Posts tagged ‘India’
In Jan of this year, we’d written this post about the implications of India’s demographic dividend.
One of the things I’d wondered about in this post was the supply of quality education for young children, especially in the 7 states where almost 50% of the births during 2000-2025 will occur. This article from the Mint gives us an idea of the current state of education infrastructure in Bihar, one of the 7 states.
One of the implications of the change in India’s demographic profile is the change in the age-profile of voters across the country. Recent data released from Census 2011 shows an interesting trend. Read this article from the Mint to see why first-time voters are a critical constituency in all states. As the article mentions, ‘a whopping 47% of eligible voters in next year’s national election will be aged 35 or below’, a fairly significant chunk for any political party to target.
A Unicef report titled ‘The Situation of Children in India : A Profile’ tells us that India is home to 20 per cent of the 0-4 years’ child population of the world, which is significantly larger than the number in China even. The number of live births in our country is estimated to be 27 million, which again constitutes 20 per cent of the total number of live births in the world. Reason enough for this to be a really important market for any business that sells products or services to babies, toddlers or kids, whether in the mass segment or premium.
A comparison of the change in the population pyramids of various countries – we looked at these in this post a few weeks back – tells us that India will continue to be an attractive destination for such firms at least another 15-20 years. Though the decline in fertility levels means that the base of India’s population pyramid in 2026 will be narrower than that in 2001, it will continue to be larger than that of other countries for some time still.
The Census of India’s Population Projection Report has some interesting data on the composition of this increase in population. You can access the entire report here, some points from the same below (in blue font) :
- 22% of the total population increase in India of 371 million during 2001-26 is anticipated to occur in Uttar Pradesh alone.
- In fact, nearly 50% of India’s demographic growth during this period of twenty five years, is projected to take place in the seven erstwhile BIMARU states (Bihar, Chhattisgarh, Jharkhand,Madhya Pradesh, Rajasthan, Uttar Pradesh and Uttaranchal); i.e. of the projected increase in population of 371 million in India during 2001-26,187 million will occur in these seven states.
- In contrast, the contribution of the four southern states, namely Andhra Pradesh, Karnataka, Kerala and Tamil Nadu, to the total increase in population size of the country during 2001-2026 is expected to be 47 million -13% of total demographic growth of the country.
This raises a few points relevant to companies selling age or life-stage related products. Those selling products for babies, toddlers or kids would do well to keep in mind that a large chunk of their market in 2026 will be in the erstwhile BIMARU states. They need to plan for building a good distribution infrastructure in those regions and for generating demand after understanding those customers, their sociocultural backgrounds, lifestyles and needs etc. This will be especially critical for companies aiming at scale and large revenues.
If however, they are strong in the southern states and intend to remain geographically focussed, they need to think about where growth will come from once the penetration reaches saturation level. The selected strategy could be in the domain of brand extensions / new products to existing consumer and customer segments, or targeting new consumer segments, but neither option has easy quick-fix solutions.
With due apologies to those that object to the idea of education as a business, another point to ponder over is the supply (or lack therein) of good quality education at every level. This is a service that has been in short supply all over India, more so in the BIMARU states, is this changing at all ? There is some anecdotal evidence I’ve heard of the student mix in colleges in the south changing as the percentage of those from the North increased. But for those at primary and secondary level, studying outside the state (and away from parents) is not an option. What options do they have ? But this runs into the topic for the next post on the topic, which will look at some of the sociocultural implications of this demographic shift.
- Zenobia Driver
Six months ago while attending a small agriculture related workshop I was asked what would I change about agriculture in India if I could change anything. My response was that I would change everything from what is grown, who grows it, how it is sold — almost every aspect of agriculture. But one of the biggest changes I would like to see is “farming as a profession”.
The simple act of putting the word “profession” next to “farming” forces us to invert on its head our typical view of farming, as an activity undertaken by mostly uneducated, unskilled, poor people in rural areas.
Seeing farming as a profession helps us envision an alternate future where farming is undertaken in a more scientific manner, where farmers select which crops to grow based on the ecological conditions of their land (terrain, soil type, water, weather, etc.) as well as the potential net income from the crop. A world where farmers are aware of the optimum inputs (water, fertilizer, pesticides, etc.) required for their crops.
Professions demand a drive towards excellence through continuous learning and improvement and farming wouldn’t be an exception. Farmers would need knowledge, skills, tools and techniques to excel at farming.
People working in the Indian agriculture industry typically mention various issues that need attention; issues such as need for more R&D on seeds, seed banks, access to weather and market information, irrigation, better infrastructure, inefficient and non-transparent markets, etc. But hardly anyone talks about the issue of farming skills and knowledge, which is the biggest component of making farming into a profession.
According to a 2010 paper on information needs of Indian farmers by the International Food Policy Research Institute (IFPRI):
Considering the large number of marginal and small holder farmers, particularly in rain-fed regions, a major need is to build the capacity of farmers to demand and access information to increase their productivity, profitability, and incomes. The information must be reliable and timely. For example, technologies need to be suited to the farmers’ capacity to take risk, which tends to be low in rain-fed regions, and integrated with available and timely services that support the relevant technology.
The same study mentions that for small farmers, the biggest sources of info are other farmers, input dealers and radio. For large farmers, the biggest sources of information are TV, other farmers and input dealers. Roughly 40% of small farmers and 55% of large farmers claim they get some agri-related information from at least one source.
There are many organizations (government, private and civic sector) which are trying to address information needs of farmers. Most of these efforts are stand-alone and do not address the problem in an integrated manner. A private sector service may provide market price information, Digital Green videos may provide info on cultivation techniques while government agencies may offer information on seed varieties.
