Archive for the ‘Agriculture’ Category

Databank on Indian agriculture sector

April 9, 2010

It is very difficult to analyse agriculture sector for paucity of data. You don’t get long time series for most variables. RBI’s handbook on Indian economy provides some data but is not enough.

Planning Commission has launched an excellent website/databank which gives you loads of data on Indian agriculture.

Great resource.

Basics of Outut Gap

January 11, 2010

Thomas Lubik and Stephen Slivinski of Richmond Fed explain the basics of output gap in their short note. Much of the policy based discussion is based on how much the output gap is. So. it is nice to brush through basics.

The output gap is a measure of how far away an economy is from a desirable level of output. It can be important in policy discussions because it presents a gauge of when the economy might be overheating or underperforming and can have immediate implications for the stance of monetary policy.

A typical story is that during a recession actual economic output drops below a desirable, or “potential,” level, which creates a negative output gap. In a boom, output rises above its potential level, resulting in a positive gap.

In the latter case, the economy can be described as “overheating.” This would generate upward pressure on inflation and might prompt the central bank to “cool” the economy by raising interest rates. On the other hand, an economy that is performing below its potential may require a more stimulative monetary policy.

The authors explain there are two ways to calculate output gap:

  • Potential output – actual output
  • Natural output – actual output

“Potential” output is the level that would occur if product and factor markets were perfectly competitive – meaning there are no real rigidities, such as the existence of monopolistic producers that can restrict output to artificially low levels.

“Natural” output, on the other hand, describes the level of output that can be achieved under imperfectly competitive markets. Here there are real rigidities, but no nominal distortions such as the costly and time-consuming process needed for prices to adjust.

However, there are not much differences when the gap is calculated using the two approaches.

The authors also explain the various ways in which the gap could be calculated – CBO, their own model and Fed Model. They also look at the estimate of output gap from these models.  They say the output gap though useful is very difficult to estimate:

The output gap is meant to be a useful indicator for monetary policymakers because it signals to what extent the over- or underemployment of productive resources during the business cycle might feed inflation. The main challenge, however, is to compute the output gap “correctly.”The computations can be based on purely statistical measures derived from historical data or be based on an approach suggested by modern theory. Different models produce different gaps, however. This suggests that the uncertainty surrounding the various measures renders the output gap a potentially faulty gauge for assessing the economic situation and guiding monetary policy.

A nice primer. Typical economics problem. Output gap is a very useful concept but difficult to estimate.

Food security in South Asia

November 17, 2009

Surabhi Mittal  and Deepti Sethi of ICRIER have a very good paper giving an overview of food security issues in South Asian economies:

Food security is defined as economic access to food along with food production and food availability. Agriculture in the SAR (South Asian Region) is caught in a low equilibrium trap with low productivity of staples, supply shortfalls, high prices, low returns to farmers and area diversification – all these factors can be a threat to food security. South Asia still has the highest number of people (423 millions) living on less than one dollar a day. The region has the highest concentration of undernourished (299 million) and poor people with about 40 per cent of the world’s hungry. Despite an annual 1.7 per cent reduction in the prevalence of undernourishment in the region in the past decade, the failure to reduce the absolute number of the undernourished remains a major cause for concern. Estimates by the Food and Agricultural Organisation (FAO) indicate that by 2010, Asia will still account for about one-half of the world’s undernourished population, of which two-thirds will be from South Asia.

Though SAARC countries have established a food bank to meet the needs of food security in the region, it has not been operational even during times of crisis. This is despite the felt need of member nations to evolve mechanisms to make the SAARC Food Security Reserve operational.

It is against this background that this study has been undertaken. Conducted in collaboration with think-tanks from South Asian countries, it aims to identify issues relating to food security, the policy initiatives taken to tackle these issues, evaluate these policies and suggest measures to overcome identified constraints in order to improve the food security situation in the region.

It discusses the agrcultural growth and aspects of food security in each South Asian economy. Then it looks at safety net programmes in each of these economy. This compilation of the various safety net programmes is very useful.

I didn’t know that there is a Food Bank in South Asia however it has not been used. The authors then point the need to work on this food bank and increase trade for addressing food security. It should also look at agricultural research as a solution to the food woes.

A good crsip paper on food security issues.

