indian agriculture - challenges and

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© 2009, IMA India

Indian AgricultureIndian AgricultureChallenges and ProspectsChallenges and Prospects

IMA India



© 2009, IMA India

DisclaimerDisclaimerThis 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.



© 2009, IMA India

ContentsContents

404. Summary and drawings

123. Indian Agriculture: challenges and prospects

72. The Scenario Planning approach for building strategy: an overview

41. About IMA India



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I.I. About IMA IndiaAbout IMA India



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What IMA DoesWhat IMA Does……•• Undertakes inUndertakes in--depth market studies and opportunity depth market studies and opportunity

assessmentsassessments for individual companies: leveraging a full range of business and market research capabilities

•• Provides ongoing market intelligence and risk Provides ongoing market intelligence and risk assessmentsassessments to country managers; offers research-based interpretations and top-level forecasts of the operating environment in India: economy, politics, key sectors, emerging business issues, etc

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– 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

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II.II. The Scenario Planning approach for The Scenario Planning approach for building strategy: an overviewbuilding strategy: an overview



© 2009, IMA India

Understanding the drivers of agricultureUnderstanding the drivers of agriculture

• The key drivers that directly impactoutput can be grouped into 6 categories

– 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)

• 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 sub-drivers, consequently strengthening or weakening specific trends

Policy factors

Market forces

Technology

Global factors

Macro-economy

Climatic factors

Performance of the agriculture sector

Source: IMA research and analysis



© 2009, IMA India

But they cannot be examined in isolationBut they cannot be examined in isolation……

Cropping intensityCropping pattern Changes in land use Input usage intensity

Irrigation Contract farmingQuality of land New crop technologies

Awareness

Economic growth

Demand supply

situation

Consumption pattern

Market price Yield Cost of cultivation Crop-specific programmes

Profitability

Contract farming

Input usage (fertiliser, seed, CP

products, etc)

Technology (Hybrid, GM crops,

etc)

Market openness

Govt policy on trade

Procurement by food

processing industry

Public & private investment in R&D

Labour cost

Input cost

Availability of credit/insurance

Cost of living (CPI AL)

Alternative occupation

Migration

Cost of fertiliser, electricity, water,

etc

Govt policy on rural finance

Penetration of financial sector

Penetration of media/IT

Govt policy on crop focus

Demand supply

situation

Political outlook

Food retail

Economic growth

Urbanisation

Policy on CF

One factor alone – cropping patterns – is a function of several inter-related drivers and sub-drivers




© 2009, IMA India

Indian agriculture is not Indian agriculture is not ‘‘oneone’’ conceptconcept• 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 Hence, there is a need for a granular assessment (by crop, by state/region, by issue) if a business or crop, by state/region, by issue) if a business or

investment decision is at stakeinvestment decision is at stake




© 2009, IMA India

The scenario matrixThe scenario matrix

Liberalisation of agricultural policy/markets

Impl

emen

tatio

n of

agr

itec

hnol

ogy

Scenario I: The Tiger Uncaged

Pro-growth, market-orientation

Pro-equity, interventionist orientation

Ineffective implementation, farmers left to their own devices

Scenario IV: Crony

Capitalism

Scenario II: Nehruvian

Agronomics

Scenario III: Sleeping

Giant

Effective implementation, hand holding for farmers

Business as usual (BAU)

‘‘Scenario planningScenario planning’’ is therefore, a useful toolis therefore, a useful toolAn evaluation of all driving forces yields two dominant themes that will guide the future development of Indian agriculture

– Agricultural policy and Implementation of technologyA quadrant matrix of these two

overarching issues provides four possible scenarios

Each driver and itsimpact on the business decision

under consideration is subsequently examined for each scenario

Scenario-based forecast of each driver is woven into a complete market picture,

based on which the business decision is evaluated

Overall priorities are growth and employment, with high focus on agro-

based industries as one of the means to achieve this

A market economy with excessive regulation and

intervention (both institutional and arbitrary); political

leadership is strong and enlightened

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




© 2009, IMA India

III.III. Indian Agriculture: challenges and Indian Agriculture: challenges and prospectsprospects



© 2009, IMA India

The overriding challenge is ‘‘sustainable sustainable and profitable growthand profitable growth’’ in agriculture…



© 2009, IMA India

But thatBut that’’s where the s where the generalisationgeneralisation endsends

Farm technology (fertiliser, seed, CP

products, etc)

Crop Technology (Hybrid, GM crops,

etc)

Irrigation

Crop yields

Public & private investment in R&D

Credit availability

Crop-specific programmes

Government policy

Contract farming Food retail

Farmer profitabilityCost of cultivation

Market price

Environmental factors

Water availability

Land degradation

Climate change

There is a complex web of inter-related causal relationships* which impact growth – and must be evaluated

* 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.

