Productivity growth and poverty reduction in India:

A GEOSHARE application from the IRRI/Asia Hub

Andy Nelson, Uris Baldos, Parvesh K. Chandna and Tom Hertel

Wed 10th Sep, 2014

Research questions

1. What is the current best information on agricultural productivity and poverty in India?

2. Case study: Has increased productivity led to a reduction in rural poverty in India?

Getting hold of the best available data

District level data for 20 major crops for 2005. Good spatial detail! Contribution to better global datasets like

SPAM and MIRCA

State level data on area and production for 20 major crops for 1993, 2000, 2005 and 2010.

State level data on cost of cultivation for major crops for 1993, 2000, 2005 and 2010.

State level data on agricultural and non-agricultural wages for 1993, 2000, 2005 and 2010.

Consistent poverty data at state level: 1993/4, 2004/5, 2009/10.

Good temporal data! Assessment of the relationship between poverty and agricultural growth based on Total Factor Productivity analysis

< 0 0-11-22-3> 3

Compound Annual Growth Rate (%)

Base Yield = Average Yield of year 1992, 1993 and 1994

Changes in Growth Rates of Rice YieldBetween 1993 to 2005 and 1993 to 2010

1993-2005

1993-2010

< 0 0-11-22-3> 3

1993-2005 1993-2010Compound Annual Growth Rate (%)

Changes in Growth Rates of Maize YieldBetween 1993 to 2005 and 1993 to 2010

Base Yield = Average Yield of year 1992, 1993 and 1994

< 0 0-11-22-3> 3

1993-2005 1993-2010Compound Annual Growth Rate (%)

Changes in Growth Rates of Wheat YieldBetween 1993 to 2005 and 1993 to 2010

Base Yield = Average Yield of year 1992, 1993 and 1994

1993

< 1010-2020-3030-4040-50> 50

2005

2010

People below poverty line (%)

Changes in Rural Poverty in India 1993 to 2010

Changes in rural and urban poverty in India

•Poverty reduction over time. Rural poverty fell from 50% to 34%, urban from 32% to 21%

•Some states show evidence of stubbornly high poverty rates.

•An overall divergence in poverty reduction in recent years. Are some states being left behind?

-

0.10

0.20

0.30

0.40

0.50

0.60

0 10 20 30 40 50 60 70

Pro

port

ion

of

pop

ula

tion

Poverty rate

Rural 1993-94 Rural 2004-05 Rural 2009-10

-

0.10

0.20

0.30

0.40

0.50

0.60

0 10 20 30 40 50 60 70

Pro

port

ion

of

pop

ula

tion

Poverty rate

Urban 1993-04 Urban 2004-05 Urban 2009-10

Has increased productivity led to a reduction in rural poverty in India?

Agriculture is a major component of India’s GDP and a source of economic growth;14% but reducing.

The agricultural sector is still the single largest employer and continued growth will directly impact rural livelihoods.

Growth in staples seems to have increased recently. Evidence of a move from staple crops to high value

crops. Despite impressive poverty reduction, India is home to

1/3rd of the world’s poor; 396m people (World Bank, 2014) more than any other country.

Are changes in agricultural productivity reducing poverty?

Growth in productivity is not just about yields

Total factor productivity (TFP) provides a broader concept of agricultural productivity than measures that compare output to just one input, like land (i.e. yield)

To estimate TFP, we need data on land, labour, capital, and material inputs used in agriculture and compare growth those inputs with growth in output of crop and livestock.

If total output grows faster than total inputs, total factor productivity ("factor" = input) has improved.

TFP, therefore, encompasses the average productivity of all inputs employed in the production of all crop and livestock commodities. TFP is the output considering all inputs.

Source: Fuglie (2013) International Agricultural Productivity http://www.ers.usda.gov/data-products/international-agricultural-productivity.aspx

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%Total Factor Productivity Agricultural Land Productivity

Ave

rag

e A

nn

ua

l G

row

th R

ate

(%

)

Source: Fuglie (2013) International Agricultural Productivity http://www.ers.usda.gov/data-products/international-agricultural-productivity.aspx

Total Factor Productivity (All Ag. Inputs) vs. Partial Factor Productivity (Ag. Land)

Graph shows a divergence in the annual average growth rate in agricultural land productivity (output per hectare) and TFP (output given all inputs). Particularly, prior to the 1990s TFP growth is slower than agricultural land productivity.

Has increased productivity led to a reduction in rural poverty in India?

Evidence suggest that growth in Agricultural Total Factor Productivity – a measure of output given all inputs - leads to poverty reduction in developing regions (Fan, Hazell & Thorat, 2002; Thirtle, Lin & Piesse, 2003)

Recent reduction in poverty incidence coincide with crop TFP growth in India

Average annual growth of crop TFP (2004-05 to 2009-10)

Total change in poverty incidence (2004-05 to 2009-10)

Strong TFP growth + reduction in poverty incidence is more evident in rural areas

Average annual growth of crop TFP (2004-05 to 2009-10)

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0-25

-20

-15

-10

-5

0

5

10

Rural Poverty vs Crop TFP Growth

Crop TFP p.a. rate (2004-05 to 2009-10) Ch

an

ge

in P

ov

ert

y In

cid

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ce

: 2

00

4-0

5 t

o 2

00

9-1

0

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0-25

-20

-15

-10

-5

0

5

Urban Poverty vs Crop TFP Growth

Crop TFP p.a. rate (2004-05 to 2009-10)

Ch

an

ge

in P

ov

ert

y In

cid

en

ce

: 2

00

4-0

5 t

o 2

00

9-1

0

States with growth in crop TFP also show a reduction in rural poverty incidence

However, reduction in poverty incidence hinges on Agricultural TFP growth not just Crop TFP growth

Patterns are diverging in some states. Need TFP estimates for agriculture (Crops + Livestock) to formally analyze TFP and poverty incidence reduction

Average annual growth of crop TFP (1999-00 to 2004-05)

Average annual growth of agricultural TFP

(1999-00 to 2004-05)

Key Messages

We still need more complete data on ALL agricultural activities as well as consistent time series on poverty in order to determine causal relationships.

Access to data is improving but much more to be done.

Heterogeneous patterns of poverty and crop TFP growth in India – great variation across states.

Correlation between states with higher crop TFP growth and greater poverty reduction.

TFP growth in staple crops and all agriculture have been diverging in some states.

Thank you