Agro Industry: Last Decade

Indian Agro: Farm output bounces back

Has Indian agriculture turned the corner? Official data on crop production as well as consumption of key farm inputs suggest so.

The accompanying table shows output trends for major crops over three periods: 1995-2000, 2000-2005 and 2005-2010 (April-March). For each of these five-year periods, the average production has been taken, in order to minimise the impact of unusual year-to-year fluctuations arising from the vagaries of weather.

A clear picture emerges. The early half of this decade was pretty bleak for agriculture, with output stagnating or rising only marginally in most crops, and declining in the case of oilseeds and pulses.

Turnaround time

However, the subsequent five-year period – roughly coinciding with the United Progressive Alliance (UPA) in office – has witnessed a reversal of fortunes in foodgrains, oilseeds and sugarcane. In some crops – cotton, maize, potato and onions – the production increases have been quite significant. Even milk has posted a bigger jump relative to the preceding period.

The evidence of a turnaround is further borne out when one looks at the ‘input' side. There has been a robust rebound, for instance, in tractor sales and consumption of fertilisers, reflective of higher demand originating from farms.

Part of the overall improved agricultural performance is explained by higher yields. This is particularly apparent in cotton and maize, where Bt technology and increased penetration of hybrids have made a difference.

But equally, if not more, important has been the role of prices. During 2005-06 to 2009-10, the average wholesale price index (WPI) for ‘food articles' went up by 40.76 per cent, which was more than the 24.14 per cent for ‘all commodities'.

It was the other way round in the previous five years, where the cumulative general WPI inflation of 20.30 per cent exceeded the 9.27 per cent of food.

Twin bonanza

The more favourable terms of trade for agriculture in the recent period are likely to have induced farmers to ramp up output, just as the earlier lower relative prices may have discouraged expansion of cultivation. The combination of higher production and better price realisations has, in turn, helped boost rural incomes.

That still begs the question: Why have food prices spiralled so much despite the farm sector staging a revival of sorts during the UPA regime (unlike the earlier period when prices ruled soft even in face of stagnant production)?

The answer could lie in the increased purchasing power accompanying higher economic growth rates over the last 5-6 years. This has led to a situation where food production is now having to keep pace not just with rising population (as in the past), but also rising incomes.

Demand-pull

The growth in the purchasing power base may have made prices more volatile than before – with the result that even a 10 per cent production shortfall nowadays translates into a 100 per cent price increase. Onions are a live example of this.