Commentary
Deceleration in Agricultural Growth
Technology Fatigue or Policy Fatigue?
It was recently pointed out by prime minister Manmohan Singh that “technology fatigue” is the prime reason for the deceleration in agricultural growth. Is this the only reason for the slowdown or can it be attributed to ineffective policies as well?
A NARAYANAMOORTHY
A
Though the situation assessment survey (SAS) carried out on various aspects of farming by the ministry of agriculture clearly showed that over 40 per cent of farmers are willing to get out of farming because it had become non-viable, nobody seems to have highlighted the cost and price related issues in the meeting. Is it correct to say that technology fatigue is the reason for poor performance of agriculture? Can we achieve a 4 per cent growth rate in agriculture during the Eleventh Plan period by addressing the technology issue? Can we expect farmers to increase production of agricultural commodities if the viability issue is not addressed? In this article, besides addressing these issues, we argue that the poor performance of agriculture experienced in recent years is not because of “technology fatigue” but mainly because of “policy fatigue”.
Fiction or Fact?
It comes into view from the deliberations at the meeting, and other documents prepared for the Eleventh Plan focusing on agriculture, that there is a technology fatigue, which needs to be addressed in order to increase the production of foodgrains and the overall growth of agriculture [Planning Commission 2007]. The administrators are inclined to blame technology now because the supply of wheat declined sharply during the last two years affecting the market price, which also hiked the inflation rate. How can one blame technology by taking a single crop and that too solely based on the experience of the last two years? The production of wheat declined by 4.26 million tonnes in 1989-90, 3.67 million tonnes in 1995-96 and 6.69 million tonnes in 2001-02 over its respective pervious years. But, scholars seldom blamed technology at that time. We must understand that the reduction in supply in any agricultural commodity cannot occur only due to technology fatigue. Production or productivity of crops is determined by a number of factors and technology (seed) is one among them. Why can we not think that the supply of crops may have fallen because of cost and price related reasons? The deceleration in productivity of wheat in Punjab and Haryana in recent years cannot be attributed to technology fatigue. In fact, the intensive cultivation of mono-crop (paddy-wheat sequence) along with a heavy dose of chemical fertilisers may have affected the soil fertility, which may be causing deceleration in productivity of crops. Moreover, the decontrol of phosphate and potash fertilisers introduced in August 1992 has created a wide imbalance in the use of nitrogen-phosphate-potash ratio in many agriculturally advanced states, because of which the soil fertility may have been affected [Narayanamoorthy 1995]. In any case, going by the time series data from 1965-66 to 2006-07, one is unable to see any serious symptom of technology fatigue in productivity of paddy and wheat at the national level (see the figure).
Even if one accepts the myopic view of technology fatigue, it is not a new phenomenon, not common to all crops and all regions. Technology fatigue has existed in certain crops in India for many years now and it was never an issue earlier. Since the introduction of the green revolution, there has been a thrust in terms of research and other policy inputs to increase the production of certain food crops (paddy, wheat, jowar and bajra) so as to protect the food security of the country. These efforts have significantly increased the production of cereals and India has become self-sufficient in cereal production. Are we self-sufficient in other crops? One may not be able to immediately say yes to this question. We have been importing large quantities of pulses from various countries over many years because there is an absolute “technology failure” (not fatigue) in pulse crops. The production of pulses has been hovering around 13-14 million tonnes over the last 25 years not because of reduction in area under pulses but mainly because of low and stagnant productivity. Despite the fact that we know that there is an increasing demand for pulses, we have not tackled this issue so far. Is it not policy fatigue? In recent years, there has been an improvement in crop productivity of various crops including cotton, which suggests that there is no technology fatigue across regions in India (Table 1). Stagnation in productivity
Economic and Political Weekly June 23, 2007
Figure: Trends in Productivity of Wheat and Rice in India in most of the crops was relatively less than
Kg/ha
3000 2500 2000 1500 1000 500 0
1919 1919 19191919 19191919 1919 191919 1920 2020
the increase in the value of output, meaning that farmers were able to get back the cost of cultivation (Table 2). This could be one of the reasons why farmers did not commit suicides during that period.
