IMA

2009, IMA India

Research for Strategy

Indian Agriculture
Challenges and Prospects

IMA India

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Disclaimer
This document has been prepared by International Market Assessment India Private
Limited. It provides an analysis of the key challenges facing the agricultural sector in India
and IMAs assessment of the sectors prospects in the years ahead.
This report is not intended for decision making purposes. Whilst the information contained
in the following pages is accurate to the best of our knowledge and belief, IMA India cannot
assume any responsibility for the outcome of actions initiated, or decisions taken, as a
result of this document. Moreover, IMAs assessment is based on conditions as they
existed at the time of writing this report, and these may no longer be applicable consequent
upon changes in political, economic or trade conditions within the Republic of India or
elsewhere.
The contents of this report are the intellectual property of IMA India and are copyright
protected. Unauthorised copying, reproduction or distribution of the information contained
in this report would amount to an infringement of law and would invite applicable penalties,
as per Indian laws.

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Contents
1. About IMA India

2. The Scenario Planning approach for building

strategy: an overview

3. Indian Agriculture: challenges and prospects

12

4. Summary and drawings

40

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I.

About IMA India

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What IMA Does

Undertakes in-depth market studies and opportunity
assessments for individual companies: leveraging a full
range of business and market research capabilities
Provides ongoing market intelligence and risk
assessments to country managers; offers researchbased interpretations and top-level forecasts of the
operating environment in India: economy, politics, key
sectors, emerging business issues, etc
Provides closed-door discussion platforms that
enable focussed and high quality intellectual exchanges
between senior executives on current and strategic
business issues
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Four Business Streams

Research and Advisory Services
Proprietary studies for individual clients across issues and sectors
Leveraging a unique methodology comprising extensive desk
analysis complemented by expert insights obtained from internal and
external domain specialists

Peer Group Forums

Membership-based executive briefing and research services: a
platform for obtaining country intelligence and exposure to
authoritative minds; access to top-level India research
An extensive corporate network: a forum for sharing experiences and
learning from peers and pioneers

Conferences and Business Meetings

Closed-door Roundtables for senior executives
Driven by research-based agendas and intense interaction

CFO Connect:
Connect first-of-its-kind thought leadership journal for
CFOs
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II.

The Scenario Planning approach for

building strategy: an overview

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Understanding the drivers of agriculture

The performance of the agriculture

sector depends on several drivers,
which, rather than impacting the
sector in isolation, interact with each
other and also depend on subdrivers, consequently strengthening
or weakening specific trends

Policy
factors

Macroeconomy

Market
forces

The key drivers that directly impact

output can be grouped into 6 categories

Global
factors

Technology

Climatic
factors

Performance of the agriculture sector

Technology (farming and crop technology)

Government policy (availability of credit, crop specific programmes, etc)
Cropping pattern (which depends on profitability, awareness, etc)
Environmental factors (water availability, soil degradation, climate change, etc)
Market forces (market openness, pricing, transparency, integration with
downstream sectors)
Global factors (supply-demand, trade norms and restrictions, etc)
Source: IMA research and analysis

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But they cannot be examined in isolation

One factor alone cropping patterns is a function of several
inter-related drivers and sub-drivers
Cropping intensity

Cropping pattern

Profitability

Irrigation

Market price

Yield

Market
openness
Govt policy
on trade
Economic
growth
Consumption
pattern

New crop
technologies

Cost of cultivation

Input usage
(fertiliser, seed, CP
products, etc)

Demand
supply
situation

Quality of land

Changes in land use

Source: IMA research and analysis

Availability of
credit/insurance

Contract farming
Crop-specific
programmes

Contract
farming

Labour cost
Govt policy on
rural finance

Input cost
Cost of fertiliser,
electricity, water,
etc

Technology
(Hybrid, GM crops,
etc)

Procurement
by food
processing
industry

Awareness

Input usage
intensity

Cost of living
(CPI AL)
Public & private
investment in R&D

Penetration of
financial sector
Penetration of
media/IT

Alternative
occupation

Govt policy on
crop focus
Demand
supply
situation
Political
outlook

Food retail
Economic
growth
Urbanisation
Policy on CF

Migration

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Indian agriculture is not one concept

