noticeable impact on availability or prices.

Even cotton, on which great hopes were placed, has shown negative growth, as per government estimate. Other crops have fared poorly. Fall in cane output was a foregone conclusion, given the nearly 20 per cent decline in acreage. In the case of soyabean, the government figure casts a shadow on the ambitious industry estimate of output (110-120 lakh tonnes) far exceeding last year’s record level. The government estimate seems nearer the truth.

So, overall, the kharif 2008 crop estimate has little to cheer, for growers and consumers. Fall in domestic production of major crops means tighter availability. Unabated demand on the one hand and tight supplies on the other combine to create a market condition that can be described as potentially explosive.

The Ministry of Agriculture has attempted to explain away the latest crop data saying the long dry spell in July and, more recently, floods in parts of the country have affected agricultural operations, implying that the crop size could have been worse. This raises several serious issues.

What have successive governments done to make the agricultural economy drought-proof and flood-proof? It is a sad commentary on our governance that even after 50 years of central planning, agriculture still remains a gamble on the monsoon. Investment in agriculture is inadequate. There is hardly any capacity building among farmers. Policymakers are content with writing-off farm loans without serious endeavour to reduce the vulnerabilities of farmers.

Prices and production

The second issue that comes to the fore relates to open market prices of essential food crops and their impact on output. During 2007 and much of 2008, open market prices of grains (rice, pulses, coarse cereals), oilseeds and vegetable oils, and cotton ruled at elevated levels.

Consumers surely paid a high price for their food and non-food items of daily consumption. It is fashionable among some researchers and analysts to argue that high open market prices ensure remunerative returns to growers which, in turn, would encourage higher production.

To be sure, there is nothing to suggest that in 2007-2008 (and in previous years too) growers across the country consistently received higher prices for all crops. Given the known system of crop marketing — vulnerable small farmers playing into the hands of middlemen — as also infrastructure and logistics inadequacies, high open market prices do not often translate into a corresponding increase in farmgate prices or higher incomes for tillers. There is reason to believe that farmers may not, after all, have benefited from the high prices consumers paid.

Even assuming that farmers did receive remunerative rates as a result of rising open markets, it still has not had any positive impact on the current crop ready for harvest. Is it likely that farmers across the country pocketed the gains and did not respond with higher output? Again, it is a myth that higher farm goods prices would automatically translate into higher farm output.

That brings us to the third point. As has often been pointed out in these columns, the ability of an average Indian farmer to respond to either price signals or even actual higher prices in the market is extremely limited.

In other words, the supply response to prices is next to nothing. This is hardly surprising because nearly 80 per cent of Indian farmers are small, with holdings less than two acres. They face numerous challenges in terms of availability of quality inputs, irrigation facilities, agronomic practices and marketing infrastructure.

Stagnating output

Despite rhetoric, successive governments and decades-old agricultural policies have failed to build capacity among small farmers to grow more and respond to market needs. No wonder, farm growth has stagnated at a pitiable annual average of 2.3 per cent for the last ten years.

And, during that period, economic growth has brought steep income increase for a third of the population (engaged mainly in manufacturing and services sectors), with propensity to consume more. Stagnant farm output and rising demand has resulted in a demand-supply mismatch and rising dependence on imports.

What do the latest crop numbers portend for food prices? Despite record agriculture production in 2007-08, market prices were at an elevated level. Poor people were the worst hit by unchecked food inflation.

The Government had to initiate precipitate steps such as banning exports, liberalising imports and regulating trade through storage control and so on. Yet, inflation continues in the double-digit. Edible oil is perhaps one item whose prices have corrected down in the wake of global price decline from record levels.

Grain prices too have moderated, but are still relatively high. The rupee is considerably weaker than it was a year ago, making imports so much more expensive. Add to this the recent steep hike in the minimum support price for various crops; and you have a price situation threatening to go out of control.

Global energy market prices have surely moved down from stratospheric levels; yet, the crude price at close to $100 a barrel is still considerably expensive for a country such as India. Because crude is a universal intermediate, its price buoyancy will affect other markets too. Over the next several months, political compulsions are sure to override commercial and other considerations.

Eye on Rabi

The gFor New Delhi, inflation control and augmentation of domestic supplies would be priority. So, one can expect extant trade restrictions to continue.

Much reliance is now placed on Rabi crop and its prospects. Fortunately, 34 out of the 36 meteorological subdivisions have had normal to excess rains by end-September. Yet, except for some pockets, soil moisture conditions are just about normal or even bordering on deficient.

Precipitation during December-January and favourable temperatures (particularly for wheat) are necessary for a large increase in rabi output. If the UPA government rule since 2004 is judged in terms of agricultural performance, it leaves much to be desired.