Reviewing Agricultural growth in India since 1991

October 5, 2009

This is an old RBI paper (released in 2008) and I happen to go through it only now.  The timing is more appropriate now as we go through a agri crisis.

The paper was written by Prof. Pulapre Balakrishnan, Ramesh Golait and Pankaj Kumar. It highlights the supply side constraints in Indian agriculture.

The Study addresses slow growth of the agricultural sector since 1991. The Study documents the movement of the factors that have been recognised as determining agricultural growth during this period with a view to identifying the proximate causes of the slowdown. The focus in this Study is exclusively on crop agriculture. Factors, such as, relative price movement at the aggregate and at the disaggregated (crop-wise) level, import penetration, shrinking farm size, investment in agriculture, research and extension and agriculture credit have been investigated to ascertain their impact on agricultural growth in India since 1991.

The major findings of the Study are :

  • The Study does not find evidence to the contention that relative price movement might have played a determining factor in explaining slow growth of agriculture since 1991. The profile of relative prices over the past 15 years indicates too mild a shift, if at all, to consider relative price movements as central to understanding the slowing of agricultural growth since 1991. The role of import liberalisation in determining this price movement appears to be marginal too, except perhaps for some crops in some periods.
  • The Study finds that smaller farm holding-size, by making it more difficult for the majority of Indian farms to access new technology and adopt more efficient forms of farm production organisation, may have adversely affected agricultural growth.
  • The Study reveals that among the factors likely to be responsible for slow growth is stagnation of public investment for almost a quarter of a century, along with a slowing of irrigation expansion since 1991.
  • The Study observes that production is increasingly being carried out in a more open economy, even though import penetration is very low currently for most crops. The Study suggests the need for expansion of publicly-provided research and extension to support farming under a changed environment.
  • The Study documents, public expenditure on research and extension, historically low as a share of agricultural output in India by international standards, has registered a slower growth in real terms since 1990.
  • The Study cautions against the reading that greater spending alone is the solution to the current impasse in Indian agriculture. The Study provides evidence, intended as an illustrative case, that steady growth of real expenditure since 1991 has actually coincided with a slowing rate of expansion of the percentage area irrigated. This indicates a declining efficiency of public investment and suggests that governance is as much an issue as greater allocation of funds.

Much of this is well-known but the authors put it nicely. The low investment in agriculture research (pathetic actually) is a point made in very few papers on agricultural economics. The authors also point the idea is not simply throwing too much money into agriculture (which we always do) but make it more efficient.

Understanding India’s agriculture and drought situation

August 28, 2009

Mr Shard Pawar, Minister of Agriculture has given an insightful speechexplaining India’s agriculture woes this year. There are n number of suggestions/criticisms on Govt’s role  in this crisis, but it is important to know the situation as well.

Read it carefully.

India’s agricultural statistical system

June 3, 2009

Dhrijesh Tiwari from Indian Agricultural Ministry explains the agriculture stats system in the country in this short note.

In India, agricultural statistics system is decentralized both horizontally and vertically. Primary statistics are collected by the provincial governments and consolidated for the country by the national Ministry of Agriculture. Major data sources for agriculture statistics are

(i). Agriculture Census
(ii). Livestock Census
(iii). Marine Fisheries Census
(iv). Input Survey
(v). Land Use Survey
(vi). Land Use Survey of National Remote Sensing Agency
(vii). General Crop Estimation Survey
(viii). Integrated Sample Survey of Major Livestock Products

And all this is within Ministry of Agriculture. Further:

Apart from the Ministry of Agriculture, there are several other Ministries at the national level which are engaged in generation of related statistics as part of their functioning. Table below gives a quick look of that:

 Table 1: Decentralized agriculture statistics in IndiaAnd the list is not exhaustive!! He then suggests ways to integrate the agri stats system and the important role National Statistical Commission has to play in the process. 

Fertilizers – Ministry of Chemicals & Fertilizers
Agricultural Trade – Ministry of Commerce
Rainfall – Ministry of Science & Technology
Reservoirs – Ministry of Water Resources
Agricultural Population – Ministry of Home Affairs (decadal),Ministry of Rural Development, Ministry of Statistics (periodical)
Floods – Ministry of Home Affairs
Agriculture  GDP – Ministry of Statistics

While the table above is not exhaustive, it gives an idea as to how widely spread is the domain of agricultural statistics in India.