The situation completely changed during 1985-86 to 2001-02. The cost C2 has increased substantially in all the six crops considered for analysis during this period. In crops like cotton (rightly called a killer crop), the cost C2 increased almost nine times
1965-661967-681969-701971-721973-741975-761977-781979-801981-821983-841985-861987-881989-901991-921993-941995-961997-98
sWheat Rice
1999-20002001-022003-042005-06
between 1985-86 and 2001-02. Though the value of output also increased at a relatively high rate compared to the previous period, the increase in the cost of cultiva
of certain crops may have been experienced in certain regions either due to economic or agro-climatic reasons. Comprehensive studies need to be carried out covering different crops and regions to find out whether productivity decline takes place due to technology failure or agroclimatic or economic reasons.
While more evidence is needed to prove whether technology is really fatigued or not, there is ample evidence to show that policy fatigue is the main reason for the agrarian crisis and deceleration in agricultural growth. A major policy that confirms fatigue is the faulty agricultural price policy followed for different crops. It is a simple economic logic that nobody would invest money in a venture that does not provide reasonable remuneration. This is exactly what has been happening to agriculture during the last 10 years. Farmers were unable to recover even the cost of cultivation because of faulty pricing policy. In order to show how agricultural price policy has really affected the performance of agriculture, we have analysed the data on cost of cultivation (Rs) and value of output (Rs)1 of six important crops using data from 1975-76 to 2001-02. The data for the analysis has been compiled from the reports of Commission for Agricultural Costs and Prices (CACP) published annually by the ministry of agriculture, government of India.
The cost of cultivation of crops has been increasing over the years because of increases in wage rate of labour, input prices and other managerial costs. It is needless to mention that when the cost of cultivation increases more than the rate at which the value of output increases, farmers may not be inclined to adopt the assortment of recommended inputs for crop cultivation. Reduction in the use of various yield-increasing inputs obviously would lead to a decline in crop productivity.
Therefore, policymakers must keep watch on the movements of both, the cost and value of output so as to fix the prices for different crops in consonance with the cost of cultivation. Has this happened in India? CACP data shows that this has not happened in India, especially since the early 1990s. Between 1975-76 and 1985-86, the increase in the cost of cultivation (C2) tion was much higher than that of the value of output. This has made a significant impact on the net value of output from various crops cultivated by farmers. The ratio of value of output to cost of cultivation estimated for different crops has been fluctuating widely since the mid1980s. In fact, during 2001-02, for which we have latest information for different
Table 1: Trends in Productivity of Crops, All-India
(Kg/ha)
Year Rice Wheat Pulses Oilseeds Cotton Sugar Cane
TE 1952-53 715 (31.9) 722 (36.4) 451 (9.6) 445 (0.8) 87.3 (8.6) 31568 (67.5) TE 1962-63 991 (37.2) 845 (32.8) 500 (8.3) 494 (3.5) 117(13.3) 42965 (68.4) TE 1972-73 1111 (38.2) 1319 (73.6) 500 (8.6) 519 (7.4) 128(19.5) 48922 (73.1) TE 1982-83 1292 (41.4) 1712 (73.1) 492 (8.6) 578 (15.2) 160(28.0) 57548 (81.3) TE 1992-93 1745 (46.9) 2334 (83.0) 561(10.5) 762 (24.2) 233(33.6) 65102 (87.8) TE 2002-03 1908 (52.3) 2693 (87.8) 565(13.4) 805 (23.3) 189(33.8) 66508 (91.7) 2005-06 2102 (na) 2619 (na) 598 (na) 1004 (na) 362 (na) 66928 (na)
Note: Figures in brackets are coverage of irrigation (per cent) to cropped area. Source: GoI (2007a).
