Posts tagged ‘farming’

Why don’t Indian farmers grow more fruits and vegetables?

In India, rice and wheat comprise 70% of the agricultural produce by area, but less than 25% by value.  That is, wheat and rice are low value crops to grow compared to other options. Yet, the land area dedicated to wheat and rice has not been decreasing significantly.

Government data shows that the consumption of wheat and rice has been declining around 1-2% in both urban and rural India, while demand for fruits and vegetables has been rising by 2-3% annually.  This again begs the question: Why aren’t farmers shifting to growing more fruits and vegetables?

In addition, detailed studies across the country have also shown that while farmers just about break even (gross return compared to gross costs) on cultivating wheat and rice, growing fruits and vegetables is a profitable undertaking (gross returns are on average 2x the gross costs). Besides fruits and vegetables, there are other crops also which generate higher income than wheat and rice which we won’t go into, to help keep this post focused. (Refer to earlier post for detailed data on gross returns on different cereals, fruits and vegetables)

Having gone through these reports and data, I have been wondering, why, despite all this, do farmers choose to grow mostly wheat and rice?

In other words, if Indian consumers are demanding more fruits & vegetables and these crops are more lucrative anyway, why do Indian farmers keep growing more and more wheat and rice?

Are farmers completely unaware of the difference in returns? Or, is it that despite knowing the disadvantages, they choose to grow wheat and rice?

The first possibility seems rather difficult to believe.  While I am sure farmers have not done a detailed P&L for growing wheat versus okra, it is unlikely that farmers are completely ignorant.  They probably do have a rough idea of probable market prices, input costs and profits.

So what is it about fruits and vegetables that keep farmers from growing them?

Out of intellectual as well as professional curiosity, I have being digging deeper into this question, with the help of field visits and people working in the agri sector.

Here are the results from my own observations and discussions with agri-sector professionals and experts.

  1. Minimum support price. Wheat and rice come with a government minimum support price (MSP), and fruits & vegetables don’t.  Farmers find it assuring to know that MSP exists and may influence open market prices and/or demand for their produce. (Leave aside the fact whether MSP has a real impact on market prices/demand in reality)
  2. Risk of crop failure. Pulses, fruits and vegetables are more vulnerable to adverse weather, leading to higher risk of failure.  Rather than pay for crop insurance (wherever it is available), farmers prefer to simply avoid these crops.
  3. Care and effort required in cultivation: Wheat and rice require less care and effort to grow than fruits and vegetables. Higher care for crops means reduced availability of farmers for alternate income-generating activities, whether crafts or wage labor.
  4. Need to sell quickly due to lack of storage facilities:  India has about 5400 cold storage units. So farmers don’t really have much of an option to store fruits and vegetables for later.  The need to sell immediately means that they are at the mercy of current market prices, unlike for grains which can be held on to for longer.
  5. Price volatility: Fruits and vegetables experience a much higher degree of price volatility than grains.  Part of the reason for this is the high level of mismatch between demand and supply of fruits and vegetables. Part of the reason is the inefficiency of markets in matching supply and demand in different parts of the country.  And of course, part of the reason is their inherent perishability and lack of a cold-chain.
  6. Price realization due to spoilage: Lack of proper storage and transport facilities has yet another impact – spoilage of produce resulting in lower price realization due to poorer quality of produce by the time it reaches markets.
  7. Stored crops as financials assets: As one agri-expert put it, farmers treat grains like fixed deposits, for lack of other ways of saving/keeping money.  They store them and sell them off as needed.  You simply can’t do that with fruits and vegetables! Even cold storage would extend the life of fresh produce by only so much (unless processed, of course – but that’s a completely different topic).

Almost all of the reasons above relate to risk – either production risk, logistics risk or market risk.  Only two non-risk reasons can be seen in the list above – opportunity cost of choosing crops which require greater time and care, and usage of stored crops as financial assets (which in principal can be addressed with better financial access).