The dynamics for each crop are different in each state
yields, acreage, farmer awareness and psyche, cost
structures, Government infrastructure
Upstream issues vary substantially labour availability, credit,
soil fertility and agronomy, irrigation, input and technology
availability, training
Downstream markets are even more varied across states and
crops market openness, procurement chains, processing
infrastructure, food retail, etc

Hence, there is a need for a granular assessment (by

crop, by state/region, by issue) if a business or
investment decision is at stake
Source: IMA research and analysis

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Scenario planning is therefore, a useful tool

The scenario matrix
Effective implementation,
hand holding for farmers
A market economy with
excessive regulation and
intervention (both institutional
and arbitrary); political
leadership is strong and
enlightened

Pro-equity,
interventionist
orientation

Each driver and its

impact on the business decision
under consideration is subsequently
examined for each scenario

Scenario II:
Nehruvian
Agronomics

Liberalisation of

Scenario III:
Sleeping
Giant

Scenario-based forecast of each driver is

woven into a complete market picture,
based on which the business decision is
Business as usual (BAU)
evaluated
Source: IMA research and analysis

Implementation of agri technology

An evaluation of all driving forces yields

two dominant themes that will guide the
future development of Indian agriculture
Agricultural policy and
Implementation of technology
A quadrant matrix of these two
overarching issues provides four
possible scenarios

Overall priorities are growth and

employment, with high focus on agrobased industries as one of the means to
achieve this

Progrowth,
marketorientation
agricultural policy/markets
Scenario I:
The Tiger
Uncaged

While growth is a key priority, political

dynamics and immature institutions prevent
the emergence of a clear cut approach on
complex issues such as agriculture

Scenario IV:
Crony
Capitalism

Ineffective implementation,
farmers left to their own devices

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III. Indian Agriculture: challenges and

prospects

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The overriding challenge is sustainable

and profitable growth in agriculture

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But thats where the generalisation ends

There is a complex web of inter-related causal relationships* which impact
growth and must be evaluated
Crop Technology
(Hybrid, GM crops,
etc)

Crop
yields

Land degradation
Water availability

Farm technology
(fertiliser, seed, CP
products, etc)

Environmental
factors

Irrigation

Climate change

Government
policy

Public & private

investment in R&D

Crop-specific
programmes

Credit availability
Contract farming

Cost of cultivation

Market price

Farmer
profitability

Sustainable
growth

Food retail

For the sake of convenience,

the issue of crop yields has
been taken as a starting point
for this analysis

* The schematic diagram shown here is largely illustrative. Sub-drivers of each high level
driver can be further delineated to demonstrate the complexity and inter-relatedness.

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1. Crops Yields: Patchy improvement over

the years
Rice (kg/ha)

600

3,000

500

2,500

2006

2004

0
2002

0
2006

2006

100
2004

2002

500
2002

1998

200

2000

1994

1,000

1998

500

300

1996

1,250

1,500

1994

2,000

2000

400

2,000

1998

2,750

3,500

1996

South
West

700

1994

North
East

Cotton (q/ha)

Wheat (kg/ha)

Mainstream food crops have seen a plateau-ing of yields after the

effects of the Green Revolution subsided in the late 80s
However, there are important exceptions such as cotton, which has
benefited from the introduction of Bt Cotton
Across the board, there are significant regional variations in yields
Source: Agriculture Ministry Statistics; Economic Survey 2007-08; IMA analysis

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and still below world standards

Comparison of yields in selected commodities (Metric tonnes/ hectare)
Rice/paddy
Wheat
Maize
Cotton
Major Oilseeds
Egypt
9.8
UK
7.7
USA
9.1
China
11.1 Germany
4.0
USA
7.8
France 7.5 France
7.5
Brazil
10.9
USA
2.6
Korea
6.7
China
4.2 Germany 6.6
USA
9.5
Argentina 2.5
Japan
6.4
World 2.8
China
4.9 Uzbekistan 7.9
Brazil
2.4
3.3
Pakistan
7.6
China
2.0
World
3.9
India
2.7 World
Pakistan 2.3 Philippines 2.1
World
7.3
World
1.8
India
2.9
Thailand
2.6
Iran
2.0
India
1.1
India
4.6
India
0.8
Myanmar
2.4 Australia 1.6
Nigeria
1.0

