Indian Agriculture: Beloved Breakeven

Agriculture is neither a business nor an employment. Farmers earn neither profits nor salary. Farming is neither full time nor part time. Farmers houses are neither pucca nor kutcha. Not always but in many instances, farmers may not even recover the cost of their farming. Even if the market prices count to recover only the transportation cost, farmers prefer to carry produce to the market. Then, the transportation cost could be recovered only if the total produce is sold. Assuming the transportation cost is fully recovered, and the farming cost is a loss, this is a beloved breakeven for a typical farmer.

Agriculture is not that impoverishing occupation either in India or anywhere in the world. In fact, until 4 decades back, India could enjoy economic strengths mostly due to its agricultural activities. Even today, agriculture employs about 50% of total country’s workforce. Further, about 70% of rural people are still dependent on agriculture for their livelihood.

India has been continuing its leadership in agriculture. India is 2nd largest in agriculture production and ranks about 10th in agricultural exports. In value terms, the total production is about $ 235 billion. Annual agri exports from India are about $50 billion. Annual imports into India are about $36 billion. Thus, net agri export volume is $14 billion. The total annual subsidies to agricultural sector are about $30 billion.

From economic angle, agriculture in India is the most unspoken conglomerate sector. India is the largest producer of milk in the world. India is 2nd largest producer of fruits and vegetables. India ranks 3rd in fish, eggs, and poultry. In fact, of the total agriculture production, about 60% is from horticulture and animal husbandry.

The inputs including seeds, fertilizers, pesticides, tools & tackles, implements and other materials or equipment are regularly purchased for agriculture. The average annual market sizes are for seeds Rs. 25,000 crs, fertilizers Rs. 75,000 crs, pesticides Rs. 40,000 crs, tools & tackles Rs. 20,000 crs, growth regulators Rs. 10,000 crs, etc totalling Rs. 1,70,000 crs ($20 billion).

The total annual agricultural equipment market is Rs. 11,30,000 crs ($133 billion). This includes tractors, harvesters, planting equipment, sowing equipment, irrigation equipment, spraying equipment, etc. Additionally, there are several other industries which are directly dependent on agricultural outputs only. They include food processing industry of $63 billion, textile industry of $30 billion, sugar industry of $12 billion, beverage industry of $12 billion, edible oil industry of $10 billion, dairy industry of $25 billion, and rubber industry of $4 billion. Thus, annual value of $156 billion is supported by the agricultural sector.

However, the revenues and prospects in agriculture and the farmers lives have been widely uncertain. Most of the farmers in India are still dependent on monsoon rains for irrigation although some fields have irrigation from stored water bodies. Agriculture in India is linked and intertwined with cultural practices and is mostly dependent on traditional methods of cultivation. India has mostly small farm holdings which is about 70% of total land with each average landholding less than 2 hectares.

The farmers have limited access to basic amenities including clean drinking water, sanitation, healthcare, and quality education. In most of the rural areas, quality electricity is still a luxury. Further, farmers do not enjoy the arms-length feature in their input purchases as well as in their produce sales.

Interestingly, when there is shortage of a particular item resulting in exponentially higher market prices, farmers are known to receive only 20% of the share in the increased price whereas 80% is enjoyed by the middlemen. On the contrary, when there is a glut of production in any item resulting in crash of market prices, farmers bear near 100% of the loss. Unsurprisingly, farmers do not enjoy price determining power either in their purchases or in their sales.

Beyond the beloved breakeven, what may improve proposition for farmers and Indian agriculture are scale of farming, adoption of technology and mechanization, further diversification, sustainable practices, enhanced government support, efficient market access, price determining flexibility, farming amenities such as sufficient and timely supply of water, power, and crop protection guidance. Modern practices including scientific based agriculture, drone employed crop protection, knowledge based agronomy services will help improve the proposition in a better way for farmers, agriculture, and lives of everyone.

Disclaimer: Dr. Kishore Nuthalapati is an Economist, and is the CFO of BEKEM Infra Projects Pvt Ltd, Hyderabad, India. Views are his personal and do not reflect those of any of the organizations he is or was associated with.