Typical solutions to risk management are insurance products, but typical crop insurance products cover only a limited subset of these risks.  And in any case, insurance subscriptions in India have been much lower than hoped for by policy makers and non-profits alike.

So what mechanisms and institutions are needed to address the plethora of risks, to enable farmers to actually deliver what people want to eat and also what gives the farmers higher margins?  Or, if we expand our thinking to non-food crops, we can ask: what mechanisms and institutions will help farmers shift to more lucrative crops?

 

  • Richa Govil

(Richa shares her thoughts on rural businesses at ‘Stirring the Pyramid’)

Advertisements

August 3, 2012 at 4:59 am 4 comments

Why the shrinking share of agriculture in India’s GDP is a good thing

After the release of the latest economic statistics in March 2012, many in development sector circles raised concerns about the rapidly declining share of agriculture in the country’s GDP and rural to urban migration.

But none of these laments make sense, and worse, they are not based on facts.

According to Planning Commission data (from their website), in the last 10 years, the total GDP of the country has more than tripled. Even with the decline in Agricultural share of GDP from 21% to 18.5% (at current prices), agriculture GDP has increased by 2.8x.  This is a good thing and an expected development on the path to economic development.

Similarly, while the % of population engaged in agriculture may be going down as % of population, in absolute numbers, it is still increasing.

These macro-economic trends are part of the long-term structural transformation of the Indian economy.

In fact, the percent of population engaged in agriculture must go down much more dramatically to increase overall agricultural productivity even further and bring average farming incomes above the poverty line. (More on this in the next post)

The development sector should stop doing itself and its target populations disservice by promoting poorly-informed ideas and knee-jerk reactions, and think more deeply about the social and economic direction in which the country needs to go.

  • Richa Govil

(Richa shares her thoughts on rural businesses at ‘Stirring the Pyramid’)

July 18, 2012 at 8:42 am Leave a comment

Farm Sizes & Incomes in India

When looking up any research or facts about about farming in India, one often come across comments about the smallness of farms in India.  So I wanted to understand how small is small.  Here are some statistics from National Sample Survey Organization (NSSO):

Below table shows the data on the average farm sizes in India:

Total area No. of holdings Average farm                         holding size
(million hectares) (millions) (ha/ holding)
1960-61 134 51 2.63
1970-71 126 57 2.2
1981-82 119 71 1.67
1991-92 125 93 1.34
2002-03 107 101 1.06

 

In 2003, the average farm size (what NSSO calls operational landholding) was about 1 hectare, which equals the area of a 100m x 100m plot.  70% of farmers have plots sizes smaller than a hectare.

Next I looked into historical farm sizes and discovered that in the last 30 years, the average farm size has halved. That is, the average farm size in 2003 was 48% of the farm size in 1971.

So the same farm that supported a single family in 1971 now has to support two families.

I suspect the halving of farm sizes within 30 years has much to do with splitting of farms among male offspring of farmers.  With no substantial employment or income-generating opportunities besides farming in rural areas, it is no wonder that splitting of farms is common practice, ultimately making the farms too small to support a family.  [See back-of-the-envelope calculations in an earlier post]

This leads to another line of thought: What is the average income of a farming family in India?

Here also NSSO comes to the rescue and provides us with detailed data.  The average farming household’s income from all activities is apparently Rs. 2,115 per month. The breakup of this income is as follows:

  • From cultivation:                   969
  • From animals:                         91
  • From wage labour:                819
  • From non-farm activities:     236
  • Total household income:    2,115

The average family size in rural India (as per census data) is 5.4.  So the Rs.2,115 per month translates into Rs.13/day per capita, well below the poverty line.

This begs the question: Is small-scale farming a sustainable economic activity?

 

  • Richa Govil

(Richa shares her thoughts on rural businesses at ‘Stirring the Pyramid’)

July 10, 2012 at 6:24 am 4 comments


Recent Posts

Categories

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 5 other followers