Despite 30 years of intense Government efforts, Indias yields

for most major crops are still below global averages, and far
below the highest standards
Equally, this indicates the potential untapped opportunity
for GM crops, better farming practices, improved input usage,
re-balancing of labour utilisation, etc
Source: UN Statistics Division

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There is plenty of scope for improvement

Wheat (kg/ha)
5,000

8,000

4,000

6,000

3,000

4,000

2,000

2,000

1,000

4,000

160,000

3,000

120,000
80,000

Uttaranchal

UP

J&K

Gujarat

40,000
0
Kar'taka

Uttar
Pradesh

Rajsthan

Madhya
Pradesh

Karnataka

Bihar

Actual 2003-04

TN

1,000

Improved Practice

Mah'tra

2,000

Sugarcane (kg/ha)

UP

5,000

Bihar

Karnataka

Uttaranchal

Maharashtra

Madhya
Pradesh

Gujarat

Rajasthan

Haryana

Bihar

Uttar
Pradesh

Punjab

Improved Practice
Actual 2003-04

Maize (kg/ha)

Chhattisgarh

Improved Practice
Actual 2003-04

Rice (hg/ha)

Improved Practice
Actual 2003-04

Even with current technology, yields can raised significantly: by optimising

farm practices input usage, sowing techniques, timing, etc
In other studies (e.g. paddy cultivation in UP), it was found that the best
farmers overall profitability is 77% higher than the average farmers
profitability purely because of better farming techniques

Source: Planning Commission; Steering Committee on Agriculture; TN Agricultural University;

Centad, Ramesh Chand, Joshi; IMA analysis

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But much else can and needs to be done

Fertiliser
(kg/ha) R2 =
0.93

HYV area
(ha) R2 =
0.92

Pesticides
R2 = 0.42
Irrigated
area (ha)
R2 = 0.34

Regression-based analysis of field data indicates that, when measured on an individual basis,
up to 93% yield variations can be explained (accounted for) by fertiliser usage; 92% can be
accounted for by the area under high yielding varieties seeds; 42% can be accounted for by
usage of pesticides and 34% by greater irrigation

Greater fertiliser usage and area under high yielding

varieties can greatly boost yields; greater irrigation as well as
pesticide usage can help too
Source: Agricultural Situation in India, Directorate of Economics and Statistics

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2. Better seeds can raise yields by 40%

An effective means to raise yields is through better seeds seeds

have an ~40% impact on yield variations
Development of dramatically better seeds has been almost nonexistent in the last decade hence, greater focus on increasing
adoption rates of existing seed technologies
However, the key constraint is production/availability of certified seeds:
as compared to an ideal of 1:40, average multiplication ratios (for
certified good quality seeds) are 1:17 to 1:23
Meanwhile, GM seeds have fared well: bt cotton has seen rapid
adoption across states since its introduction in 2002; the launch of
Bollgard II in 2006 has given a new push despite higher seed prices
Most states are approaching 80-90% rates of adoption this should
reach 100% in the next 2-3 years
The next in line is Bt Brinjal
Key risks include price controls (e.g. Andhra Pradesh); regulatory
issues around GM technology in food crops; and activism

Source: Agricultural Situation in India, Directorate of Economics and Statistics.

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3. Balanced fertiliser usage is equally critical

30000

16000

N
P

12000

20000

8000
10000
4000

2006

2000

1994

1988

1982

0
1976

0
1970

Total consump. (left axis)

1964

Fertiliser consumption in India

('000 tonnes)

1958

Unbalanced fertiliser usage is one of the

biggest reasons for stagnant yield and
depleting soil fertility
Fertiliser usage continues to be skewed
due to irrational subsidy structure that
favours Nitrogenous fertilisers over others
Poor fund management by the Government
often leads to acute shortage as fertiliser
companies complain of delayed payments
The rising subsidy bill on this account has
reached worrisome levels by issuing offbudget fertiliser bonds, the Government is
only postponing the inevitable

