2014 GAP Report® – India at a Crossroads

India, the world’s largest democracy and second most populous nation, has long recognized the imperative of increasing agricultural productivity. In the two decades following independence in 1947, India struggled with multiple crop failures and famine. Ambitious government initiatives — such as the Green Revolution in wheat and rice (1960s and 1970s) and the White Revolution in dairy (1970s) — transferred new technologies and practices to millions of farmers and successfully increased agricultural yields and protected crops against pests and diseases. By 1980, the country was self-sufficient in food grains and now it is a net agricultural exporter with $41 billion in worldwide sales in market year 2012–2013.18

Today, India faces new agricultural challenges: a rising middle class demands a more diverse diet, malnutrition continues to plague millions, staple grain productivity has stagnated and water resources are diminishing. As one of the world’s largest emerging economies with an enormous pool of agricultural specialists and entrepreneurs and a stellar research and university system, India is well positioned to turn these challenges into opportunities for agriculture-driven economic growth.

Figure 1: Total Population and Middle Class* Growth, India, 1990–2030 (in Millions)

Total Population and Middle Class Growth India, 1990–2030

GREATER PROSPERITY FOR MANY, BUT FOOD SECURITY REMAINS A CHALLENGE

Thanks largely to macro-economic reforms and liberalization in the industrial sector, India has transitioned from a low-income country to the world’s third largest economy in terms of purchasing power parity. Between 2005 and 2012, 137 million people were lifted out of poverty.19 Over the past 16 years, India’s middle class increased from just one million to 108 million people. In the next 16 years, incomes are expected to grow at an astonishing pace, bringing one billion more people into the middle class — increasing from 8 percent to 84 percent of the population (Figure 1).20

Responding to the evolving food needs and preferences of its expanding middle class, while assuring food security for all its citizens, will be key to sustaining India’s economic expansion. It will require policies that incentivize private sector investment and growth, and unleash innovation in agricultural productivity and marketing, water and land conservation, and adaptation to climate change. Behind the challenges, opportunity is waiting.

A GROWING MIDDLE CLASS CREATES NEW AGRICULTURAL MARKET OPPORTUNITIES

India’s Per Capita Daily Consumption of Milk Keeps Growing

The growing purchasing power of the middle class is reflected in increased demand for meat (mainly poultry), dairy, eggs, fish, fruits and vegetables. Grocery stores, fast-food eateries and convenience foods are also becoming more popular with increasing demand for processed, packaged and prepared food items. The increasing demand for milk, as shown below, illustrates the tremendous growth potential of high-value foods.

Dietary surveys conducted by the Government of India show that women’s consumption of milk and fruit increases steadily with the level of household wealth (Figure 2).22 Making milk, fruits and vegetables available to more people at affordable prices requires increased production as well as supply chains that can maintain freshness and quality.

To meet these new demands, farmers must have access to the resources and training that will enable them to produce commodities that meet market specifications. They must also be linked into organized retail systems, which aggregate, process and deliver high-quality food products to consumers. Getting more fruits and vegetables into cold chain supply systems is particularly important for reducing post-harvest losses, delivering nutrient-rich foods to Indian consumers and expanding export markets.

Figure 2: Weekly Consumption of Milk/Curd and Fruit for Women 15–49 Years by Household Income Quintile

Weekly Consumption of Milk_Curd and Fruit for Women in India 15–49 Years by Household Income Quintile

Consumer demand for a greater variety of high-quality foods creates new business opportunities for Indian farmers, processors, and retailers, as well as the many industries that provide inputs and services to the agricultural value chain. Increasing the amount of food available through more marketing channels would generate new jobs and economic growth.

India's Agriculture Sector_Productivity Challenges

Figure 3: Percent GDP Growth and Agriculture GDP Growth Compared for India’s Five-Year Plans since 1992

Percent GDP Growth and Agriculture GDP Growth Compared for India’s Five-Year Plans since 1992

OPPORTUNITY IN INNOVATION AND AGRICULTURAL VALUE CHAINS

Despite impressive economic growth overall, agriculture’s share of GDP has been rapidly declining, dropping from 30 percent in 2000 to 14 percent in 2012.32 From 2002 to 2012, during India’s 10th and 11th Five-Year Plans, GDP growth was robust, averaging 7.8 percent, but agricultural GDP growth was half that level, averaging 3.25 percent. percent (Figure 3).33

India’s agriculture sector is at a crossroads: application of agricultural innovations and integration of value chains must accelerate to use inputs more efficiently, conserve natural resources and increase food choices and availability throughout the country.

Innovations to boost productivity and conserve resources: In India’s Twelfth Five-Year Plan (2012– 2017), agricultural priorities include better weather forecasting, water management and agricultural technologies that can help farmers increase yields without depleting natural resources. Steady investments in research and the development of modern technologies; expansion of financial services and cooperatives to increase farmers’ business opportunities and access to farming inputs and equipment; and extension services to disseminate best practices are crucial for reaching these goals. Fortification of staple foods — by breeding crops to have essential nutrients or through micronutrient fortification of staple food products — can help improve nutrition.

