Economics of Indian Agricultural Sector

 

“Agriculture is not a commodity machine but the backbone of the livelihood security system in India, where 70% of the population is in the villages. So, agriculture is not just a question of economics and trade but of dignity and survival. We need to develop a long-term stake in agriculture. This will pay enormous dividends.”

-      Dr. M S Swaminathan, Renowned Agriculture Scientist.

Agriculture in India plays a vital role. It contributes more than a fifth of the country’s Gross Domestic Product (GDP) and generates 60% employment. The country has 170 million hectares of vast arable land and a range of agro-climatic conditions to produce a wide array of primary food crops. To its credit, India is the world’s largest producer of fruits, vegetables, milk, pulses, wheat and rice. The crop production dominates the sector, representing 70% of the total value of agriculture output. Of the total value of crops, fruits, and vegetables account for 32%, rice 15%, and wheat 10%. In the remaining value of total crop production, oil seeds represent 7%, sugar cane 7%, pulses and coarse 4% each and cotton 2%.

Indian, being an agrarian economy, the performance of agriculture is very important not only from the point of view of economic growth but also for the well-being of the majority of the population. There is no economy in the world impacted more by agriculture than India. Given the sector’s importance, the fate of the economy in India is directly linked to the pulse of agriculture. Though the service sector is booming as the engine of economic growth in the recent past, there is no argument over that India is still agrarian economy.

Agriculture has turned the country’s begging-bowl image to self-sufficiency in food grains. However, critics say that it will be difficult for India to sustain its success without a dramatic change in policy. Since independence, achieving food security or self-sufficiency at national level and household has been one of the main focuses of the sector. These policies have cost exchequer immensely. During the last five decades, the food subsidy (the cost of price support and food distribution) has risen sharply and is estimated that it will increase to Rs.270 bn ($5.9 bn) in 2004-05. These policies also indirectly caused lower levels of infrastructure and this attributed to lower rates of productivity improvement. Experts say that food management policies must, therefore, be geared up to meet the daily food needs of the people rather than be confined to creating huge buffer-stocks in the name of food security.

The Challenges

The sector that provides 60% of employment is virtually stagnant and its development has largely been ignored both by the central and the state governments. During 1980s, the sector witnessed 4% annual growth. Since the outset of reforms process, economists say that whatever money was going into the sector it was increasingly in the form of subsidies, but not investment. This resulted in only 2% annual average growth in 1990s. Besides, the sector is facing several internal and external challenges. Internal challenges like farm production, processing industry and marketing have been there for some time. Further, heavy dependence on monsoons, fragmented land-holding, which are sinking with each generation, low level of input usage, poor pre-and post-harvest practices and inadequate marketing infrastructure are some of the well-known weaknesses that lead to low yields and high cost of the farm produce. These are well recognized and need to be tackled on a war footing. The external challenges have emerged in recent past and are threatening to weaken the sector.

The industry chamber, the Federation of Indian Chambers of Commerce and Industry (FICCI) recently highlighted the alarmingly poor infrastructure in agriculture. Accordingly, about 30% of the villages do not have a metal road within a five km radius, 55% don’t have a seed store, over 80% don’t have repair facilities for agricultural implements, 75% don’t possess warehousing facilities and 60% don’t have a market center. These constraints are inducing low productivity and are plaguing the sector. For instance, from 170 million hectares, it produces 600 million tones, whereas the neighboring country, China harvests from 96 million hectares 860 million tones of food grains. Accordingly, its share in global trade in processed foods is not more than 1% of the global processed food trade and only 1.3% of the total fruits and vegetables produced are processed as against 40% for some developing countries and 70% for developed countries. Around 40% of the India’s produce goes waste every year. The quantum of fruits and vegetables wasted in India is equal to the annual consumption of the UK! In value terms, the loss due to wastage of food grains is Rs.50, 000 crores per year, which is six times the annual food subsidy. In the days to come, the sector will face significant challenges and an opportunity to raise food production, going by the population growth, which is projected to rise to 1.5bn by 2030 from 1bn now. Therefore, the country cannot ignore the challenges of food production and productivity. If we continue to treat the sector in the same way, going by the population growth, it is not ruled out that we may have to import food grain once again.

The Remedies

The need of the hour is a foolproof approach to address agriculture-related issues. Experts say if the Indian Government prioritizes the encouragement of massive investment, especially on rural roads, agricultural research and soil conservation, irrigation, then the sector can play a really effective role for the economy. The Indian government has announced some measures in order to put agriculture and rural development in the spotlight. The government must ban the movement of agricultural products between states so as to enable farmers take advantage of the domestic market. Accordingly, the policy of curbing exports of agricultural products should be reconsidered so as to create export market for the sector. According to a study by CII-McKinsey, India can be the largest food factory given the fact that its food production is equal to that of the US and is second only to China.