Table 2: Increase (No of Times) in Cost (C2) and Value of Output in Selected Crops
Cost Increase Output Increase Crops 1975-76 to 1985-86 to 1975-76 to 1975-76 to 1985-86 to 1975-76 to 1985-86 2001-02 2001-02 1985-86 2001-02 2001-02
Cotton (Maharashtra) 1.83 8.99 16.46 1.98 5.57 11.00 Paddy (Andhra Pradesh) 2.41 5.11 12.33 2.61 5.17 13.52 Wheat (Punjab) 2.05 4.26 8.71 2.41 4.90 11.80 Sugar cane (Maharashtra) 2.16 3.77 8.13 1.75 2.74 4.80 Groundnut (Karnataka) 1.65 5.68 7.81 2.89 1.87 5.40 Gram (Madhya Pradesh) 2.21 5.87 12.94 2.67 5.61 14.99
Note: The selected states are one of the largest producers in the respective crop.Source: Computed using CACP (various years).
Table 3: Ratio of Value of Output to Cost of Cultivation (C2) in Different Crops
Year Cotton Paddy Wheat Sugar Cane Groundnut Gram (Maharashtra) (Andhra Pradesh) (Punjab) (Maharashtra) (Karnataka) (Madhya Pradesh)
1975-76 1.195 0.857 0.912 1.571 1.077 1.107 1980-81 1.048 0.972 0.954 1.418 1.203 1.193 1985-86 1.291 0.928 1.073 1.273 1.306 1.343 1991-92 1.182 1.006 1.167 1.101 1.287 1.129 1995-96 1.191 0.978 0.958 1.125 1.602 0.984 2001-02 0.799 0.940 1.235 0.927 0.746 1.283
Note: Due to non-availability of data for some specified years, data from the nearest point is used for the analysis.
Source: Computed using CACP (various years).
Economic and Political Weekly June 23, 2007
crops, this ratio became less than one in crops like cotton, paddy, sugarcane and groundnut (Table 3). This is the result of policy fatigue (policy breakdown or malfunction) because prices for different crops were not announced in consonance with the cost of cultivation.
Besides price policy fatigue, the sector has been encountering quite a few policyrelated problems that have hampered its growth over the last 10 years. It is well known that fixed capital formation is essential for sustaining the growth of agriculture as it reduces the transaction cost for private farmers besides reducing the operational cost of cultivation. However, fixed capital formation by the public sector in agriculture has been continuously declining both in absolute terms and also in relation to agricultural GDP. In fact, public investment (at 1993-94 prices) was almost constant in the period 1990-91 and 200203, hovering around Rs 4,000-5,500 crore. Despite knowing that there a is close complementarity between public and private investment in agriculture, policymakers somehow did not make concerted efforts to step up public investment in agriculture. This reduction in public investment in agriculture is also considered to be one of the reasons for poor performance of agriculture in recent years.
Another example of policy fatigue is with reference to agricultural credit. Institutional credit is essential for agricultural development since most of the farmers belong to the marginal and small categories. There is also a lack of simultaneity between the realisation of income and act of expenditure in agriculture. While shielding farmers from the grip of moneylenders, institutional credit acts as a lubricant, smoothly moving the wheels of agricultural development forward. Evidence shows that cheap and development oriented credit, supplied in adequate quantity, can play the role of an accelerator in agricultural development. In spite of this information, there has been a significant reduction in the growth of institutional credit to agriculture during the postreforms period. For instance, during the period 1981-91, growth of institutional credit to agriculture was about 6.64 per cent, but the same declined to 2.16 per cent during 1991-99 [Mujumdar 1999; Ramachandran and Swaminathan 2001; Shetty 2004]. Non-availability of institutional credit in time has forced farmers to rely on noninstitutional sources to meet their credit requirements for crop cultivation in most places in India. Since the rate of interest charged by the moneylenders is exorbitant and the returns from crop cultivation are also very low, farmers were unable to repay loans in time, which in many cases leads to suicides of farmers. Is the deceleration in the distribution of agricultural credit not an instance of policy fatigue?