1952

The average NPK ratio in the past

two decades has been 7:3:1,
against the recommended 4:2:1

Lack of political will has been the single most important

constraint so far with a strong Government now in
office, there is reason to hope for gradual improvement
Source: Agricultural Situation in India, Directorate of Economics and Statistics; Planning
Commission Sub-group on Fertilisers

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4. Irrigation can raise incomes

Fruits and vegetables can benefit
enormously from irrigation

Crop-wise irrigation availability (% of gross

cropped area)
92.5

28.0

72.4

7.4

20

8.8
15.0

40

15.9
21.1

60

1970-71
2005-06

54.3

80

38.4
56.0

100

17.3
36.1

89.5

Returns (Rs/ha) from F&V cultivation

Type of
irrigation

Irrigated
farm

Un-irrigated
farm

Flow

25,842

4,741

Tube Well

9,666

8,200

Lift

79,776

6,000

Tank (flow)

73,225

8,010

Tank (sprinkler)

64,685

10,188

0
Rice

Wheat

Maize Pulses Cotton S'cane O'seeds

Rice, wheat and sugarcane have received focus for irrigation

provision largely the outcome of the governments
paranoia about achieving self-sufficiency in food; other
crops have been neglected, despite the fact that irrigation
can generate enormous economic returns for them
Source: Agricultural Situation in India; Directorate of Economics and Statistics, Ministry of
Agriculture; IMA analysis

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2.6

Major and medium irrigation

2.5

3.6

Potential Created (m ha)

Potential Utilised (m ha)

2.3

3.5

2.9

Potential Created (m ha)

Potential Utilised (m ha)

Minor irrigation
0.9
0.7

0.7
0.6

0.5
0.4

0.5

0.6
0.5

0.7
0.5

1.5

1.2

1.4
0.9

1.1
0.6

1.1
0.7

0.9
0.6

2
0.8
0.5

2.3
2.1

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

4.1

But irrigation progress has been slow

0
199297

19972002

200203

200304

200405

200506

200607

1992- 1997- 2002- 2003- 2004- 2005- 200697

2002
03
04
05
06
07

In the latter half of the 90s, the Governments investment

efficiency (in terms of completing irrigation targets and
utilising potential) dipped to below 50%; in the 2000s,
efficiency improved marginally
Overall, efficiency in minor irrigation has been higher than
in major and medium irrigation; hence, minor irrigation is
receiving increasing attention from policy planners
Source: Ministry of Agriculture; World Bank; IMA analysis

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5. Credit and land holdings are critical from

an economic perspective
Land size
(acre)

Profit/acre (farmers without

credit)

Profit/acre (farmers with

credit)

Non food

Food

Non food

Food

<1

42,500

4,000

73,500

5,900

1-2

60,000

4,500

70,000

5,675

2-3

62,000

5,000

65,000

5,200

>3

65,000

5,000

62,000

5,200

Avg

57,375

4,625

67,625

5,494

Overall profitability per acre rises with size of land

holdings, but access to credit can compensate for this
and raise profitability by up to 50%; with access to credit,
farmers with smaller land holdings were found to be
more profitable than those with larger farms
Source: Indian Journal of Agricultural Economics, December 2006; data pertains to West Bengal

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Fortunately, credit provision is improving

Two important developments in
credit are the consistent
increase in penetration of
organised lending (institutional
finance) and the penetration of
the Kissan Credit Card
Meanwhile, the success of
micro-finance initiatives and
joint industry financing
programmes, will be critical to
watch for

The share of institutional credit

has risen
Non-institutional

Institutional

100%
80%
60%
40%
20%
0%
1951

200,000

1961

1971

1981

1991

2002

Institutional credit: rapid increase (Rs

crore)

100,000

0
1985-86 1989-90 1993-94 1997-98 2001-02 2005-06

Source: Ministry of Agriculture; RBI

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Improved credit: an important achievement

Kissan credit cards (mn)

Trend changes witnessed

Commercial banks are
participating in a bigger way
After initial hiccups, agriinsurance appears to be
improving as well

On the horizon
The Multi Application Smart
Card will create a billion credit
cards in circulation
Tradeable deficits for directed
bank lending will deepen
commercial bank participation