The Value Addition

The development of agro-based industries including animal husbandry, fisheries, forestry and food processing are very decisive for the sector. Experts feel that it is time we looked at agriculture from the global standpoint. To its credit, the sector is the world’s largest producer of fruits and vegetables and has enormous prospect for business. Currently, only one per cent of its output is processed. Modernizing the food chain is expected to help inspire a food revolution, raising yields and incomes. This will benefit the nation as well as the industry.

However, the food-processing industry is stated to be caught in a vicious cycle of inefficiencies, wastage. The country’s food processing involves only primary processing which accounts for 80% of the value. Overall, 42% of the food industry is in the organized sector and 33% in the small-scale, tiny and cottage sectors. Also, there are inherent inefficiencies of high cost, scale diseconomies and inadequate logistics support. Even with this stage, by 2005, it is expected to grow up to Rs. 4,80,000 crores, of which Rs. 2,25,000 crores would be value- added foods. Going by the potential of food processing, further development of food processing has a multiplying effect. Experts say that if India has to compete globally, then agricultural production and processing must take place at international costs. In other words, efficiencies need to be built into the agricultural production and processing systems. Newer production technologies need to be examined. However, to maintain this growth tempo, the CII-McKinsey study estimates that large investment of Rs. 1,40,000 crores by 2005 in technologies, skills and capital equipment is necessary.

The Need of the Hour

Being an agrarian economy, the development of sector is extremely important for India. The promotion of cold storages, post-harvest technology and the strong food processing industry are the need of the hour. Ashok Gulati, Director, International Food Policy Research Institute, Washington, USA, says, “If Indian agriculture has to be embrace globally competitive, it does not need sops of free power or even cheaper credit. What it desperately needs is investment in rural infrastructure, agriculture R&D, and effective institutions that can promote efficiency by reducing transactions costs and market risks.”

The industry body, Confederation of Indian Industry (CII), articulates that agriculture in 2004 is similar to it was in 1991. It says that the private sector was awaiting policy reforms that would allow it to make much larger investments in the sector. It believes that agriculture reforms and increased private investment must benefit farmers, especially small farmers by greater corporate investment in getting competitive source of finance, competitive markets to sell to; and competitive suppliers of knowledge. To improve the sector further, economists emphasize that enhancement of farm production through substantial investment in agricultural infrastructure is the only effective instrument for eradication of rural poverty. India has to gear up to exports primary commodities, one of the great challenges of the sector. For instance, Guatemala, a small country, earns more from pepper export than India do because of value addition.

To sustain the growth tempo, it is imperative to make the sector both economically rewarding. It is equally important that the economic benefits of food processing and agri-business are taken to the rural areas. This, in turn, would lead to mechanization of farming and processing. Besides, as experts suggest, privatization of agriculture could be the solution to the problems faced by farmers. Their land holding could be merged in a proper manner, though it need not tantamount to cooperative farming. With larger holdings, farmers can make use of advanced technologies in farming apart from making their voices heard. Finally, to sum it up, as Dr. M.S. Swaminathan recommends, “Marketing is the best fertilizer for the farmer. Once the infrastructure is in place, we can definitely usher in another Green Revolution.”

N Janardhan Rao, Lead Economist.

Farmland Investment: Gaining Momentum

Rising demand for food grains in Asia owing to economic boom and growing demand for corn and ethanol worldwide has resulted in renewed interest in Farmland investment. Similar demand is witnessed in the Gulf countries which have benefited from the current Oil boom but are dealing with rising food insecurity. These countries have started scouting for agricultural investments in Afro-Asian region. This renewed interest in farmland is raising hopes of providing a solution to the global food crisis at a time when the global population is increasing and food production is stagnating.

The age of agriculture is back in trend, as the global food crisis is forcing people to take a fresh look at farming. Farmland is undergoing the biggest revival, as the growing demand for food grains and soybeans from Asia and for corn and ethanol worldwide are making food production procedure a very costly affair. The economic boom in the emerging economies is further driving up the prices of commodities to record highs. Over the next decade, China and India are expected to add around 3-5 million middle-class population each year. This total does not include the growing middle-class population in Latin America, the Middle East and Eastern Europe.

Demand for corn to feed livestock climbed 24% during the last decade as personal incomes and animal protein consumption in emerging economies increased considerably. Rice-bowl nations like China, India, Thailand and Indonesia have already curbed rice exports. Food riots are ravaging several Afro-Asian nations, leave alone oil prices.