This is a major problem with Indian Statistics sytem in general. There are just too many sources and it is a monumental task to have any idea about government’s policies in any sector. The media is replete with suggestions to press reforms in various sectors (with each expert suggesting his sector is top priority). Here is my 2 paisa suggestion- please reform and update the statistical system.

IFMR conference on food prices and poverty

August 20, 2008

IFMR, Chennai is organising a conference titled Rising food price and its implication on Poverty’ in their campus on 23 August 2008. The agenda and details of the conference are here.

The conference is divided into 3 sessions. First , at macro level -impact of WTO on food prices etc. Second at a micro level – impact of food prices on poor. Third one is on alleviating poverty in India. I am participating as a discussant in the conference and will be discussing the papers presented in the 3rd session.

I will keep you posted on the thoughts shared in the conference.

Dissecting the food consumption pattern of Indian Households

July 24, 2008

I worte a research paper analysing the food consumption pattern of Indian households. The analysis is absed on NSS Surveys and points out some very interesting (and expected) results.

Let me know your comments.

A new list of reforms for Indian economy

June 18, 2008

A Mint story pointed y’day about a Goldman Sachs paper(authors GS economists- Jim O’Neill and Tushar Poddar).

The paper says India needs to do 10 reforms to achieve a per-capita GDP of $20,000 (Rs8.58 lakh today) by 2050. Currently it is around (as per wikipedia) $4,542 at PPP and $1,089 in nominal terms. These 10 reforms could also add 2.8% pa to India’s existing growth rate.

1. Improve governance
2. Raise basic education levels
3. High end education
4. Inflation targeting
5. Introduce a credible fiscal policy.
6. Liberalize financial markets.
7. Increase trade with neighbours.
8. Increase agricultural productivity.
9. Improve infrastructure.
10. Improve environmental quality.

The list of reforms reminded me of two one-time famous list of reforms- Washington Consensus (WC) which was a 10 point reform list released in 1990 and Mckinsey’s 13 reform list for India (free subscription; you can see the list of 13 reforms here as well) in 2001. WC was a set of reforms applicable to all countries that would help countries become developed and Mckinsey was focused on India that would help India achieve 10% growth rate. 

WC has been hugely criticised by wide number of people (see the wikipedia entry for its straight-jacket approach and is also called a laundry list. WC was thrashed to pieces when countries that adopted WC failed miserably- Thailand, South Korea, Argentina etc. Mckinsey report on the other hand just lost that fanfare after few days of media coverage.

On just comparing the three lists, I see only 2 common points- fiscal policy discipline and  trade liberalization (GS report only mentions trade liberalisation with neighbors). GS has got a big point – improve governance which covers most things related to government policies. On comparing McK and GS reports, I see agriculture, trade, fiscal policy, infrastructure as common points.

I really don’t understand these reform lists. It is easy to suggest reforms but many questions still remain. For instance, How do you decide, which reform is more important? No country can do all the reforms at one go and it is difficult. In practice what happens is you choose some reforms, run them parallely. Some gain momentum, some tug along and some die. So how do you decide? If we look at McK reforms it has reforms which have not been done yet- labor reforms, property rights system and GS report has new set of reforms – education, inflation targeting etc. So, if you look at the two lists what you get is something like 15 odd reforms and you don’t know where to begin. These studies are problematic and you can make n number of reform lists. A better approach is to follow Rodrik et al study – Growth Diagnostics which identifies the constraints and works on them first. Also, these studies should understand second best institutions work equally well.

Another thing I noticed is how the list changes with time and focuses on the “In things”. In 2001, you had lots of talk on SSI reservation, property rights, labor reforms etc and McK report mentions them. These days, we hear a lot about education, financial market liberalisation, inflation targeting etc and that is what we see in the GS report.

And a final most important point, most reforms in McK report have not been done at all or are moving at a slow pace. Still India has touched growth levels of nearly 10% (9.6% in 2006-07) and has been above 9% for the past 3 financial years:-)

PS. I remember attending a talk by one of India’s eminent economists at the time this Mck report was released. He said I had asked the team to come to my office and explain their list of reforms. The team never showed up.

