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8/14/2019 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