In fact, the rising food prices are threatening to increase the possibility of adding another 100 million people to the 852 million who are already hungry. Jacques Diouf, Head, Food and Agriculture Organization (FAO), admitted that “food output must rise 50% by 2050 to meet the rising global demand. However, over the past 20 years, we have neglected investment.” According to FAO statistics, the total agriculture development aid to poor nations plummeted by more than half to $3.4 bn in the last two decades. During the same time, agriculture’s contribution towards development shrank from 17% to 3%. Recently, the World Bank has acknowledged that from 1991 to 2006, it allotted only 9% of its total lending to sub-Saharan farmers who depend on agriculture for their livelihood. As a result, many countries got out of the business of seed, fertilizer and grain marketing, and the unprepared private sector with too little access to financing failed to fill the gap. A growing number of economists are now convinced that the poor nations need a healthy farm sector for sustained economic development.

Gaining Global Demand

The Gulf region may be enjoying the current oil-boom, but it is a victim of food scarcity. Global food crisis has put the Middle East and Africa in a fix, as they are forced to choose between growing more crops to feed their ever-increasing population and at the same time conserving their already scant resources of water. In the Middle East, existing water sources are estimated to last for only 30 years, while population is expected to grow more than double the world average. Further, the region is crippled by a dry climate and shortage of agricultural land; as a result, most of the countries import 90% or more of their food grains. Against this, depending on food supplies from outside world is not only perilous but shortsighted, especially in an era of trade restrictions. 

To meet this increasing demand, many sovereign states are resorting to expensive schemes to secure food supplies for their people. Several Persian Gulf nations, including Saudi Arabia, have started scouting for farmland in the fertile Afro-Asian countries. The UAE and Yemen are pursuing deals worth billions of dollars with several private companies in Sudan and Pakistan for cultivating rice, wheat, sugarcane and fruits. Egypt, where a paucity of subsidized bread sparked civil unrest earlier this year, is aiming to grow wheat on two million acres along the border with Sudan.

South Korean and Chinese multinational firms, with help from their governments, are entering in a big way to invest in farmlands in Russia, Burma, Laos, the Philippines and Africa for growing rice, corn, sugarcane, cassava and rubber. According to the Lao Committee for Planning and Investment, China already has become the second largest agriculture investor in Laos and Burma. It is providing seeds, fertilizers, pesticides and farm machinery to the farmers in those nations. China, under pressure to feed its 1.3 billion population, wants to enforce high tariffs on food imports from developed countries. With food grain stocks exhausted and prices at an all-time high, the poor nations too are turning their back on the old ideas and opening doors to investors. This has encouraged businesses and investors to channelize billions of dollars into farmland and food production.

The prudence to foresee mounting demand for food has led to investments in facilities involving food production such as farmlands, fertilizer, grain elevators (buildings for storage and shipment of grains), barges (flat-bottomed boats built mainly for river and canal transport of heavy goods) and ships. Even though the equity markets have not completely come to terms with the enormity of this growing demand, private equity and hedge funds around the world are making huge investments in farmlands.

College endowments, pension funds and real estate fund managers are buying farmland, even as home construction companies are deserting thousands of undeveloped parcels in the US. They are aggressively placing bets on agricultural commodities like corn, wheat and soybeans. Fresh from the sting of the subprime catastrophe and the credit squeeze, banks and investment companies are also beginning to add farms to their more conventional investments. A majority of them believe that although the current surge in food prices is partly due to transitory factors like drought and biofuel subsidies, the demand for food is likely to rise in the long run, which presents a potential investment prospect. In fact, the value of farmland has been increasing at rates greater than the residential market growth over the past decade.

Untapped Potential

According to Agcapita GP Corp, a Canadian farmland investment partnership, in addition to providing a potential hedge against inflation, an investment in farmland provides returns with less volatility (approximately 60% less volatility) than stock and bond market returns. Investment funds have already started pouring in billions of dollars into frontier lands (land that has not yet been cultivated for production) in less developed nations in Eastern Europe, Southern America and Africa for cultivating commodities like wheat, corn and soybeans. Some have bought several ethanol plants and farmland in Canada and adequate storage space in the Midwest to keep millions of bushels of grain.

The UK-based Braemar Group was the first to spot an opportunity in the potential of farmland investment. Europe is under pressure to increase biofuel production, and the farmland close to the northeastern England will be the first source of supply of ethanol.

BlackRock, a company partly-owned by Merrill Lynch, is planning to invest in farmland in sub-Saharan Africa to the English countryside. In 2007, the London branch of BlackRock launched the BlackRock Agriculture Fund, seeking to raise $200 mn to invest in fertilizer production, timberland and biofuels. Presently, it stands at more than $450 mn. Calyx Agro, a group of Louis Dreyfus Commodities, is purchasing vast stretches of farmland in Brazil in a big way with help from large institutional investors like AIG Investments. Emergent Asset Management, a UK-based, award-winning investment management firm, is raising $450 mn to $750 mn to invest in farmland in sub-Saharan Africa. The fund has chosen Africa because of inexpensive land values and accessible labor compared to other agro-based economies. Moreover, Africa’s micro-climates are conducive for cultivating a wide range of crops. These investors are getting positive response from institutional investors like insurance firms and some Sovereign Wealth Funds.