A short note on rice crisis

May 2, 2008

I have been writing quite a bit on the food crisis and rising prices (My analysis of the crisis is here).

I came across this nice short report from International Rice Research Institute) on the crisis in the most important crop-rice. The main reasons for price rise are the same and so are the suggestions to solve the crisis.

Remembering Theodore Schultz in times of food crisis

April 21, 2008

I just happenned to read the Nobel Prize speech given by Theodore Schultz on receiving the prize in 1979. On reading the speech I had to recheck whether it was 1979 or 2007. Every word of the speech is relvant today. It seems all crisis are same- financial or food.

This inspired me to write a piece for Mint where I remember Schultz and suggest what his recommendation would be for the ongoing food crisis- incentivise agriculture.

Here is a good short piece on Schultz from one of his students. He had a good sense of humor:-)

Double standards in the 2 ongoing crisis

April 17, 2008

It is not very often we see two crisis at a global level. I haven’t seen such times when we are seeing both financial crisis and food crisis happening together.

Though, the policy responses for both has been really different. The financial markets/experts have given a big thumbs up for all the Central Bank and government intervention but have given a big thumbs down for the government intervention in the food crisis.

The interventions in financial markets are justified as it could paralyse the entire economy but if given for food then it is said it leads to market distortions/against free-market philosophy etc.

This is actually double standards at its best. Any intervention leads to distortions be it any market. For instance, bailouts of Bear Stearns and Northern Rock though justified as important it leads to issues of moral hazard and is against the philosophy of “survival of the fittest”. In 2001, several large firms were shown the door but smaller firms in finance  are provided the support.

So, it is true that the various interventions by several governments (I have highlighted a few cases here) will not result in the desired benefits, but so is the case with finance. The central banks have pumped in huge liquidity but it is seen that firms are still holding on to whatever finance is available and are not willing to lend or borrow. Isn’t it much like hoarding or using a euphemism- saving themselves for worst times to come?

The WSJ/Mint article shows financial firms are not disclosing correct LIBOR and this is leading to false market signals. They are disclosing rates lower than the actual as they are afraid higher rates will show that they are distressed.  This is leading to overall lower interest rates as most lending/borrowing is done at LIBOR plus rates. So, there is a problem everywhere.

Did people learn anything from previous financial crisis? Nothing at all. It is still the same. Numerous research has been done to show nothing has changed (see this as well) and no lessons have been learnt.  So, it can’t be said this crisis is different and hence intervention is needed.

So either we should not support government intervention at all and let markets solve the problem by itself. Or, we should understand the fact that in any crisis the response is much the same- government interventions and market distortions.  There are no easy solutions/answers.

An analysis on food crisis and rising prices

April 16, 2008

I have added my own food for thought paper on the subject. It can be found here.

I argue how this food crisis was a thing waiting to happen as this sector has been ignored for quite a while. So all these measures to control prices are at best going to be short-termism. The sector needs an urgent push from all possible angles.

As the crisis is a global one, we can’t just criticise India and its policies. The crisis would have happened sometime back but what was keeping it going was that agriculture exporting countries like Argentina, Australia etc. were doing well. Now, because of some adverse climatic conditions since 2006, we are seeing this crisis take shape.  


The Hindu also covered this paper here

Dr Radhakrishnan report on agricultural indebtedness

March 13, 2008

The 60,000 crore debt waiver has been the most discussed topic after this Union Budget (after the issue over contingent liabilities).

There have been comments from all sections of the public (Shankar Acharya does a summary of the views).

The Finance Minister mentions in his speech of the Dr. R. Radhakrishnan report:

Sir, while I am confident that the schemes and measures that I have listed above will give a boost to the agriculture sector, the question that still looms large is what we should do about the indebtedness of farmers. Honourable members will recall that Government had appointed a Committee under Dr. R. Radhakrishna to examine all aspects of agricultural indebtedness. The Committee has since submitted its report and it is in the public domain. The Committee had made a number of recommendations but stopped short of recommending waiver of agricultural loans. However, Government is conscious of the dimensions of the problem and is sensitive to the difficulties of the farming community, especially the small and marginal farmers. Having carefully weighed the pros and cons of debt waiver and having taken into account the resource position, I place before this House a scheme of debt waiver and debt relief for farmers….