Sustainable growth

For the sake of convenience, the issue of crop yieldscrop yields has been taken as a starting point for this analysis…



© 2009, IMA India

1.1. Crops Yields: Patchy improvement over Crops Yields: Patchy improvement over the yearsthe years……

Source: Agriculture Ministry Statistics; Economic Survey 2007-08; IMA analysis

Rice (kg/ha)

500

1,250

2,000

2,750

1994 1998 2002 2006

North SouthEast West

Wheat (kg/ha)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1994

1996

1998

2000

2002

2004

2006

Cotton (q/ha)

0

100

200

300

400

500

600

700

1994

1996

1998

2000

2002

2004

2006

• 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



© 2009, IMA India

……and still below world standardsand still below world standards

Source: UN Statistics Division

Comparison of yields in selected commodities (Metric Comparison of yields in selected commodities (Metric tonnestonnes/ hectare)/ hectare)

1.0Nigeria1.6Australia2.4Myanmar0.8India4.6India1.1India2.0Iran2.6Thailand1.8World7.3World2.1Philippines2.3Pakistan2.9India2.0China7.6Pakistan3.3World2.7India3.9World2.4Brazil7.9Uzbekistan4.9China2.8World6.4Japan2.5Argentina9.5USA6.6Germany4.2China6.7Korea2.6USA10.9Brazil7.5France7.5France7.8USA4.0Germany11.1China9.1USA7.7UK9.8Egypt

Major OilseedsMajor OilseedsCottonCottonMaizeMaizeWheatWheatRice/paddyRice/paddy

• 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



© 2009, IMA India

There is plenty of scope for improvementThere is plenty of scope for improvementWheat (kg/ha)

01,0002,0003,0004,0005,000

Utta

rP

rade

sh

Bih

ar

Punj

ab

Hary

ana

Raja

stha

n

Guj

arat

Mad

hya

Pra

desh

Mah

aras

htra

Utta

ranc

hal

Karn

atak

a

Improved PracticeActual 2003-04

Rice (hg/ha)

02,0004,0006,0008,000

Chh

attis

garh

Bih

ar

Guj

arat

J&K UP

Utt

aran

chal


• 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

Maize (kg/ha)

0

1,000

2,000

3,000

4,000

5,000

Bih

ar

Kar

nata

ka

Mad

hya

Prad

esh

Raj

stha

n

Utta

rPr

ades

h


Sugarcane (kg/ha)

040,00080,000

120,000160,000

UP

Mah

'tra

TN

Kar

'taka

Improved Practice

Actual 2003-04



© 2009, IMA India

But much else can and needs to be doneBut much else can and needs to be done

Greater fertiliser usageGreater fertiliser usage and and area under high yielding area under high yielding varietiesvarieties can greatly boost yields; can greatly boost yields; greater irrigation greater irrigation as well as as well as

pesticide usagepesticide usage can help toocan help too

Fertiliser (kg/ha) R2 =

0.93

HYV area (ha) R2 = 0.92 Irrigated

area (ha) R2 = 0.34

Pesticides R2 = 0.42

Source: Agricultural Situation in India, Directorate of Economics and Statistics

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



© 2009, IMA India

2. 2. Better seeds can raise yields by 40%Better seeds can raise yields by 40%

Source: Agricultural Situation in India, Directorate of Economics and Statistics.