Speculative Investments?

The long-term implications of the sudden surge in farmland investments are not clear. Some conventional players in the farm economy and others who actively involved in agriculture policy believe that the new breed of investors will focus on returns above all else, and are not committed to staying with farming through good times and bad.

The cycle of entering in and out of farmland investment will be very volatile and could become subject to speculative bubbles. Mark Lapolla, Adviser to institutional investors, says, “It is important to ask whether these financial investors want to actually operate the means of production or simply want to have a direct link into the physical supply of commodities and thereby reduce the risk of their speculation.”

However, the proponents of farmland investment dismiss the criticism that the investors will control the supply-demand mechanism artificially by holding back inventory to move prices to their benefit. They argue that the investments will be advantageous to farming community and, finally, to consumers. When food grain prices become volatile, grain elevator operators have to dig deep into their pockets to lock in future prices. It is here the financial investors come to the rescue of grain elevator operators by providing the money they need to endure the unpredictable commodity markets. Maintaining these important services helps bring down costs to the farmers and negates the price increases for crops.

Furthermore, new investments will bring in the latest technology and accelerate the development of infrastructure, and the consumer will benefit because there will be more supply. The investors aim to combine small plots of farmland into more productive assets and modernize grain elevators and fertilizer supply depots, so that they can increase production and reap profits.

A Win-Win Approach

The present surge in farmland investment is a result of skyrocketing commodity prices, increasing demand for ethanol, and the continuous decrease in the area of arable agricultural land globally. Against this backdrop, farmland investment is the best long-term approach to agricultural development, taken up by entrepreneurs who sense opportunities when others see gloom. Some analysts see the potential for significant and lasting benefits to both parties. For instance, even though investment is meant to benefit the investors, foreign investment helps poor nations in Afro-Asian region which lack the resources to make their own agricultural land productive by improving infrastructure and irrigation. If poor nations can lay emphasis on local agriculture by opening thousands of new acres to food grain cultivation, they can save enough money on imports and divert it for economic growth within a short span of time. It is significant to note that these investment funds are using their own money. If they are successful they will realize significant profit, the world supply of food will increase, and in the process food grain prices may stabilize.

  Countries Investing in Farmland Away from Home

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Sovereign State               Have Already Bought/Expressed Interest In

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Abu Dhabi                          Sudan

Bahrain                              Philippines

China                                 Africa and South America (Brazil)

India                                  Paraguay and Uruguay

Libya                                 Ukraine

Saudi Arabia                      Thailand and South Africa

UAE                                  Pakistan, Sudan, Egypt and Yemen

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Source: www.seekingalpha.com

Indian Scenario

Agriculture in India has transformed significantly over the past few decades. However, lack of agri-infrastructural facilities as well as field-level operational flexibility has hampered the agricultural growth story. Even though the government plays an important role in providing essential inputs like fertilizer, water and energy, the importance of the private sector cannot be ignored. Private sector provides additional investments, brings greater efficiencies and ensures superior service to the end consumer at an affordable price. The possibility of joint ventures with international investors and training institutes to provide training to farming community to use latest technology is to be explored. Therefore, there is a need to devise a long-term strategy like integrating the private sector with agriculture, which will avert the vulnerability of the farming community and step up agricultural growth.

If farmers are exposed to market signals, they can become more productive and competitive. In the absence of such an environment, it is vital to have policies targeted to tackle specific issues - such as environmental, animal welfare and other concerns - that are unbiased and more efficient than market interventions. Reliable initiatives and investments are the need of the hour to put farming back on a growth trajectory.

Harriet Friedmann, Professor, University of Toronto, suggests, “Farmland and farmers are a public good and need to be both protected and encouraged through public policies to engage in sustainable food production in tandem with managing natural resources for the whole society, particularly soil, water, energy and carbon sequestration. It follows that speculative pressures to maximize revenues in the short-term deepen existing problems; fundamental changes in land use management are needed instead.” With increased investments in farmland and the resultant increase in food production output, food prices may begin to head southwards in the coming years. Jeff Conrad, President of John Hancock’s Ag Investment Group, which has invested more than $800 mn in farmland, tells investors, “Farmland is not a quick buy and flip type of thing. It takes time to work a return—periods of 7 to 10 years to hold the investment.”

N Janardhan Rao, Lead Economist.

Economics of Organic Farming

Organic farming is the need of the hour for sustainability of agriculture amidst growing health consciousness and environmental concerns. It provides more employment to rural people through replacement of costly chemical inputs with composting, weeding and inter-cropping. It also symbolizes a newfangled opportunity for small farmers who lack the resources (fertilizers and pesticides) to do conventional farming.