2006-07

70.5

2004-05

44

2002-03

31

Credit disbursement (% share)

Coop banks
Comm banks
RRBs
2006-07

62

1992-93

8000
6000
4000

68

22

10
33

Sum insured (Rs crore, left axis)

Claims (Rs crore, left axis)
No. of farmers (100,000)
Area covered (100,000 ha)
Premium paid (Rs crore)

Insurance

2000

200
150
100
50

0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Source: ICREIR; Ministry of Agriculture; RBI; IMA analysis; RRB: Rural Regional Banks

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6. But land fragmentation is difficult to

reverse

% share of farmers by land holding size (ha):

Land holdings are becoming smaller
Below 1

1 to 5

Above 5

2000-01

4.3
62.89

32.82

1995-96

4.9
61.6

33.5

% share of area by land holding size (ha): Land

holdings are becoming smaller
Below 1
2000-01

The percentage of farmers with

marginal holdings (< 1 ha) has
increased from 61.6% to 62.9%,
while that of large farmers (> 5 ha)
has fallen from 4.9% to 4.3%
between 1995 and 2000
The reasons for this are intrinsic to
farming societies fathers land
moves to children, who tend to
divide holdings amongst
themselves
To reverse this trend, the
Government will need to implement
far reaching changes in land laws
to encourage consolidation or
corporatisation highly unlikely,
given the political ramifications

1995-96

18.88

1 to 5

Above 5
29.23

51.89
32.04

17.34

Source: National Agricultural Census; Department of Agriculture; NIC; IMA analysis

50.62

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7. Profitability is still poor, for many

reasons
200

-200
-250

0
Uttar
Pradesh

-150

MP

40
Punjab

-100

Chatt'garh

-50

W Bengal

80

Orissa

0
T Nadu

120
AP

50
Haryana

160

Punjab

100

Haryana

150

Wheat profitability: MSP less cost

(Rs/quintal)

Rajasthan

Rice profitability: MSP less cost

(Rs/quintal)

The state of the two main food crops in India demonstrates the farmers
poor profitability: for rice, MSP doesnt even cover cost in states like
Haryana, Tamil Nadu, West Bengal and Madhya Pradesh; wheat is
somewhat better, but still delivers only marginal profit in states like UP
The reasons are related to sharp increases in farming costs and
inadequate linkages with open markets where prices are typically higher
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8. one of these is rising labour costs

Rice cultivation cost (Rs/ha)
Punjab

WB

UP

Wheat cultivation cost (Rs/ha)

MP

19,000
14,000
2002

2003

2004

2005

Male
22.5
13.5

Female
25.5
15.3

2002

13.8

2005

50,925

28.6
13.7

2004

60,638

33.5
25.9

2003

Agriculture employment projected to fall between

2006-2016 ('000)

The share of rural non-farm workers is rising (%)

20

UP

24,000

2001

30

Punjab

29,000

35,000
30,000
25,000
20,000
15,000
10,000

40

Haryana

Bihar

16.7

10

-3,967

0
1983

1987

1993

1999

2004

Agriculture

Manufacturing

Services

A key reason for rising costs is the increase in wage rates a direct fall
out of falling farm labour availability
This trend will continue due to Government efforts (e.g. NREGA) and
other measures to reduce employment dependence on farming

Source: Directorate of Economics and Statistics, Min of Agriculture; P K Joshi, et al, Agr Eco Res
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Review, Jul-Dec 2006; K Vatta, et al, Ind J Agr Eco, Apr-Jun 2008; Planning Commission; IMA analysis

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9. another is sub-optimal cropping systems

Less remunerative
system

Net return
(Rs/ha)

High profitable
system

Net return
(Rs/ha)

Kahikuchi, Assam

Rice-wheat

16,749

Rice-toria

22,333

Chhattisgarh

Rice-wheat

30,291

Rice-potato

67,496

Ambala, Haryana

Soyabean-wheat

29,851

Rice-wheat

36,399

Sorghum-wheat

13,602

Maize-wheat

22,188

Nasik,
Maharashtra

Rice-wheat

33,378

Rice-groundnut

46,504

Wardha,
Maharashtra

Soyabean-wheat

25,008

Soyabean-gram

32,327

Faridkot, Punjab

Rice-wheat

50,388

Rice-mustard

66,887

Ludhiana, Punjab

Rice-mustard

52,537

Rice-wheat

63,352

If farmers shift away from the decades-old rice-wheat

cropping pattern, they can raise returns significantly this
realisation is now driving shifts in cropping patterns
Source: Shukla & Shukla, Scope and Limitations of Crop Diversification in Indian Agriculture