• An effective means to raise yields is through better seeds – seedshave an ~40% impact on yield variations

• Development of dramatically better seeds has been almost non-existent 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); regulatoKey risks include price controls (e.g. Andhra Pradesh); regulatory ry

issues around GM technology in food crops; and activismissues around GM technology in food crops; and activism



© 2009, IMA India

3.3. Balanced fertiliser usage is equally criticalBalanced fertiliser usage is equally critical• 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 off-budget fertiliser bonds, the Government is only postponing the inevitable

Fertiliser consumption in India ('000 tonnes)

0

10000

20000

30000

1952

1958

1964

1970

1976

1982

1988

1994

2000

2006

0

4000

8000

12000

16000Total consump. (left axis)

N

P

K

Source: Agricultural Situation in India, Directorate of Economics and Statistics; Planning Commission Sub-group on Fertilisers

Lack of political will has been the single most important Lack of political will has been the single most important constraint so far constraint so far –– with a strong Government now in with a strong Government now in

office, there is reason to hope for gradual improvementoffice, there is reason to hope for gradual improvement

The average NPK ratio in the past two decades has been 7:3:1,

against the recommended 4:2:1



© 2009, IMA India

4. 4. Irrigation can raise incomesIrrigation can raise incomesCrop-wise irrigation availability (% of gross

cropped area)

38.4 54

.3

15.9

8.8 17

.3

72.4

7.4

56.0

89.5

21.1

15.0

36.1

92.5

28.0

0

20

40

60

80

100

Rice Wheat Maize Pulses Cotton S'cane O'seeds

1970-712005-06

Source: Agricultural Situation in India; Directorate of Economics and Statistics, Ministry of Agriculture; IMA analysis

10,18864,685Tank (sprinkler)

8,01073,225Tank (flow)

6,00079,776Lift

8,2009,666Tube Well4,74125,842Flow

Un-irrigated farm

Irrigated farm

Type of irrigation

Returns (Rs/ha) from F&V cultivation

Rice, wheat and sugarcane have received focus for irrigation Rice, wheat and sugarcane have received focus for irrigation provision provision –– largely the outcome of the governmentlargely the outcome of the government’’s s

paranoia about achieving paranoia about achieving ‘‘selfself--sufficiency in foodsufficiency in food’’; other ; other crops have been neglected, despite the fact that irrigation crops have been neglected, despite the fact that irrigation

can generate enormous economic returns for themcan generate enormous economic returns for them

Fruits and vegetables can benefit enormously from irrigation



© 2009, IMA India

But irrigation progress has been slowBut irrigation progress has been slow

• 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

2.3

4.1

0.8 0.9 1.1

1.1 1.

4

2.1 2.

6

0.5 0.6 0.7

0.6 0.

9

00.5

11.5

22.5

33.5

44.5

1992-97

1997-2002

2002-03

2003-04

2004-05

2005-06

2006-07

Potential Created (m ha)Potential Utilised (m ha)

Source: Ministry of Agriculture; World Bank; IMA analysis

2.9

3.6

0.7

0.6 0.7

0.5 0.

9

2.3

1.2

0.5

0.5 0.6

0.4 0.

7

00.5

11.5

22.5

33.5

4

1992-97

1997-2002

2002-03

2003-04

2004-05

2005-06

2006-07

Potential Created (m ha)Potential Utilised (m ha)

Major and medium irrigation Minor irrigation



© 2009, IMA India

5. 5. Credit and land holdings are critical from Credit and land holdings are critical from an economic perspectivean economic perspective

Overall profitability per acre rises with size of land Overall profitability per acre rises with size of land holdings, but access to credit can compensate for this holdings, but access to credit can compensate for this

and raise profitability by up to 50%; with access to credit, and raise profitability by up to 50%; with access to credit, farmers with smaller land holdings were found to be farmers with smaller land holdings were found to be

more profitable than those with larger farmsmore profitable than those with larger farmsSource: Indian Journal of Agricultural Economics, December 2006; data pertains to West Bengal

5,4945,2005,2005,6755,900FoodFoodNon foodNon foodFoodFoodNon foodNon food

67,6254,62557,375Avg62,0005,00065,000>365,0005,00062,0002-370,0004,50060,0001-273,5004,00042,500< 1

Profit/acre (farmers with Profit/acre (farmers with credit)credit)

Profit/acre (farmers without Profit/acre (farmers without credit)credit)

Land size Land size (acre)(acre)



© 2009, IMA India

Fortunately, credit provision is improvingFortunately, credit provision is improvingThe share of institutional credit has risen