To meet the increasing demand for food, the farming community has been resorting to intensive cultivation practices with the help of fertilizers, pesticides and other external means to enhance food production. Though these have helped to increase farm output to some extent, they are more than responsible for the contamination of soil, water, and the environment in general. In the process, the farming community has been witnessing a slow degradation of healthy soil and this finally led to a decrease in the yield. On the other hand, the increasing awareness of health hazards caused by agrochemicals has brought a major shift in consumer preferences, especially in developed countries. They are increasingly shifting towards organic food, which is considered secure and hazard-free. Moreover, there are environmental concerns like the need to sustain farm production and improve soil fertility. Against this background, organic farming has become an increasingly important segment of the agriculture sector of many countries. Organic farming is a system that depends on ecosystem management rather than external methods for increasing agricultural production. It protects the environment and the community by excluding synthetic fertilizers and pesticides and Genetically Modified Organisms (GMOs). These inputs are replaced with accurate management practices by taking into account regional conditions to boost soil fertility and prevent pests and diseases in the long run. According to the Food and Agriculture Organization (FAO), “Organic agriculture is a holistic production management system which promotes and enhances the health of the agro-ecosystem, including biodiversity, biological cycles, and soil biological activity. Organic production systems are based on specific and precise standards of production which aim at achieving optimal agro-ecosystems which are socially, ecologically and economically sustainable.” Going by these benefits, over 130 countries produce certified organic products in commercial quantities. The share of agricultural land continues to grow not only in the major markets like Europe and North America but also in many other developing countries.

The Road to Growth

Amidst growing health consciousness, environmental concerns and food security the demand for organic food is steadily increasing in both developed and developing countries with an annual growth rate of 20-25%. According to the London-based Organic Monitor report, in 2005, the highest growth rate in organic food sales was recorded in North America, where as the most West European countries registered a low growth rate of 5%. However, the Asia-Pacific region, Latin America and Eastern Europe showed a high percentage growth. The European market is the largest single market after the US for organic foods, while Germany remained the leader in Europe.

The report says, “The extension of the range of organic products offered by the retail trade and the opening of more organic supermarkets will also ensure regular growth throughout Europe in the coming years.” The market for organic products is expected to grow up to $102 bn by 2020. The demand for organic food is also increasing in several developing countries, including India, and is creating export opportunities for the developing world. Organic farming is being practiced in most of the countries in the world and its share in agricultural land and farming is also steadily increasing.

Improper use of fertilizers and pesticides has a negative effect on agriculture, especially fruits and vegetables, drinking water, health, nutrition, and the environment as a whole. Besides leading to nitrate enrichment in ground waters, river waters and release of nitrous oxide and ammonia into the atmosphere, it leads to acid rain and depletion of the ozone layer. These effects have typically been observed in the US, the European Union, Canada, Australia, etc. 

Organic vs. Conventional Farming

Certified organic products are more expensive than their conventional counterparts, and their supply is nowhere near the demand. Moreover, their production cost is very high because of labor-intensive inputs. The post-harvest handling of relatively small quantities of organic foods results in higher costs particularly for processing and transportation. In short, achieving economies of scale is very difficult. On the marketing and distribution front, as the volume of organic food production is very less, it leads to relative inefficiencies and higher costs.

While organic farming has been found to be more profitable and productive in small farm holdings, conventional farming gives better results in the case of bigger farm holdings to enhance crop production. However, there are several adverse effects associated with conventional farming. The organically cultivated soil has appreciably superior organic matter content, thicker topsoil, higher polysaccharide content, lower modulus of rupture and less soil erosion than the conventionally cultivated soil.

Hence, in the long-term, organic farming is more efficient than conventional farming in reducing soil erosion and, consequently, in maintaining soil productivity. Besides, organic farming provides more employment to rural people through replacement of costly chemical inputs with composting, weeding and intercropping.

The farmers don’t need to buy costly fertilizers, pesticides and herbicides that were normally used in conventional farming. Organic farming also symbolizes a newfangled opportunity for small farmers who lack the resources (fertilizers and pesticides) to do conventional farming.

Global hunger and poverty are the focal issues behind organic farming. Cultivation by means of organic farming is the foremost solution to eradicate global starvation. Professor Jules Pretty, Director of the Center for Environment and Society at the University of Essex, says, “So many examples from around the world of increase in the yield, when farmers replaced synthetic chemicals and shifted to organic/sustainable methods.” He further adds, “Farmers are finding that they can cut their inputs of costly pesticides and fertilizers substantially, varying from 20 to 80%, and be financially better off. Yields do fall, to begin with (by 10 to 15%, typically), but there is compelling evidence that they soon rise and go on increasing. For example, in the US, top quarter of sustainable agriculture farmers now have higher yields than conventional farmers, as well as a much lower negative impact on the environment.” It is a feasible solution to avert global starvation since it augments yields, entails only low inputs that are cost-effective and affordable because it does not require any expensive technical investment and it provides further employment in rural areas, which helps to reduce urban migration.