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Cropping patterns are improving

Change in acreage between 2000 and 2007 (000 ha)
Rice

Wheat

Fruits

Vegetables

Cotton

Pulses

Maize

Sugarcane

Total acreage change

AP

-243

-2.0

405.0

16.9

-29.7

-122.7

192.0

46.6

72.5

Karnataka

-138.4

-21.0

-47.9

42.7

-176.8

-66.7

279.1

-151.1

-288.9

Tamil Nadu

17.99

49.3

76.0

-47.9

-157.9

203.5

70.7

144.69

Kerala

-80.5

85.6

67.7

-3.8

-9.9

1.6

120.3

South change

-443.9

-23.0

492.0

203.3

-258.2

-357.2

674.6

-34.7

48.59

% change

-5.4%

-8.2%

39.4

18.8%

-14.8%

-3.4%

52.7%

-3.6%

Assam

-375.3

-10.3

42.7

155.2

-1.7

-111.5

-1.2

-1.0

-299.1

Bihar

-261.3

269.2

18.2

61.8

-117.2

119.5

23.5

78.0

Chhattisgarh

-39.6

63.2

98.2

242.6

-0.1

281.5

73.3

3.0

845.7

Jharkhand

153

-4.0

16.7

128.3

173.7

140.1

-0.1

596.8

Orissa

66

-8.8

52.1

5.8

19.6

205.7

135.7

3.2

590.1

UP

11.9

-293.3

-4.0

113.1

-5.3

59.3

116.2

308.6

320.2

West Bengal

384.8

-26.0

64.3

67.6

-1.2

-54.5

13.9

-4.6

381.3

East change

-60.5

-10

293.7

774.4

11.3

437.0

597.5

332.6

2513.0

% change

-0.2%

-0.1%

24.3%

25.9%

xx

9.2%

33.2%

16.1%

A significant shift towards high value crops (2000-2007)

Source: Agriculture Statistics, Ministry of Agriculture; IMA analysis

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2009, IMA India

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10. Contract farming can raise profitability

Indias experience with contract
farming has been universally positive
in raising profitability this is being
helped by the emergence of organised
food retail
However, there are issues around
reneging of contracts and political
opposition that need to be addressed
In Punjab, private contract farming is best for all
sizes of farmers
Marginal
Medium
Very large

40,000
35,000

Gherkins in Karnataka
(profit/acre)
5,720
3,930

Non contract

Contract farming

Spinach in Delhi (profit/tonne)

1,762
1,169

Small
Large
Aggregate

30,000
25,000
20,000
Contract farmers led
by agribusiness farms

Contract farmers led

by PAFC

Non-contract farmers

Contract farmers

Source: Agricultural Economics Research Review, July-December 2006; Centad, Indias

Agricultural challenge; IMA analysis; PAFC: Punjab Agro Finance Corporation

Non contract
farmers

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11. Contrary to popular belief, cereal

sufficiency has been achieved
Demand-supply gap projections (mn tonnes)
Edible oil

Sugar

2026

Pulses

2021

40
30
20
10
0
-10
-20
-30
-40
-50
-60
-70
-80

Wheat

2011

Rice

The demand-supply gap is no longer foreseen in cereals

but in pulses and cash crops a fact that is belatedly
being recognised by Government policies
Source: Demand-Supply Trends and Projections of Food in India, ICRIER, 2008

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1999

2004-05

Fruits

1993-94

Veg

1987-88

Fish

1983

Egg

1973-74

Meat

Milk

Pulses

2004-05

90
80
70
60
50
40
30
20
10
0

Wheat

1999

Rural population
(kg/person/year)