0%20%40%60%80%

100%

1951 1961 1971 1981 1991 2002

Non-institutional Institutional

• 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

Source: Ministry of Agriculture; RBI

Institutional credit: rapid increase (Rs crore)

0

100,000

200,000

1985-86 1989-90 1993-94 1997-98 2001-02 2005-06



© 2009, IMA India

Improved credit: an important achievementImproved credit: an important achievement• Trend changes witnessed

– Commercial banks are participating in a bigger way

– After initial hiccups, agri-insurance 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

Credit disbursement (% share)

22

62

68

33

10

51992-93

2006-07

Coop banks Comm banks RRBs

Insurance

0

2000

4000

6000

8000

2001-02 2002-03 2003-04 2004-05 2005-06 2006-070

50

100

150

200

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)

Kissan credit cards (mn)

31

44

70.5

2002-03

2004-05

2006-07

Source: ICREIR; Ministry of Agriculture; RBI; IMA analysis; RRB: Rural Regional Banks



© 2009, IMA India

6. 6. But land fragmentation is difficult to But land fragmentation is difficult to reversereverse

• 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

% share of farmers by land holding size (ha): Land holdings are becoming smaller

61.6

62.89

33.5

32.824.3

4.9

1995

-96

2000

-01

Below 1 1 to 5 Above 5

% share of area by land holding size (ha): Land holdings are becoming smaller

17.34

18.88

50.62

51.8929.23

32.04

1995

-96

2000

-01

Below 1 1 to 5 Above 5

Source: National Agricultural Census; Department of Agriculture; NIC; IMA analysis



© 2009, IMA India

7. 7. Profitability is still poor, for many Profitability is still poor, for many reasonsreasons……

• 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

Rice profitability: MSP less cost (Rs/quintal)

-250-200-150-100-50

050

100150

Punj

ab

Har

yana AP

T N

adu

Oris

sa

W B

enga

l

Cha

tt'ga

rh MP

Wheat profitability: MSP less cost (Rs/quintal)

0

40

80

120

160

200

Raj

asth

an

Har

yana

Punj

ab

Utta

rPr

ades

h



© 2009, IMA India

8.8. ……one of these is rising labour costsone of these is rising labour costs

• 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

Rice cultivation cost (Rs/ha)

10,00015,00020,00025,00030,00035,000

2001 2002 2003 2004 2005

Punjab WB UP Bihar

The share of rural non-farm workers is rising (%)

22.5 25.5 25.9 28.633.5

16.713.713.815.313.5

0

10

20

30

40

1983 1987 1993 1999 2004

Male Female

Agriculture employment projected to fall between 2006-2016 ('000)

50,92560,638

-3,967

Agriculture Manufacturing Services

Wheat cultivation cost (Rs/ha)

14,000

19,000

24,000

29,000

2002 2003 2004 2005

Haryana Punjab UP MP

Source: Directorate of Economics and Statistics, Min of Agriculture; P K Joshi, et al, Agr Eco Res Review, Jul-Dec 2006; K Vatta, et al, Ind J Agr Eco, Apr-Jun 2008; Planning Commission; IMA analysis



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66,887Rice-mustard50,388Rice-wheatFaridkot, Punjab

63,352Rice-wheat52,537Rice-mustardLudhiana, Punjab

32,327Soyabean-gram25,008Soyabean-wheatWardha, Maharashtra

46,504Rice-groundnut33,378Rice-wheatNasik, Maharashtra

22,188Maize-wheat13,602Sorghum-wheat

36,399Rice-wheat29,851Soyabean-wheatAmbala, Haryana

67,496Rice-potato30,291Rice-wheatChhattisgarh

22,333Rice-toria16,749Rice-wheatKahikuchi, Assam

Net return (Rs/ha)

High profitable system

Net return (Rs/ha)

Less remunerative system

Source: Shukla & Shukla, Scope and Limitations of Crop Diversification in Indian Agriculture

If farmers shift away from the decadesIf farmers shift away from the decades--old riceold rice--wheat wheat cropping pattern, they can raise returns significantly cropping pattern, they can raise returns significantly –– this this

realisation is now driving shifts in cropping patternsrealisation is now driving shifts in cropping patterns