The Challenges

Despite all the benefits of organic farming, there are a few challenges that are needed to be addressed. Organically produced food is costlier by at least 25%, which is more than conventionally produced food. PD Sharma, Assistant Director General, Natural Resource Management, ICAR, says, “Organic farming cannot be practiced on a large scale as we simply don’t have the resources. We don’t have enough natural inputs like manure, fertilizers, compost, etc”. Only in rain-fed conditions and small-size land holdings can organic farming bestow good results: In the case of intensive farming systems and irrigated conditions it bestows distressing results. Lack of information is also observed as a major obstacle.

Support from institutions to farmers in developing countries during pre-production, production, post-production and marketing process is also observed as a major obstacle. At present, organic farming in India is being practiced in only 0.03% of its total cultivable land of around 40,000 hectares.

It’s only now that farmers have started using the method of organic farming. However, organic farming remains largely unorganized as farmers require more scientific knowledge, management and certification systems.

India’s Potential

Experts say that the development of organic agriculture in the developing countries like India was induced by the frequent demand for such foods by the industrial countries. However, India is becoming independent and is serving the growing demand in the country itself. In fact, organic farming in India is experiencing a real boom and the country has tremendous potential to grow crops organically and emerge as a chief provider of organic products in the international market. In India, organic farming is a market that is demand-oriented; if organic farming is properly planned and executed, it will become an important foreign exchange earner and money-spinner for the farmers. According to experts, “For many Indian farmers, the approach seems to offer a new option for ensuring their livelihood, as they can reduce production costs and, at the same time, gain access to markets with better prices for their products.”

However, organic sector in the country is still speckled and its development lags far behind its actual potential. According to official sources, “The main bottleneck is development of markets. While India could have a growing share in supplying export markets, the Indian domestic market for organic food appears as a ‘sleeping giant’, which needs to be awakened.” Organic farming in India needs minute attention to market intelligence regarding which crops to grow, where to sell, distribution channels, competition, market access, etc. Pre-harvest prices should be announced so that farmers do not face hardships when the produce is ready. Adopting contract farming is also other avenue for better results. In order to put up a lucid strategy on organic farming and its connection with markets, IFAD suggests, “Carefully integrating the private sector to provide marketing services, developing farmland communities will be vital to develop the organic market. This will help reduce the cost of certification, and improve the prospects of marketing.”

Against this environment, the government has started the National Programme on Organic Production (NPOP) under the Ministry of Agriculture to promote organic farming by reducing the costs of organic fruits and vegetables. The Department of Agriculture and Cooperation has launched a scheme—National Project on Organic Farming (NPOF)—which is to be implemented during the 10th Five-year Plan with an expenditure of Rs.57.05 cr for production, promotion, certification and market development of organic farming in the country. It advocates that an area and cluster-based approach can be adopted by the state governments, which will aid in concentrating the target groups’ activities and help in educating farmers. There is also a need to identify and assign ample number of committed service providers who will perform acts such as transfer of technology to identified farmers and connect the certification agencies with the farmers.

Outlook

As there is a rise in health consciousness and concern for the environment, there is no doubt that organic farming is going to be the fastest growing food sector. The price premiums and growing demand for organic products are encouraging more and more farmers to enter the realm of organic farming. According to experts, “This leads to an increased engagement in farming, which can trigger greater opportunities for rural employment and economic upliftment. Thus, conversion to organic agriculture definitely contributes to the empowerment of farmers and local communities.” With the availability of modest technologies and the necessary support for post-harvesting and marketing chain, organic farming is gaining momentum and its structure may change dramatically in the coming years. To conclude, organic farming is the need of the hour for sustainability of agriculture as it is the most capable, quickest, big money-spinning and fairest means to nourish the world.

N Janardhan Rao, Senior Economist.

Organic Farming in India: Developmental Issues and Challenges

 

With the advent of green revolution technologies, farmers have started using synthetic agrochemicals like fertilizers, pesticides and high-yielding varieties of crops. Though green revolution boosted the production output per hectare, yet, there are indications that it also caused decline in productivity and production in some areas in the recent past. Against this backdrop, policy makers in India are struggling to deal with the stagnation in its crucial agricultural sector. They have discovered that organic farming initiatives are providing indications on how to reap healthy profits from this sector. Besides, organic farming is gaining a wider acceptance over the last couple of years going by the increasing awareness among consumers.

The role of organic agriculture, whether in farming, processing, distribution or consumption, is to sustain and enhance the health of the ecosystem and organisms from the smallest in the soil to human beings.

- International Federation of Organic Agriculture Movement.

