Where is Agriculture
headed?: A Pessimistic View
Himanshu
JNU
GDP has grown at more than 5% since the mid-1980s. The acceleration
in growth rates to more than 9% since 2005-06 was short lived with
growth rates slowing down in the last 2 years.
2
This was also accompanied by revival of agricultural growth rates in
the later part of last decade. However, 60% of cultivated area is rainfed and there are disparities across region and crop.
3
Agrarian Revival since 2005
Revival since 2004-05 after the worst
crisis during 1997-2004
 Agricultural growth rate picked up: more
than 3.5% after 2004-5
 Agricultural investment picked up
 Agricultural credit quadrupled
 Good monsoon
 TOT moving in favour of agriculture

Public Investment in Agriculture picked up
after 2003-04 (1999-00 constant prices)
Public Investment in Agriculture (constant prices)
25000
20000
15000
10000
5000
0
Public Investment in Agriculture (constant prices)
Private investment in agriculture grew faster with
share of public investment remaining unchanged.
Agricultural credit which was almost stagnant until
2003, picked up dramatically and quadrupled by 2012
Agricultural Credit Disbursed
600000
500000
400000
300000
200000
100000
0
Not all the credit benefitted the farmers,
particularly the small and marginal farmers.
some indicators of credit from SAS
60
50
48.6
51.9
47
42.3
40.2
40
30
25.7 25.8
20
12.585
10
0
% farmers indebted Average outstanding Share of informal
loan('000)
sector
2002-03
2012-13
Share of money
lenders
The increase in MSP also benefitted
the farmers. The margin of MSP over
cost continued to increase
MSP Fixed
C2 Cost
% Margin over C2
Year
Paddy
Wheat
Paddy
Wheat
Paddy
Wheat
2006-07
569
542
650
700
14
29
2007-08
595
574
775
850
30
48
2008-09
619
624
930
1000
50
60
2009-10
645
649
1030
1080
60
66
2010-11
742
701
1030
1100
39
57
2011-12
888
826
1110
1170
25
42
This is true irrespective of cost
concept used.
t1 (Average during
2000- 01 to 2003-04)
t2 (Average during
2004-05 to 2007-08)
t3 (Average during
2008-09 to 2010-11)
Gross
Margins
over MSP
as
% of
(A2+FL)
cost
Net
Margins
over MSP
as % of C2
cost
Gross
Margins
over MSP
as % of
(A2+FL)
cost
Net
Margins
over MSP
as % of C2
cost
Gross
Margins
over MSP
as
% of
(A2+FL)
cost
Net
Margins
over MSP
as
% of C2
cost
Cereals
57
7
66
11
84
19
1
Paddy
49
5
58
8
67
13
2
Wheat
96
25
103
28
133
38
3
Maize
10
-20
33
-11
49
6
4
Bajra
17
-14
32
-6
58
11
5
Barley
55
15
82
3
75
13
Crops
It also meant that agricultural sector benefitted from the
relative shift in terms of trade towards agricultural commodities
with food prices rising faster than manufactured goods.
11
This was also transmitted to wage workers with acceleration in
growth rate of wages. Rural real wages increased at more than
6% per annum between 2008 and 2013.
12
The increase in wage rates also
meant rising cost of cultivation
Cash cost is increasing faster since
2009, mainly labour, diesel and fertiliser
The introduction of NBS did help contain the fertiliser
subsidy, largely because of the decline in P&K subsidy
Fertiliser Subsidy
120000
100000
80000
60000
40000
20000
0
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
(BE)
Subsidy on P&K
Subsidy on Urea
Total subsidy outgo
But it was also accompanied by
increasing fertiliser prices.
DAP Price
30000
25000
20000
15000
10000
5000
0
I
II
III
IV
10-11(Qtr. Wise)
I
II
III
IV
I
II
III
IV
I
II
III
IV
11-12(Qtr. Wise) 2012-13(Qtr. Wise) 2013-14 (Qtr. Wise)
The result was decline in fertiliser
consumption
Fertiliser Consumption
600
536.96
500
550.63
497.17
477.61
492.55
470.64
400
300
266.42
211.19
264.48
232.69
294.78
255.85
282.23
254.73
301.61
190.94
200
304.54
166.1
100
0
2008-09
2009-10
2010-11
All Fertilizers (Urea, DAP,MOP & NPK)
2011-12
UREA
2012-13
P&K Fertilizers (DAP,MOP &NPK)
2013-14
It also led to worsening of fertiliser
mix
NPK Ratio
9
8.2
8
6.7
7
6
5
4.7
4.3
4
3.2
3.1
3
2.3
2
2
1
1
1
1
1
0
2009-10
2010-11
2011-12
N
P
K
2012-13
The NBS did not increase domestic
production of fertilisers
Fertiliser production and import
30000
25000
20000
15000
10000
5000
0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Production
Imports
Consumption
The future:
The golden period of Indian agriculture is
headed for difficult times.
 International commodity prices have
started declining since the later half of
this year
 Credit flow to agriculture has stagnated
 Public investment in agriculture has
stagnated
 MSP policy and WTO obligations may lead
to lower procurement

1/2007
4/2007
7/2007
10/2007
1/2008
4/2008
7/2008
10/2008
1/2009
4/2009
7/2009
10/2009
1/2010
4/2010
7/2010
10/2010
1/2011
4/2011
7/2011
10/2011
1/2012
4/2012
7/2012
10/2012
1/2013
4/2013
7/2013
10/2013
1/2014
4/2014
7/2014
10/2014
World food prices are declining
FAO Food Index
220.0
200.0
180.0
160.0
140.0
120.0
100.0
Food
Cereal
Although not so clear in Indian case, cash
crops have already seen price collapse:
Cotton, Sugarcane, basmati
WPI Index
290.0
270.0
250.0
230.0
210.0
190.0
170.0
150.0
All Commodities
Food Articles
Cereals
Cotton
Petrol
If the present trend continues, the following will
further add to the misery in agriculture
Continued volatility in the fuel (oil) prices continue to
put pressure on agricultural commodity prices
 Increasing urbanisation as well as demand by the nonfarm sector is putting pressure on agricultural land
 The overall deflationary policies and growth fetishism
will be the obstacle in increasing investment in
agriculture.
 With agriculture being open to international trade, it is
no longer insulated to international price volatilites.
 The entry of finance capital in lucrative cash crop
business has meant a weakening of domestic trade
measures in protecting farmers

What to expect in future






Urea prices likely to be increased
Diesel prices likely to remain high
International prices likely to stay low
Fear of high fiscal deficits likely to put pressure on
agricultural investments as well as food, fertiliser and
other subsidies
Unlikely that demand increases domestically or
internationally
With wage rates stagnating and decline in flow of
funds to rural areas, rural areas may see an increase
in distress