If current levels of agricultural subsidies and supports continue, the agricultural budget will need to expand considerably to meet these goals. [See Minimum Support Price and Public Distribution System box on page 10.] For example, India has excellent agricultural research institutes and universities, but, currently, only 0.40 percent of agricultural GDP is spent on public agricultural research.34 The commonly accepted target for public spending on agricultural research and development for developing countries is one percent of agricultural GDP.35

Investments to build out value chains: Economic drivers are shifting away from large government schemes to consumer-led, demand-driven growth. Substantial government intervention in agricultural production and marketing systems, limitations on land ownership and transfer, and differing regulations and policies from state-to-state make it difficult for Indian entrepreneurs and agro- businesses to establish efficient and integrated value chains. As a result, private sector investment in agriculture is low, about 17 percent of the total investment in the sector.36 For example, in most states farmers are required to sell through government-regulated markets, which limit a farmer’s marketing options, can result in high transaction fees and low prices, and inhibit the development of organized food retailing systems for fruits, vegetables and groceries.

States have authority to adjust agricultural policies and several have found innovative ways to reduce regulatory complexity and encourage investment in agricultural production and marketing systems. Successful models include public-private partnerships that increase productivity and incomes of smallholder farmers, improve transportation and storage networks, and expand food manufacturing and marketing. Allowing farmers to sell directly to buyers rather than going through the government- mandated marketing system has helped increase supplies of fruit and vegetable products, creating more jobs and economic growth. Building on those models and facilitating continued expansion in the “sunrise sectors” of horticulture, meat, dairy, poultry and eggs are pathways for accelerating agricultural growth.

The section on Cultivating Prosperity through Stronger Agricultural Value Chains (page 32) highlights some of the innovative and successful developments in Indian value chains, sustainable technologies and improving the quality of food products.

MINIMUM SUPPORT PRICE AND THE PUBLIC DISTRIBUTION SYSTEM

For nearly three decades following independence, India was plagued with famines and widespread malnutrition. In the 1960s, minimum price supports for farmers and subsidized foods for low-income consumers were introduced to address those problems. Today, the Indian government is still heavily vested in food safety net programs, which now provide supplemental food to an estimated 800 million people.37

This is achieved primarily through the Public Distribution System (PDS). Rice and wheat, and sometimes other products, are bought by the Food Corporation of India (FCI) from farmers at a government-fixed minimum support price. To a certain degree, minimum support prices have played a risk protection role for farmers and spurred expansion of rice and wheat cultivation, particularly in states where the FCI has extensive operations for buying, transporting and storing grain. Some of the grains are stored by the FCI as buffer stocks and distributed for school meal and early-childhood development programs, but most are distributed through the PDS to Fair Price Shops, where they are sold at subsidized prices to eligible beneficiaries, and targeted nutrition programs for women, children and infants.

The National Food Security Act of 2013 changed the eligibility requirements for India’s supplemental nutrition programs. Because malnutrition affects more people than just the poor, the government expanded the number of people who are eligible for subsidized foods. Before, the PDS covered households that fell below the poverty line. Now, it extends to people above the poverty line, too, doubling in size to reach 67 percent of the population. To provide the minimum required ration for each household, the government must buy 55 million metric tons of cereal a year — about 38 percent of national consumption — which the Government of India estimates will cost $19 billion in 2014.38

The Commission for Agricultural Costs and Prices found that in 2009–2010, 40 percent of PDS grains did not reach intended low-income and disadvantaged beneficiaries due to insufficient storage facilities and faulty management.39 In July 2014, India’s Finance Minister told the Parliament that “restructuring the FCI, reducing transportation and distribution losses and improving the efficacy of the PDS” are all government priorities.40


TABLE OF CONTENTS

The Global Agricultural Imperative

India at a Crossroads

Producing More with Less

The Global Agricultural Productivity (GAP) IndexTM

Measuring Agricultural Productivity Growth in India

Policies that Promote Sustainable Food & Agricultural Systems

India’s Agricultural Value Chain

Cultivating Prosperity through Stronger Agricultural Value Chains

Tailoring Technologies for All Farmers

Public-Private Partnerships Make Farming Profitable for Low-Income Communities

Expanding the Roles, Options and Incomes of Women in Agriculture

Research and Collaboration Improve Productivity and Economic Growth

The Poultry Revolution Picks up Pace

The New White Revolution

Aquaculture — The Blue Revolution

Boosting Micronutrient Intake

Water Use Efficiency and Management

From Field to Fork: Strengthening Value Chains to Boost Productivity and Reduce Food Loss

Agricultural Financial Services

Endnotes