Organic farming in India is gaining a wider acceptance over the last couple of years, going by the increasing awareness among the consumers. Earlier, organic products were mainly being exported. Also, it was confined to farmer welfare and localized benefits rather than market improvement. But now, domestic market is developing as many state governments are providing necessary incentives to push its growth further. According to the National Centre for Organic Farming (NCOF), the area under organic cultivation in India is likely to cross the 2.5 million hectare mark by 2012. Already, 332 certifications were issued in 2007. During the same year, domestic market for organic products grew to Rs. 560 cr while exports were to the tune of Rs. 250 cr. India mainly exports its organic products to the US, Japan, the Netherlands, Italy, France, Switzerland and the UK. India is annually producing around 120,000 tons of organic food which was largely included as certified forest collections. As per the Government of Indiaís latest figures, approximately 190,000 acres (77,000 hectares) were under organic cultivation.

Eating organic products is the latest buzz for health reasons as organic products are grown without using pesticides and fertilizers. Compared to conventional farming, organic farming uses renewable resources for conserving soil and water. Besides, it is not subjected to radiation treatment and artificial colors and more importantly, it is not genetically-modified. Organic products cover everything from staple crops such as rice and wheat to vegetables, fruits, pulses, milk and more. Food and Agriculture Organization1 (FAO) defines organic farming as a holistic production management system which promotes and enhances agro-ecosystem health, including biodiversity, biological cycles and soil biological activity. It emphasizes the use of management practices in preference to the use of off-farm inputs. This is accomplished by using, where possible, agronomic, biological and mechanical methods, as opposed to using synthetic materials, to fulfill any specific function within the system.

Gaining Momentum

With the advent of green revolution technologies, farmers have been using synthetic agrochemicals like fertilizers, pesticides and high-yielding varieties of crops. Though green revolution has boosted the production output per hectare, there are indications that it has also led to a decline in productivity and production in some areas. Besides, the success of contract farming and the green revolution affected adversely natural resources and human health as well as the primary sector. Against this backdrop, policy makers in India are still grappling with the issue of dealing with stagnation in the crucial agricultural sector. They have discovered that small-scale organic farming initiatives near prime cities are providing indications on how to reap healthy profits from this sector. In India, more than 60% of the population that is dependent on agriculture steadily falls into debt trap due to rising costs of fertilizers and pesticides and other input costs. 

Amidst the ongoing food crisis, climate change and the importance of sustainable agriculture, organic farming has emerged as one of the major approaches to sustainable agriculture, globally. It has considerable potential for reducing emissions and raising soil’s water retention capacity, thus leading to better crop yield. Martin Khor, Director, Third World Network, in his presentation at FAO on Food Security Summit, opines that organic agriculture holds an especially favorable position, since it realizes mitigation and sequestration of carbon dioxide in an efficient way. However, he warns that organic agriculture also has its weaknesses, mainly related to productivity and yield losses in some crops and production areas.

Major Issues

Despite the current boom in organic farming, there are a number of myths surrounding organic agriculture that need to be broken. The most common among them include:

Lower Yields Compared to Synthetic Intensive Farming

Most farmers assume that yields in organic farming are very less compared to conventional farming. However, experts suggest that this assumption might not be correct if the right methods of organic farming are followed. In fact in the long run, organic farming yields outscore those obtained by chemical farming. For instance, the effects are even better in horticulture crops. The experience of farmers in Punjab says it all. Punjab, the original hub of the “Green Revolution”, has had its agricultural yields remaining the same for the past many years while the quantity of agro-chemicals required maintaining these static yields have steadily increased. 

Converting this kind of chemical farm often yields less output and needs a few years to increase the yield and stabilize its output even more than a chemical -intensive regime. It therefore, recommended farmers to convert their chemical-intensive farming, gradually over a period of three to four years, to realize higher yields.

Not an Economical Option

Another myth about organic farming is that it is not an economically viable option. However, nothing can be farther from the truth. According to experts, the overall cost of cultivation in case of organic agriculture, is usually lower as compared to chemical farming.

Inefficient Nutrients

Under organic farming, critics say it is difficult to supply enough nutrients by using composts. There is a vast difference if we calculate the percentages of nitrogen, potassium and phosphorous in fertilizers and composts. However, advocates of organic farming say the concept of feeding the plant does not exist in organic farming. Unlike chemical farming, in case of organic farming, farmers feed the soil to keep it healthy through various soil organisms and microorganisms which thrive in the soil. This process ensures that soil fertility is maintained and kept alive and vibrant. Using fertilizers in conventional farming is just like swallowing a few tablets and capsules for the entire nutritional requirements. Though we may meet our nutritional needs, the question is how long can we remain healthy?

Can Organic Farming Feed the World?