9.9. ……another is subanother is sub--optimal cropping systemsoptimal cropping systems



© 2009, IMA India

Cropping patterns are improvingCropping patterns are improving

16.1%33.2%9.2%xx25.9%24.3%-0.1%-0.2%% change

-3.6%52.7%-3.4%-14.8%18.8%39.4-8.2%-5.4%% change

2513.0332.6597.5437.011.3774.4293.7-10-60.5East – change

381.3-4.613.9-54.5-1.267.664.3-26.0384.8West Bengal

320.2308.6116.259.3-5.3113.1-4.0-293.311.9UP

590.13.2135.7205.719.65.852.1-8.866Orissa

596.8-0.1140.1173.70128.316.7-4.0153Jharkhand

845.73.073.3281.5-0.1242.698.263.2-39.6Chhattisgarh

78.023.5119.5-117.2061.818.2269.2-261.3Bihar

-299.1-1.0-1.2-111.5-1.7155.242.7-10.3-375.3Assam

203.3

67.7

76.0

42.7

16.9

Vegetables

48.59-34.7674.6-357.2-258.2492.0-23.0-443.9South – change

Change in acreage between 2000 and 2007 (‘000 ha)

Total acreage changeSugarcaneMaizePulsesCottonFruitsWheatRice

120.31.60-9.9-3.885.60-80.5Kerala

144.6970.7203.5-157.9-47.949.3017.99Tamil Nadu

-288.9-151.1279.1-66.7-176.8-47.9-21.0-138.4Karnataka

72.546.6192.0-122.7-29.7405.0-2.0-243AP

Source: Agriculture Statistics, Ministry of Agriculture; IMA analysis

A significant shift towards high value crops (2000A significant shift towards high value crops (2000--2007)2007)



© 2009, IMA India

10.10. Contract farming can raise profitabilityContract 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 Spinach in Delhi (profit/tonne)

1,762

1,169

Contract farmers Non contractfarmers

In Punjab, private contract farming is best for all sizes of farmers

20,000

25,000

30,000

35,000

40,000

Contract farmers ledby agribusiness farms

Contract farmers ledby PAFC

Non-contract farmers

Marginal SmallMedium LargeVery large Aggregate

Gherkins in Karnataka (profit/acre)

3,930

5,720

Non contract Contract farming

Source: Agricultural Economics Research Review, July-December 2006; Centad, India’s Agricultural challenge; IMA analysis; PAFC: Punjab Agro Finance Corporation



© 2009, IMA India

11.11. Contrary to popular belief, Contrary to popular belief, ‘‘cerealcereal’’sufficiency has been achievedsufficiency has been achieved

Demand-supply gap projections (mn tonnes)

-80-70-60-50-40-30-20-10

010203040

2011

2021

2026

Rice Wheat Pulses Edible oil Sugar

The demandThe demand--supply gap is no longer foreseen in cereals supply gap is no longer foreseen in cereals but in pulses and cash crops but in pulses and cash crops –– a fact that is belatedly a fact that is belatedly

being recognised by Government policiesbeing recognised by Government policiesSource: Demand-Supply Trends and Projections of Food in India, ICRIER, 2008



© 2009, IMA India

But changing consumption patterns will put But changing consumption patterns will put supply pressures on other cropssupply pressures on other crops

01020304050607080

Ric

e

Whe

at

Puls

es

Milk

Mea

t

Egg

Fish Veg

Frui

ts

1973-74 19831987-88 1993-941999 2004-05

Urban population (kg/person/year)

Rural population (kg/person/year)

0102030405060708090

Ric

e

Whe

at

Puls

es

Milk

Mea

t

Egg

Fish

Veg

Frui

ts

1973-74 19831987-88 1993-941999 2004-05

Increasing incomes will drive greater consumption of high value Increasing incomes will drive greater consumption of high value food food and cash crops and cash crops –– this is creating economic opportunities for farmers this is creating economic opportunities for farmers

and businesses that did not exist in the aftermath of the Green and businesses that did not exist in the aftermath of the Green RevolutionRevolution

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

Source: Planning Commission Steering Committee for Agriculture; IMA analysis



© 2009, IMA India

12.12. BioBio--fuels is one such fuels is one such ‘‘opportunityopportunity’’• 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