And then he suggests the proposal for debt waiver.

I am going through this report and on reading it I just ask one question- Have we progressed at all as a nation?

The same problems which must have been there at the time of independence (or even before) continue to exist. I have mentioned earlier over the crisis in the agri sector. I have even written a research paper on the subject which captures bulk of the reasons for indebtedness mentioned in the report.

However, I was not aware of several other issues like undernourishment has increased in farmers over the years (the ones who provide nourishment are undernourished) etc.

Most would criticise the political system in the country and say how the political parties have wasted resources in the country. I don’t really agree. The country as a whole has to share the blame. I had said this earlier as well.

Only in a country like India we see management graduates breaking records in salaries every year and have so many people die because of indebtedness.


1. I have done a research paper on the same.

Rising food prices and inflation

December 6, 2007

I had posted on the issue of rising food prices earlier as well. That time I had said they might rise now it is actually rising.

IMF’s chief Economist Simon Johnson sums up the entire development in his recent note. To see a snapshot of rising prices across commodities see this.

Why have prices risen?
1. Global growth particularly in emerging markets
2. Supply also rises with a lag
3. Serious droughts in some parts of the world
4. A focus on Bio-fuels means the land which was supposed to for wheat (just an example) is now being used for corn putting further supply pressures.

1. Developed world – not much as food as a % of consumption is low.
2. Exporters of agricultural products- would gain from rising prices. This includes both emerging and developed countries.
3. Emerging and poor countries- would impact as food as a % of total consumption is still quite high. This would lead to higher inflation.  

Rising inflation would lead to tighter monetary policy (higher interest rates) in emerging markets. This would lead to widening interest rate differential and higher capital flows. So, problems of higher capital flows would continue. To this Johnson adds:

There’s nothing wrong with capital flowing from rich to poor countries—in fact, if it happens in the right form and with deliberate speed, it can definitely help development. But the IMF’s work on financial globalization emphasizes a very important health warning: if you get too much capital, too fast, and in too footloose a fashion, there can be serious consequences for your economic stability and growth.

Inflation is also going to rise in advanced countries as well. In developed countries, both direct and indirect impact of rising food prices on total inflation is low. (Indirect impact is when food prices effect other things like say wages. So if people start having higher food budget, they would demand higher wages and hence inflation would rise.) So inflationary concerns are low but remain.

Inflation is expected to rise and Central Banks in these countries are cutting rates (Canada and US). Testing times for Central Bankers.

World Bank advice on improving agriculture

November 2, 2007

World Bank released its much-awaited report on agriculture in Mid October. This time the theme for World Development report was ‘Agriculture for Development’.

On a quick glance, it has some interesting ideas. However, I would post my comments only after some detailed reading and if I find anything interesting.

RBI reports on rural sector

July 25, 2007

RBI has 2 interesting reports on rural/agricultural isector. One is on moneylending and the other is on distressed farmers.

The first one is on the increasng role of moneylenders in rural credit and what should be done about it. Should we legalise moneylenders within the system or not? If yes, then how do we go about it. It has a very interesting table which looks at sources of loan in farmer households in different states.  It says:

The survey reveals that out of every Rs 1,000 outstanding of farmer households in the country, Rs 257 was sourced from moneylenders. The share of moneylenders in the indebtedness of farmer households in Bihar, Manipur, Punjab, Rajasthan, Tamil Nadu and Andhra Pradesh were well above the national average, with Andhra Pradesh at the top. The penetration of moneylenders is significant even in States that are regarded as being adequately banked (Andhra Pradesh and Tamil Nadu).

The Banks contribute the highest on all India level – Rs 356 per Rs 1000.

And the second one is all about distressed farmers . It defines distress:

A farmer will be considered as distressed if it meets any or both of the following criteria:

a) The farmer is indebted to the formal and informal sources of credit to the extent of more than the monetary value of the land and other productive assets owned by the family [negative net worth] and/or,

b) The interest liability on loans from formal and informal sources exceeds 50 per cent, of his gross family income [liquidity crisis leading to inability to meet even consumption requirements].

It looks at the story of distressed farmers in a comprehensive manner and suggests some useful (well-known though) measures to control distress in farmer community.  

