There is still hope for agriculture TESSELLATUM

The state of Madhya Pradesh (MP) saw a 30 per cent increase in agricultural output last year. While it came on the back of two weak years, since 2008 the annualised growth has been 20 per cent (a remarkable 10 per cent a year in real terms). Agriculture has now increased to 38 per cent of its total output, versus 17 per cent (and falling) for India on average.

The state of Andhra Pradesh (AP) did not see much of a slowdown in its agricultural output even during the drought years: Output growth of crop agriculture did decline, but 30 per cent growth in fisheries each year and a double-digit growth in livestock output more than offset that. Last year, as output of crop also rebounded, real output growth in agriculture was 14 per cent.

India faces many economic challenges but the most difficult perhaps is in agriculture. It still employs nearly half the workforce, while producing only about a sixth of the output, and faces a demand problem, with slowing population growth and declining per capita calorie demand. An exodus of workers from agriculture appears imminent, but with no clarity on where they will be absorbed.

The state of Karnataka exemplifies this problem: It was unfortunate to receive poor rainfall even last year (when the rest of the country saw a normal monsoon), but agricultural output growth has been disappointingly low in the past decade, which had many years of good rainfall, too. The state’s agriculture share of aggregate output has now fallen to 12 per cent, even as half the workforce is still in agriculture.

The achievements of MP and AP, therefore, provide food for thought. They are not uniquely blessed with natural endowments. It appears to be government policy, patiently executed over several years, that has mainly enabled these changes.

MP has constructed nearly 60,000 kilometres of rural roads since 2006, connecting 14,000 habitations by all-weather roads for the first time: This is critical for farmers to have market access. Irrigated area is up nearly 63 per cent since 2006, taking the net sown area that has irrigation facilities from 38 per cent to nearly 65 per cent. This focus continues: Irrigation spending is due to double between 2015 and 2018. Interestingly, it seems to have achieved this with relatively small expenditure: Karnataka on the other hand has outspent MP nearly every year in the last decade, with an insignificant increase in irrigated area.

MP has also improved market conditions and processes: It is one of the few states in India where a substantial part of cereal output is procured at Minimum Support Prices. It launched its financial inclusion scheme “Samriddhi” in 2011, where 7.65 million bank accounts were opened, enabling farmers to get paid directly into their bank accounts. It has experimented with Farmer Producer Organizations (FPOs) to improve farmers’ bargaining power, and offset the well-known but hard to solve problem of farmers buying everything retail but selling everything wholesale (this was observed by John F Kennedy in 1960 for US farmers, but appears to be a universal problem). A back-of-theenvelope calculation shows that MP’s per capita income in agriculture is now 65 per cent higher than Karnataka’s, from being lower a decade ago.

Similarly, AP has been the dominant fisheries producer state in India for a while: Even the popular freshwater Rohu fish available in markets of far-off Bihar is often frozen “Andhra fish”. But the acceleration from low-teens per cent growth in output to 30 per cent growth in the last two years can perhaps be ascribed to the fisheries policy of the AP government that was introduced in 2015.

Productivity improvement is critical for agricultural demand to grow, especially as it may only come from three sources: Exports, import replacement (India imported $24 billion of agricultural products last year, mostly edible oil and pulses), and greater affordability (per capita consumption of fats and proteins is low in India but can rise meaningfully only if they become cheaper).

For the first two, which are the clearer opportunities, production costs need to be competitive. For example, India’s edible oil production costs are so high that the government has to repeatedly impose import duties to protect domestic producers. This is usually ascribed to the crop itself — oil palms having much higher yields than the commonly grown oilseeds in India but farming productivity has a role to play as well. In wheat, the fall in the currencies of Ukraine, Russia and Brazil have made their farmers more competitive: The recent sharp appreciation of the rupee hurts the Indian farmers. Agricultural exports have very high domestic value-add (and hence currency impact) given that they do not need much imported inputs, unlike say petrochemicals, metals or gems and jewellery. (A side note: Few seem to appreciate that the Indian farmer is among the biggest beneficiaries of rupee weakness). However, as MP and AP have shown, effective policies, better irrigation, and improved access to markets and information can go a long way in improving farm income. Can other states repeat their successes?