5.584.38NA

Acreage (Mn ha)

11.1913.386.692.793.3566.902011-128.7610.475.232.192.6252.332006-07NA7.963.98NA1.9939.812001-02

Acreage (Mn ha)

Bio-diesel @20% (MMT)


Acreage(Mn ha)


Diesel demand(MMT)

Year

Source: Planning Commission; Committee on Bio-Fuels

Acreage for bio-fuels: Government estimates



© 2009, IMA India

13.13. The GovernmentThe Government’’s efforts towards pulses and s efforts towards pulses and nonnon--food crops are fragmentedfood crops are fragmented

• In response to changing demand-supply dynamics, the Government has increased focus on crop-specific 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

NHM* allocations (Rs crores) aren't fully utilised

1405

2222.4 21761951

1195.78

1916.4

1202.9

2005-06 2006-07 2007-08 2008-09

Budgetary estimates Actual expenditure

Targets and achievement in pulse production

14,200

13,390

13,130

14,905

11,125

Actual production

-12.3

-14.7

-14.2

+0.7

-22.7

% deviation from target

16,2002006-07

15,7002005-06

15,3002004-05

14,8002003-04

14,4002002-03

Production target (‘000

tonnes)

Source: Ministry of Agriculture; Directorate of Pulses Development



© 2009, IMA India

In fact, Government spending is inadequate and In fact, Government spending is inadequate and ineffective across the boardineffective across the board

Public spending on research and extension

0

1,000

2,000

3,000

4,000

5,000

1990

1992

1994

1996

1998

2000

2002

2004

00.10.20.3

0.40.50.6

Absolute spends (Rs crore), left axis

% share of total revenue expenditure, right axis

Source: RBI; Parliamentary Standing Committee on Agriculture; Steering Committee for the XI Plan; IMA analysis

012345678

1971-75

1976-80

1981-85

1986-90

1991-95

1996-2000

2001-2003

Investment as % of Ag-GDPSubsidies as % of Ag-GDP

• 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 programmeshave been increasing, there are inefficiencies that prevent funds from being fully utilised



© 2009, IMA India

14.14. Meanwhile, environmental degradation is Meanwhile, environmental degradation is emerging as a major threatemerging 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

Physical water scarcity

Approaching physical scarcity

Economic water scarcity

Little or no scarcity

Not estimated

Source: FAO; Sara J Scherr; IFPRI, Ramesh Chand, Centad

Land degradation

Water scarcity



© 2009, IMA India

As are falling water tablesAs are falling water tables

8682

7863

6150

4738

3330

1816

149

5

Rajasthan Punjab

Delhi Haryana

TamilNadu Gujarat

Karnataka AndhraPradesh

Kerala Uttaranchal

UttarPradesh MadhyaPradesh

WestBengal Maharashtra Chattisgarh

Source: Ministry of Water Resources; Planning Commission, FAO; IFPRI, Centad

Increasing dependence on groundwater irrigation can be Increasing dependence on groundwater irrigation can be a potential source of failure of future projects, due to a potential source of failure of future projects, due to

high levels of groundwater depletionhigh levels of groundwater depletion

% of blocks/talukas/mandals with groundwater scarcity

010203040506070

Maj

or a

ndM

ediu

mirr

igat

ion

Min

or -

Surf

ace

wat

er

Min

or -

Gro

undw

ater

Mill

ion

Hec

tare

s

Ultimiate irrigation potentialIrrigation potential createdIrrigation potential utilised

Future sources of irrigation will depend increasingly on groundwater…

…but the level of groundwater is already in a critical condition in most states



© 2009, IMA India

This will have serious long term implicationsThis 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 Climate change presents a ‘‘realreal’’ and exogenous force and exogenous force that will work against productivity improvement that will work against productivity improvement

measures locallymeasures locallySource: IPCC; Parikh and Kumar, 2002; others



© 2009, IMA India

In Summary: negative or stagnant trendsIn 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



© 2009, IMA India

In Summary: positive trendsIn 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 mechanisationand productivity-enhancing measures

• The provision of greater finance to agriculture will continue toincrease – 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



© 2009, IMA India

Implications for business: general thoughtsImplications 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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