An important debate about organic farming is that it cannot feed the world. Biotechnology advocates in particular, are becoming very vocal in their claim that there is no alternative to using genetically modified crops in agriculture if we want to feed the world. However, researchers in the US opine that organic farming can yield up to three times as much food as conventional farming in developing countries and holds its own against standard methods in rich countries.5 Professor Ivette Perfecto, at the University of Michigan’s School of Natural Resources and Environment, analyzed 293 different examples of published studies on yields from organic farming. Findings of her results can make the critics eat their own words, literally, who said that you can’t produce enough food through organic agriculture. Her findings published in the journal, Renewable Agriculture and Food Systems, indicate that organic methods could produce enough food on a global per capita basis to sustain the current human population, and potentially an even larger population, without increasing the agricultural land base.

According to a study published in the journal of Renewable Agriculture and Food Systems of Cambridge University, organic agriculture has the potential to contribute substantially to the global food supply. The study reveals that organic farming produces on an average 92% of the yield produced by conventional agriculture in developed countries, while in developing countries organic systems produce 80% more than conventional farms. Professor Ivette Perfecto points out those poor farmers cannot afford costly fertilizers and pesticides which are needed for intensive agriculture. As organic fertilizer doesn’t cost much, they can easily produce it on their own farms. The debate over whether the world can produce enough organic food is misplaced.

Remedial Measures

Farming policies in India have traditionally not favored organic agriculture though the country has a strong potential for organic farming. The problem is that India is not working to adopt appropriate organic standards and policies like many countries. However, policy makers are increasingly realizing this fact and are introducing many fiscal and risk-reduction strategies to promote organic farming in the country. As organic products are price premiums, farmers are benefiting more than conventional ones. Also, they are now making up for yields or productivity losses that may occur during transition from chemical- intensive forms of agriculture to organic farming; labor costs are higher in former and input costs are lower in the later.

However, organic farmers are still facing some concerns. For instance, most of the market oriented programs of organic products are an arrangement between trading companies and farmers, in which the companies are clearly dominant which puts farmers at a disadvantage. In the process, they receive only a small part of the benefits of organic production. Experts say that providing opportunities for the strengthening of farmer associations and NGOs could help remedy some of these shortcomings. Besides, the most efficient way to do this is by inviting the private sector to provide marketing services and even required investment for organic farming.

On the quality of certification program, India has an uneven system. Moreover, domestic verification and certification systems are time consuming and expensive. Besides, conversion is no less intricate and far more paradoxical. In fact, even in the US, conversion of commercial farmers who have relied on chemical fertilizers and pesticides for many decades into organic farming, have become a daunting task.

Conclusion

Addressing these concerns is the need of the hour in order to stimulate farmers to improve their practices and adopt organic methods. Improved consumer education, with regard to benefits of organic products needs to be done on a priority basis. On the organic research front, though India has begun to invest, these are only small efforts.

Since landholdings are very small in India, farmers must join together in order to apply for group certification that can significantly reduce their individual costs. This will also enables them to own their certification rather than owning a trading firm. To grow organic farming in a big way, policy makers should provide farmer-friendly databases that deliver market knowledge that can prove very cost-effective. On the other hand, the country should do away with fertilizer subsidies which are acting as a hindrance and limiting the scope of adoption of organic agriculture in a big way.

Organic Farming in India

Organic farming was practiced in India since thousands of years. The great Indian civilization thrived on organic farming and was one of the most prosperous countries in the world, till the British ruled it. In traditional India, the entire agriculture was practiced using organic techniques, where the fertilizers, pesticides, etc., were obtained from plant and animal products. Organic farming was the backbone of the Indian economy and cow was worshipped (and is still done so) as a God. The cow, not only provided milk, but also provided bullocks for farming and dung which was used as fertilizers. During 1950s and 1960s, the ever increasing population of India and several natural calamities lead to a severe food scarcity in India. As a result, the government was forced to import food grains from foreign countries. To increase food security, the government had to drastically increase the production of food in India. The Green Revolution (under the leadership of M S Swaminathan) became the government’s most important program in the 1960s. Large amount of land was brought under cultivation. Hybrid seeds were introduced.

Natural and organic fertilizers were replaced by chemical fertilizers and locally made pesticides were replaced by chemical pesticides. Large chemical factories such as the Rashtriya Chemical Fertilizers were established. Before the Green Revolution, it was feared that millions of poor Indians would die of hunger in the mid 1970s. However, the Green Revolution, within a few years, showed its impact. The country, which was greatly relied on imports for its food supply, reduced its imports every passing year. In 1990s, India had surplus foodgrains and once again became and exporter of food grains. Due to increased cost of farming, farmers are falling into the trap of money lenders, who are exploiting them no end, and forcing many to commit suicide.Both consumer and farmers are now gradually shifting back to organic farming in India.

It is believed by many that organic farming is healthier. According to the International Fund for Agriculture and Development (IFAD), about 2.5 million hectares of land was under organic farming in India in 2004. Further, there are over 15,000 certified organic farms in India. India is therefore one of the most important suppliers of organic food to the developed nations. No doubt, the organic movement has again started in India.

Source: www.organicfacts.net

 

N Janardhan Rao, Senior Economist.