There is policy fatigue in irrigation development too. Irrigation is considered to be the paramount factor that determines the performance of agriculture. Though the net irrigated area has increased substantially from 20.58 million hectares in 1950-51 to 53 million hectares in 1994-95, there is no appreciable improvement in it since the mid-1990s because of inadequate allocation of funds required for completing ongoing projects and poor monitoring of irrigation projects by the state agency. Appreciating the importance of irrigation development, the Accelerated Irrigation Benefit Programme (AIBP) was introduced in 1996-97 to increase the canal irrigated area by completing the projects that are in nearcompletion stage. Unfortunately, its implementation has not made any impact on the net irrigated area so far. Between 1995-96 and 2003-04, both the central and state governments have spent about Rs 35,000 crore (in current prices) on the AIBP. Despite this huge public funds infusion, the net irrigated area of the country has remained virtually static at 53-55 mha as of today (for more details see, The Hindu Business Line, March 7, 2007). This poor growth in surface irrigation has compelled farmers to rely heavily on groundwater irrigation. The increased dependence on groundwater irrigation increases the cost of cultivation. It also depletes the water level and increases the rate of well failures in many places in peninsular India.
4 Per Cent Growth Rate?
The Planning Commission is fully aware of the current weaknesses of Indian agriculture. Yet, it has fixed a target of 4 per cent growth rate for the Eleventh Plan period with a specific road map to achieve it. According to the Planning Commission, “The main factors expected to contribute to 4 per cent growth in the Eleventh Plan (with approximate component of contributions in brackets) are increased investment (2.5 per cent) and higher area under fruits and vegetables (1.0 per cent), with greater use of fertilisers and other inputs contributing the rest. The most significant factor will need to be public investment, including in filling yield gaps” [Planning Commission 2007: 5-6]. The policymakers in the Planning Commission and the ministry of agriculture appear to think that they would be able to improve the performance of agriculture and achieve the growth rate fixed for the next plan period by addressing the vast yield gap and technology fatigue. This is going to be a herculean task.
Farmers in most of the regions in India are fed up with crop cultivation because they have not been able to recover even the cost of cultivation in the past several years now. The SAS data clearly acknowledges this fact [Narayanamoorthy 2006]. Given this, how can one expect to reduce the vast yield gap that exists among various crops? Besides improved irrigation facilities and extension networks, farmers must adopt all the recommended inputs at the right time to reduce the yield gap in crops. With poor remuneration from various crops, one cannot hope that farmers would adopt the required modern technologies in crop cultivation. Therefore, in the first place, policymakers must make efforts to convert agriculture into a profitable enterprise by making adjustments in the minimum support price of various crops in consonance with the cost of the cultivation. Pursuing the policy of doubling the flow of institutional credit to the agricultural sector in the next three years may not accelerate the growth of agriculture and remove the present agrarian impasse. Remuneration from crop cultivation is the key problem. Unless this is addressed immediately, we may not be able to rescue agriculture from its current sludge.
EPWEmail: na_narayana@hotmail.com
Note
[While acknowledging the comments of V M Rao, S Neelakantan and on the earlier version of the article, the author takes full responsibility for any remaining errors in the article.]
1 The value of output of crops is the sum of the main product and by-product. It is an imputed value estimated on the basis of post-harvest prices prevailing in the villages selected under the comprehensive scheme for studying the cost of cultivation of principal crops [GoI 1991: 187].
References
CACP (various years): Reports of the Commission for Agricultural Costs and Prices, Commission for Agricultural Costs and Prices, Ministry of Agriculture, Government of India, New Delhi.
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National Law School
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GoI (1991): Cost of Cultivation of Principal Crops in India, Ministry of Agriculture, Government of India, New Delhi.
Mujumdar, N A (1999): ‘Reviving Rural Credit’, Economic and Political Weekly, Vol 34, No 25, June 19, pp 1577-79.
Narayanamoorthy, A (1995): ‘Fertiliser Consumption after Decontrol: Myths and Realities’, Artha Vijnana, Vol 37, No 4,
December, pp 359-79.
– (2006): ‘State of India’s Farmers’, Economic and Political Weekly, Vol 41, No 6, February 11, pp 471-73.
Planning Commission (2007): Agricultural Strategy for Eleventh Plan: Some Critical Issues, Planning Commission, Government of India, New Delhi, May.
Ramachandran, V K and Madura Swaminathan (2001): Does Informal Credit Provide Security? Rural Banking Policy in India, International Labour Organisation, Geneva, Switzerland (www.ilo.org/ses).
Shetty, S L (2004), ‘Distributional Issues in Bank Credit: Multi-pronged Strategy for Correcting Past Neglect’, Economic and Political Weekly, July 17, pp 3265-69.
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