I wonder if there are any service providers who offer an integrated solution through multiple partnerships with government agencies, private and civic sector organizations.
- Richa Govil
(Richa shares her thoughts on rural businesses at ‘Stirring the Pyramid’)
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.
- 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)
- 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.
- 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.
- 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.
- 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.
- 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.
- 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’)
Previously, I have commented on India’s agriculture GDP and the workforce engaged in agriculture. So I decided to dig deeper into the structural transformation of developing economies to understand where all this is heading.
In the process I came across a thin book titled “A World without Agriculture” by C. Peter Timmer. It is an academic work, not necessarily meant for popular reading, but it is worth getting through.
The book is based on data from 86 countries over 35 years, so it provides a very long-term fact based look at where things may be headed for countries like India going through economic development.
Below, I am paraphrasing/quoting some of the interesting points from the book.
The Structural Transformation: What, When and How
As expected, as economies develop, the share of agriculture in national GDP drops over time. However the agriculture GDP continues to grow in absolute terms (unless of course nature or politics go horribly wrong). For example, India’s agri GDP is currently 18.5% of national GDP, down from 42% in 1970.
The share of agri employment in total labour force also declines over decades. At some point, the agri employment starts decreasing in absolute numbers, not just in percentage terms. For example, agri employment is currently 52% in India — that is, 52% of the workforce is involved in agriculture. This number was 70% in 1970. In India, the number of people employed in agriculture is still growing — we added 20 million people (net of urban migration) working in agriculture over the last decade.
The gap between the share of agri in employment (52%) and share of agri in GDP (18.5%) first widens and then starts narrowing at some level of threshold per capita GDP in the economy. While this number varies from country to country and based on decade, some definitive things can be said about this turning point.
The turning point appears to be around $9-10K GDP per capita across the globe. Also, this number has been growing: i.e., the threshold at which the gap starts narrowing is becoming higher and higher. “Such results are strongly suggestive of a failure of modern economic growth processes to integrate the agricultural sectors of poor countries into the rest of their economies, despite relatively successful aggregate growth records.”
“A widening sectoral income gap — as differences in labor productivity between urban and rural areas become larger – spells political trouble. Rural households that feel left out of the growth process can vote governments out of office… It is no wonder that policymakers feel compelled to address the problem, and the most visible way is to provide more income to agricultural producers. The long-run way to do this is to raise their labor productivity and encourage agricultural labor to migrate to urban jobs, but the short-run approach — inevitable in most political environments — is to use trade policy to affect domestic agricultural prices. In low-income economies, agricultural protection is a child of growing income inequality between the sectors during the structural transformation.”
Looking back at the structural transformation of developed countries: “Virtually the entire growth experience of modern developed countries has been spent on the convergent path of sectoral labor productivity. This is in sharp contrast to currently developing countries, which are mostly at income levels per capita where sectoral labor productivity is [still] diverging.”
(East) Asia versus other countries
There appears to be something distinctively unique about the path Asian countries have taken so far (mostly East Asia, e.g. Indonesia).
“Asian economies tend to employ disproportionately more farm workers in the early stages of development.” Also, “Asian countries provided more price incentives to their agricultural sectors … as a way to prevent the movement of labor out of agriculture from being “too fast”. The net effect is that the turning point for the gap (between agri employment and agri GDP) is around $1600 of GDP per capita for Asian countries compared to $11,000 for non-Asian countries. “This difference underscores two distinctive features of Asian economies: their more rapid growth and the greater role of agri productivity in that growth.”
A side note: India’ GDP per capita is currently around $1500 at current exchange rates.
Paradoxical Role of Agriculture in the Structural Transformation
“The past decade has brought a quiet revolution in the understanding of determinants of poverty and the mechanisms for reducing it in a sustainable fashion. Partly, it is a simple recognition that economic growth is the main vehicle for reducing poverty – provided the distribution of income does not widen too sharply.”
“In current strategies used by countries and donor agencies to cope with poverty, the role of agriculture has been limited, largely because of a failure to recognize the importance of direct links among agri development, food availability, caloric intake by the poor, and poverty reduction.”…
“The case [for linking agri to poverty reduction] builds on three empirical relationships: between agri growth and poverty alleviation; between increases in domestic food production and improvements in nutrient intake; and between agri productivity and productivity growth in the rest of the economy.”
“An agriculture-driven growth strategy, if it does not sacrifice aggregate growth, directs a greater share of income to the poor – that is, it is more pro-poor. Such a strategy is the first step in breaking the cyle of poverty.”
So the paradox is that in trying to make agri a vanishingly small sector of a growing economy, the economy must invest in increasing agricultural productivity.
“Throughout Asia, most rural households earn half or more of their income from non-farm sources, and often this sector is the “ladder” from under-employment at farm tasks to regular wage employment in the local economy, and from there to jobs in the formal sector.” So investing in creation of this ladder is equally important.
- “Structural transformation has been the main pathway out of poverty for all societies, and it is depends on raising productivity in both the agri and non-agri sectors (and the two are connected).”
- “The process of structural transformation puts enormous pressure on rural societies to adjust and modernize, and these pressures are translated into visible and significant policy responses that alter agri prices.”
- “Despite the decline in relative importance of agricultural sector leading to the “world without agriculture” in rich societies, the process of economic growth and structural transformation requires major investments in the agri sector itself. This seeming paradox has complicated (and obfuscated) planning in developing countries, as well as for donor agencies seeking to speed economic growth and connect the poor to it.”
- Richa Govil
(Richa shares her thoughts on rural businesses at ‘Stirring the Pyramid’)