Both the reports look at the problems of rural/agricultural sector with financial market perspective.  I have just quickly glanced through the reports. Look like very good reads. It should help RBI and others develop some perspectives on financial inclusion as well.

Growth Crisis in Agriculture

July 19, 2007

Yesterday, I had talked about employment issues in India. While just scanning the EPW site, I came across a paper on Indian agriculture By Ramesh Chand et al., which presents a detailed picture on woes of India’s agriculture. (a quick reminder: download it as EPW becomes a paid site from 1 August 2007)

I have posted a few times on agriculture and all have a common theme- Indian agriculture is in a mess. One might ask, why post only depressing stuff on India’ s economy? Well, that is reality of the growth story. No wonder, policy makers are talking about inclusive growth in such a big manner.  Inequality has been rising and this is the flavor of most economic debates even in USA.

Some quick findings from the paper:

1. Growth is agriculture between 1980-81 to 89-90, 1990-91-1996-97, 1996-97 to 2004-05 is 3.1%, 3.6% and 1.7% respectively. The growth in non-agri in contrast has been 6.9%, 7.0% and 7.1% respectively. As employment in agri has not fallen the disparities have increased.

2. Most of the (whatever) growth during 1980-97 in agri & allied sector has come from 2 sectors – fisheries and horticulture. Since 1996-97 the growth has started falling in these 2 sectors. Table 2 shows growth rates in sub-sectors of agriculture has fallen in all sectors. Crops and cereals infact stagnate between 1996-97  to 2004-05. As rural population has increased by more and so has workforce employed in agriculture, we have declining per capital incomes in agriculture.

3. They have done regression analysis of what drives agriculture in India.

GDPA = f(rainfall, terms of trade (ToT) between agriculture and non-agriculture, fertiliser, irrigation, crop intensity, institutional credit, public investment in agriculture).

To counter multicollinearilty, instead of one regression analysis, they have 3 of them. Some findings are:

In model I, rainfall, terms of trade, public sector capital stock and institutional credit were used as explanatory variables. All these variables turned out to be statistically significant with level of significance varying from 0 to 2.1 %.

Rainfall showed the most significant impact on output; 1 % increase in rainfall resulted in 0.21 per cent increase in GDP agriculture.

Improvement in terms of trade for agriculture by 1% led to a 0.42 % increase in output. Similarly, a 1% increase in existing level of capital stock and institutional credit increased agricultural output by 0.61 and 0.14 %, respectively.

4. They have done an analysis of how the various factors that drive agriculture have fared. Post 1996-97, all factors barring credit to agriculture has declined. The authors say:

Thus, the main factors which led to a slowdown in agriculture at national level after 1996-97 are: (a) decline in the area under cultivation, which seems to be a result of expanding urbanisation and industrialisation,
(b) deterioration in the terms of trade for agriculture,
(c) stagnant crop intensity,
(d) poor progress of irrigation and fertiliser,
(e) decline in supply of electricity to agriculture &
(f) slowdown in diversification.

They also point out that risk in performance of agriculture has increased. The standard deviation of growth in GDP from Agriculture has gone up from 4.16 in 1985 -96 to 6.58 in 1996-95.

5. The authors also do a state-wise analysis.

The growth experience of the two periods shows that before 1995-96 the growth rate of agriculture in most of low productivity states was much higher than the national average and after 1995-96 their growth rates not only declined, but also turned out to be much lower than the national average.

To sum up, the story is much the same. The solutions to revive are also the common ones. This paper tells the story using empirical analysis and that is what is the feature of this paper.

Food Prices could rise higher in future

June 18, 2007

These days, agriculture seems to be attract my attention quite a bit. I read this speech from Alan Bollard, Governor of Reserve Bank of New Zealand where he talks about agriculture and rising commodity prices.

The reason for rising prices is partly China. He adds:

The rapid pace of industrialisation of China, coupled with its relatively low per capita endowment of natural resources, has led to a sharp increase in world commodity demand. For example, according to the International Monetary Fund, China was responsible for 51 per cent of the growth in the world copper market from 2002-2005, 54 per cent of the increase in the steel market, 48 per cent of aluminum growth and 87 per cent for nickel.

However, what caught my eye is this:

The most marked increases have been in dairy prices. Over the last year, dairy prices have increased by 73 percent. Milk powder prices have led the way, rising almost twice as fast as other dairy products.