Rice

1993-94

Fruits

1987-88

Fish

1983

Egg

1973-74

Meat

Milk

Pulses

Rice

80
70
60
50
40
30
20
10
0

Wheat

Urban population
(kg/person/year)

Veg

But changing consumption patterns will put

supply pressures on other crops

A clear change in consumption pattern is visible in both urban and rural India
declining/stagnant consumption of cereals accompanied by increasing
consumption of higher value foods milk, meat, vegetables and fruits

Increasing incomes will drive greater consumption of high value food

and cash crops this is creating economic opportunities for farmers
and businesses that did not exist in the aftermath of the Green
Revolution
Source: Planning Commission Steering Committee for Agriculture; IMA analysis

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12. Bio-fuels is one such opportunity

Indian bio-diesel acreage (Jatropha) could rise to 5.6 mn
hectares by 2012 and 13 mn ha by 2018
Of this, the Government expects up to 3 mn ha to come from
currently cultivated area (i.e. diversion from one crop to another)
The balance is expected to come from rejuvenation of fallow land
and diversion from non-agricultural sources
Acreage for bio-fuels: Government estimates
Year

Diesel
demand
(MMT)

Biodiesel
@5%
(MMT)

Acreage
(Mn ha)

Biodiesel
@10%
(MMT)

Acreage
(Mn ha)

Biodiesel
@20%
(MMT)

Acreage
(Mn ha)

2001-02

39.81

1.99

NA

3.98

NA

7.96

NA

2006-07

52.33

2.62

2.19

5.23

4.38

10.47

8.76

2011-12

66.90

3.35

2.79

6.69

5.58

13.38

11.19

Source: Planning Commission; Committee on Bio-Fuels

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13. The Governments efforts towards pulses and

non-food crops are fragmented

In response to changing demandsupply dynamics, the Government

has increased focus on cropspecific schemes: National Food
Security Mission; National
Horticulture Mission; the
Integrated Scheme of Oilseeds,
Pulses and Maize
However, each of these suffers
from a variety of inefficiencies
As yet, there is no credible
strategy to address these i.e. we
should expect more of the same
as far as Government-sponsored
action and implementation is
concerned

Source: Ministry of Agriculture; Directorate of Pulses Development

NHM* allocations (Rs crores) aren't fully

utilised
Budgetary estimates
1951 1916.4
1405

2222.4

2176

1195.78

1202.9

2005-06

Actual expenditure

2006-07

2007-08

2008-09

Targets and achievement in pulse production

Production
target (000
tonnes)

Actual
production

% deviation
from target

2002-03

14,400

11,125

-22.7

2003-04

14,800

14,905

+0.7

2004-05

15,300

13,130

-14.2

2005-06

15,700

13,390

-14.7

2006-07

16,200

14,200

-12.3

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In fact, Government spending is inadequate and

ineffective across the board
Public spending on research and extension
% share of total revenue
expenditure, right axis

5,000

0.6
0.5

4,000

0.4

3,000

1,000

0.3
0.2
0.1

2004

2002

2000

1998

0
1996

0
1994

1971- 1976- 1981- 1986- 1991- 1996- 200175

80
85
90
95 2000 2003

Absolute spends (Rs

crore), left axis

2,000

1992

Investment as % of Ag-GDP
Subsidies as % of Ag-GDP

1990

8
7
6
5
4
3
2
1
0

A Rupee spent on capital formation is 3-4 times as effective

as a Rupee spent on subsidies but politics prevents reform
Agricultural investment as a % of GDP has been falling;
instead greater expenditure is being incurred on subsidies
Although allocations for research and extension programmes
have been increasing, there are inefficiencies that prevent
funds from being fully utilised
Source: RBI; Parliamentary Standing Committee on Agriculture; Steering Committee for the XI
Plan; IMA analysis

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14. Meanwhile, environmental degradation is

emerging as a major threat
Soil degradation is approaching worrisome levels in most
parts of India; 50% of total land and 66% of cultivated land
degraded the highest amongst Asia Pacific countries
Water scarcity projected as the single biggest factor for civil
and social strife in the next decade
Land
degradation

Water scarcity
Physical water scarcity
Approaching physical scarcity
Economic water scarcity
Little or no scarcity
Not estimated

