Profitability in Agriculture and Inclusive Growth

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Profitability in agriculture and

inclusive growthNational Symposium on Agriculture, College of

Agricultural Banking, Pune

12 Jan 2007

N.Srinivasan

Views are of the presenter. Not necessarily held by employer bank.


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Profitability and sustainability

Profitability Return to capital and return of

capital ability to generate positive net

incomes out of each working cycle

Sustainability Capacity to post profits on a

continuous basis, with growth especially

the ability to manage risks and post net

positive returns over a period after meetingrisks and all costs


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Trends in Profitability

Examined in terms of

Terms of trade in agriculture

Trends in agriculture GDP vis a vis GDP Per ha income

Input output ratio


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Terms of trade in agriculture

Terms of trade

generally

unfavourable to

agriculture Both CACP and

DES indices

show that

farming is not

advantageously

placed

Planning commission MTA X plan


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Income from agricultureA case of Maharashtra

Income per ha declining in real terms

Small farms and landless unable to meet

household expenses with returns from

farming

Considerable regional disparities within the

state

Profitability not strong even in Maharashtra

with high proportion of commercial crops


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Trend in per Hectare Agriculture Income

20,00012,17317,34234,68421,1102004-05

18,85312,37417,43232,86421,5712003-04

19,27013,27617,58033,87623,3402002-03

19,32413,48417,63134,07023,7732001-0217,63412,69817,63631,10022,3942000-01

13,28112,15217,98023,88021,8501995-96

6,3108,55418,56511,71515,8801990-91

2,9936,03518,2235,45510,9971985-862,0826,04718,0083,74910,8891980-81

At

Current

prices

At 1993-94 PricesAt Current

prices

At 1993-94

Prices

Per Hectare Agricultural

Income (Rs.)

Net Sown

Area(in 000' ha)

State Agricultural

Income (NSDP)(Rs. in Crore)

Year

Maharashtra


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Income trends in Agri Maharashtra

1980-

81

1985-

86

1990-

91

1991-

92

1992-

93

1993-

94

1994-

95

1995-

96

1996-

97

1997-

98

1998-

99

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

050

5

10

15

20

Thousands

At 1993-94 Prices)

At Current Prices)

Trend in per Ha Agri Income (Rs)


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17,86416,76532,17028,848State Total

18,56017,42733,12829,864Konkan Regn *IV

10,1639,83918,85017,720Mwada RegnIII

11,07410,84420,83619,469Amravati Regnii

15,44614,85128,92226,171Nagpur Regioni

Vidharbha RegionII

13,38212,55724,08321,543Nasik Regionii18,07516,82932,17228,474W. Mahai

Western RegionI

2004-052003-042004-052003-04

At Constant

Prices

At Current

Prices

RegionSl

Region wise income trends (per ha) Maharashtra


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Trends in GDP - agriculture vis a

vis Other sectors (all India)

1994-9

5

1995-9

6

1996-9

7

1997-9

8

1998-9

9

1999-0

0

2000-0

1

2001-0

2

2002-0

3

2003-0

4

2004-0

5

Years

0

200

400

600

800

1000

1200

Rs000

crore

Agriculture

Other Sectors


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Farmers response

Farmers want to quit farming- state survey

Suicides as a distressed response in theextreme

Requests for relief from plantation sector,sugarcane, cotton and other crop sectorsfrom time to time

Marginal existence in dry land areas Transient poverty in rain fed areas after

every monsoon failure


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The hidden costs

Failure of infrastructure

Subsidies

Delayed delivery

Lack of quality in inputs

Under-financing

Procedural complexity

These hidden costs are not captured and factored

in any viability analysis of projects and farm

models.


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Broader issues in profitability

Policy impairments

Market imperfections

Risks Gap between promise and performance

Technology issues

Land holdings and economies of scale Impact of globalisation


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Policy bred problems Land policy high lease costs without grievance

redressal Input centric, supply driven Private investments in agri not optimal

preference for short term loans by banks

Production growth targeted - not farm incomes Benefits oriented towards irrigated farms and

large holdings Rent seekers benefit more than farmers

Consumer made the object of farm policy Subsidy led distortions encouragement of anti-

market behaviour Farmer security a casualty to interests of food

security?


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Risks Weather, Technology, Market, Credit

availability, policy continuity

Increasing share of purchased inputs

Absence of market based mitigation

mechanisms Available risk products limited in

coverage and appeal

Lack of safety nets State action more evident in relief not in

systemic management


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Promise vs performance

Investments made on basis of promises sufferon account of under performance erosionof returns

Electric pumpsets without power high costs of

protective irigationDelayed Subsidies - lead to high capital costs

Delayed input provision affect productivity

Supply of indifferent quality inputs low output

Non-maintenance of infrastructure cost push

Leakages alternative funds to be accessed higher credit costs


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Technology issues

Technology development as the goal not

farm viability

Remunerative agriculture not always the

objective

50 years of intensive work yet to solve

problems in dry lands

Tech transfer mechanisms weak

Low emphasis on linkages

Farmers faith in agri extension low SAS

finding


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Competitiveness productivity dimension tech answers?

Lowest yields across all crops how we can break into global market


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Market imperfections

Marketing the weakest link in the chain Infrastructure and fair practices need to improve

Small farmers unable to realise the best prices

lack of aggregation and marketing mechanisms

MSP and procurement - distorts the market ?

Rent seeking predominant in procurement

operations

Prevention of private sector entry ensured

continued exploitation by existing intermediaries

COMEXES still oriented towards trade slow

progress towards farmers


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951580507.18458.16Mean (91-92 to01-02)

9377915436202001-2002

9087615176102000-2001

10687314825801999-2000

12596575245501998-99

10976195885101997-98

11985677444751996-97

10415375773801995-96

8475084743601994-95

7454634433501993-94

6954033943301992-93

6673432932751991-92

World Market

Price (WMP)

Minimum Support

Price (MSP)

World Market

Price (WMP)

Minimum Support

Price (MSP)

RiceWheatYear

Alignment of MSP with World Market Prices (1991-92 to 2001-02)


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Impact of Globalisation

Global gluts transmitted to India affecting pricerealisation by farmers

Farmers do not benefit much from Global (or

domestic) shortages

Subsidies in OECD countries was 2.6 times of

Indian agricultural GDP in 2004-05 how do we

compete

Trade barriers PSP,Origin,Labour & Qualitystandards reduce access to global markets

EXIM policy used more to maintain consumer

prices not sustain farm incomes?


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The silver lining

More reforms visible in the last two years

Agri Marketing being unshackled

Risk mitigation products on the anvil

Welcome shift to venture capital from subsidies

Tolerance of private sector entry introducing

innovations and efficiencies

Contract farming assuring incomes withtechnology requires to be perfected

Corporate farming emerging trends to be

encouraged


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Action

Compensation from technology and input

providers in case of failures Organic farming as a cost reduction alternative in

dry lands

Dispute redressal mechanism for contractfarming

Greater access to markets for farmers and theirassociations introduce rural service obligationfor COMEXES

Consistency of trade policy to be ensured

State to play a regulatory role rather than hands-on project management


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Thanks

Despite all our pretensions to knowledgeand intelligence, we owe our existence

to a six inch layer of topsoil and the

fact that it rains

Profitability in Agriculture and Inclusive Growth

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