Column: Making agriculture remunerative

Updated: Jan 31 2014, 02:41am hrs
One of the key objectives of agricultural price policy in India is to ensure that agriculture remains a remunerative occupation so that farmers are incentivised to adopt modern technologies that help raise productivity and overall production of various crops in the country broadly in line with the emerging demand and supply patterns in the country. The challenge is how to do it in a manner that keeps our agriculture a globally competitive sector while ensuring rational utilisation of our scarce land and water resources so that agri-growth is sustainable to feed a large and growing population.

How has the Indian crop sector fared on this account during the last decade or so Has the country's agriculture become more remunerative This is the key question that we attempt to respond very briefly here.

The best way to examine how remunerative is agriculture in India is to find out what is the cost of cultivation for a particular crop and what is the gross value of output produced of that crop on a per hectare basis. The costs that the farmer normally considers to see his income is what he pays for various inputsseeds, fertilisers, pesticides, hired labour (human, bullock, machine), rent on leased in land, if any, etc. These are categorised as cost-A2 in the Comprehensive Scheme (CS) for cost of cultivation surveys being conducted by the government agencies under a common methodological framework across various states. Agriculture in India is quite labour intensive, and being dominated by small holdings, it also uses a lot of family labour. The Commission for Agricultural Costs and Pricing (CACP) considers the cost of family labour, in addition to cost A2, or (A2+FL), as a relevant cost concept. There is another cost concept, called the comprehensive cost (C2) which includes imputed values of rent on owned land and of interest on owned capital.

Here, we present the profitability of major crops based on two cost concepts, namely A2+FL and C2. The direction of results does not change, although levels will obviously vary. We have worked out profitability for major states, and then weighted them with state-level area weights to arrive at all-India figures for the period 2000-01 to 2011-12. To smoothen out the effects of drought or below-normal rainfall years, we have taken four-year averages2000-01 to 2003-04 as period I and, 2008-09 to 2011-12 as period II. The results are presented in the accompanying graphs.

It is interesting to note that for cereals, which occupy the largest area (hovering around 100 million hectares) and engage the largest number of farmers, the profitability over cost A2+ FL improved from 52% to 78%; in the case of pulses, it went up from 85% to 96%; in the case of oilseeds, from 61% to 82%; and for commercial crops (cotton, jute and sugarcane), from 70% to 119%, over the two periods, 2000-01 to 2003-04 and 2008-09 to 2011-12. The returns over comprehensive cost C2 were obviously much lower, but they also increased over the two periods: for cereals, from 5% to 19 %; for pulses, from 19% to 26%; in the case of oilseeds, from 11% to 23%; and for commercial crops, from 15% to 43%. Returns on individual crops are also shown in the two graphs.

The rising profitability in Indian agriculture has been triggered by better pricing, including minimum support prices, in response to rising global prices of agri-products, as well as by rising productivity in several crops, most notably in cotton and maize due to technological break-through during this period. Better profitability, in turn, has also led to rising investments in agriculture, particularly from the private sector. And this has been a fundamental transformation in Indian agriculture, which will pay in due course.

This clearly points out that Indian agriculture is reasonably remunerative, but it can be made even more so if we concentrate on yield-augmenting and resource-saving technologies on one hand, and on better access to remunerative markets on the other. The former needs higher investments in agri-R&D, and better dissemination of those technologies to farmers. The latter needs reforming the agri-markets, including opening up completely for exports. To cite an example to illustrate this point, consider that today there is a bumper harvest of groundnuts, the market prices have crashed from above R5,000/quintal last year to R3,000-3,500/quintal in various markets, against an MSP of Rs 4,000/quintal. The procuring agencies (like National Agricultural Cooperative Marketing Federation) have not been able to lift the market to its MSP level with its meagre procurement operations. And yet, we have export restrictions on ground nut oil in bulk.

The lesson to be drawn: Unless we get it right on the markets front, including opening up of exports, farmers cannot get their full due. Productivity and production will rise, if they have access to lucrative markets. Gulati is chairman, Satija is an assistant director, and Bhavik Lukka, an economic officer at the Commission for Agricultural Costs and Prices (CACP). Views are personal

Ashok Gulati, Nidhi Satija & Bhavik Lukka