Source: FAO; Sara J Scherr; IFPRI, Ramesh Chand, Centad

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As are falling water tables

Minor Groundwater

Minor Surface water

70
60
50
40
30
20
10
0
Major and
Medium
irrigation

Million Hectares

Future sources of irrigation will

depend increasingly on groundwater

Ultimiate irrigation potential

Irrigation potential created

but the level of groundwater is already in a

critical condition in most states
Chattisgarh
Maharashtra
WestBengal
MadhyaPradesh
UttarPradesh
Uttaranchal
Kerala
AndhraPradesh
Karnataka
Gujarat
TamilNadu
Haryana
Delhi
Punjab
Rajasthan

5
9
14

% of blocks/talukas/mandals with
groundwater scarcity

16
18
30

33
38
47
50
61
63
78
82
86

Irrigation potential utilised

Increasing dependence on groundwater irrigation can be

a potential source of failure of future projects, due to
high levels of groundwater depletion
Source: Ministry of Water Resources; Planning Commission, FAO; IFPRI, Centad

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This will have serious long term implications

Climate change impact assessment
The impact of climate change on the environment is
visibly obvious (IPCC, Working Group II, 2007)
Indias overall crop yields could fall by 30% by 2050
according to the IPCC; other impact: coastal flooding,
greater drought incidence, reduced water availability
Other studies suggest vulnerability of 5-15% in rice yields
and 25-42% in wheat yields (Parikh and Kumar, 2002);
response times of mitigation measures are 5-15 years
Climate change presents a real and exogenous force
that will work against productivity improvement
measures locally
Source: IPCC; Parikh and Kumar, 2002; others

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IV. Summary and drawings

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In Summary: negative or stagnant trends

The lack of new technologies after the effects of the Green Revolution have
worn off, is becoming worrisome; very few promising seeds have been
commercialised and most other innovations are still languishing due to poor
extension or lack of investment
Corrective action regarding fertiliser subsidy, inadequate seed production,
market rigidities and other market-distorting policies is desperately needed
but as yet, political commitment is not visible
Achievement of irrigation potential unlikely to surpass 50% of targeted
acreage, given the large backlog of previous projects to be completed and
the fact that no tangible change has been made in the strategy hence,
monsoon dependence and erratic growth will continue to plague the sector
In general, the effectiveness of Government measures/schemes will remain
erratic across the country private participation can help but this will
happen very slowly, at best (fundamental enabling measures such as land
reforms, corporatisation, taxation of agriculture do not look likely at this
time)
Fundamental degradation in environmental parameters and lack of Good
Agricultural Practices (GAP) are not likely to be addressed in the
foreseeable future this will create a serious long term threat

Source: IMA research

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In Summary: positive trends

Declining per capita cereal intake and rising F&V and other cash crop
consumption will continue on the back of rising incomes and
awareness this will be helped by food retailing, bio-energy demand
and create new opportunities for farmers and businesses
A consistent movement of labour away from agricultural occupations
will lead to rising wages; this should prompt greater mechanisation
and productivity-enhancing measures
The provision of greater finance to agriculture will continue to
increase through bank lending, the Kissan credit card scheme, and
the possible introduction of trade-able deficits (for directed bank
lending) as well as private-sector micro-finance programmes this
will raise farmer incomes and hence, rural demand
There is a shift in Government priority from an overwhelming
emphasis on food-grains and cereals to a more broad-based focus on
profitable and sustainable farming this will have cascading benefits
for the entire agriculture-to-food value chain in the long term
Individual states are taking the lead on issues like private
participation, land reforms and other measures this can create
opportunities in the absence of a concerted push from the Centre

Source: IMA research

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Implications for business: general thoughts

Indian agriculture presents several opportunities:

Contract farming
New crop technologies seeds, fertiliser, crop protection
Trading and procurement
R&D
Retail and distribution

However, most opportunities are at nascent stages this

presents both an inherent advantage and a risk that must
be explicitly realised
A granular analysis is critical before any business or
investment decision is made generalisations are
hazardous in the context of Indian agriculture
Given the complexity of inter-relationships, it is important to
be in sync with the broader economic, political and market
context, before initiating a new business/activity
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IMA India
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