Why prices have increased?

In large part, the recent gains in dairy prices can be traced back to a basic imbalance between global demand and supply. Global demand for protein has been on a structural uptrend for some time. Demand for protein is very income sensitive and rising income levels in emerging markets have led to improvements in diet, incorporating more meat, eggs and milk. In recent years, the strongest growth in consumption of dairy products has come from emerging Asian markets, particularly China.

Why Supply hasn’t caught up:

1) At the same time, dairy production from the major exporting regions, such as New Zealand, Australia and the European Union (EU), has been relatively lacklustre, hampering the ability of global dairy supply to meet the growth in demand.

2) The recent boom in biofuel demand has further hindered global dairy supply. Strong demand for ethanol has seen corn prices, the primary source of livestock feed, advance over 50 percent in the past six months.

The outlook for future is prices could rise further:

There is certainly no compelling reason to suggest that strong global demand for dairy products will slow markedly soon. Supply responses in dairy are slow inevitably slow. And with the boom in biofuel demand sending production costs in many parts of the world soaring, the ability of supply to “catch-up” to demand will be constrained further. As a result, any increase in global dairy supply may well rest on the prospects for emerging exporters such as Argentina and the Ukraine, along with the ability of China to increase production to meet its own demand. It is certainly possible that we could be heading into a “new era” for dairy prices.

He then goes on to talk about impact on NZ economy (a good snapshot). But the graphs etc presented are very good. Thanks Mr. Bollard.

Update 1:

I just checked the above mentioned food prices in India. (The website of Office of Economic Advisor (under Ministry of Commerce and Industry) provides detailed analysis of the Wholesale Price Index , the most popular measure of inflation in India). Here are a few findings:

1. From March 2006 onwards foodgrain prices (cereals and pulses) have been increasing in double digit every month vis a vis same month pervious year ( i.e. comparison is between March 2006 and March 2007 and so on).

2. Poultry Products ( Eggs, Meat & Fish) saw double digit growth rates from July 2005 onwards to June 2006. And now again from Feb 2007 there is an increase in the index .

3. There has been a huge jump in prices of milk powder when we see double dogit increase from March 2006 onwards but the index has not increased, hence it is basically more of base effect. The prices are not incvreasing but when we see the year on year growth the numbers are in double digits.

So, bit of a mixed story. But yes we see quite similar trends in India as shown by Bollard in his speech. Keep watching this space for developments.

Update 2:

Apurv rightly asks:  “Well, dairy products price rise is understandable based on your post. But how is it just possible to generalize it to include all food products? Confused a bit..”

My apologies for missing out that point. The dairy products are consumed by themselves and are also used to manufacture other food products as well. For instance cakes (eggs, cream) , Processed Cheese (milk), Salaamis (meat) etc all need some form of dairy/poultry items.

Thanks Apurv once again.

A nice summary of Indian Agriculture’s woes

June 12, 2007

This is a short paper (18 pages) that summarises nicely the problems with India’s agriculture sector. (I had mentioned about this paper here)

The Planning Commission envisages a growth rate of 4% p.a. in the entire 11th plan period and the strategy paper says how it can be achieved. First, a few more disappointing surprises:

  •  The growth rate of agriculture GDP slipped from 3.62% during 1984-85 to 1995-96 to less than 2% in the period from 1995-96 to 2004-05. Further, state-wise trends indicate that the largest slump occurred in those areas/states that are predominantly rainfed.
  • Per capita annual production of cereals has declined from 192 kg in 1991/1995 to only 174 kg in 2004/2007 and of pulses from 15 kg to 12 kg. This means that per capita foodgrains production is now at 1970s levels.
  • National Horticultural Board data shows growth slowing from 5.5% per annum during the 1990s to 2.5% during 2000-01 to 2005-06, while National Accounts place 2000-06 growth at only 1.2% per annum.

What is the major source of concern?

1. Technology Generation and Dissemination. It says:

The research system has so far focused mainly on breeding varieties that increase the yield potential of individual crops by enabling more intensive use of inputs. This research worked earlier but now it does not seem to work. Analysis of new varieties released of major crops (rice, wheat, maize, groundnut, mustard and sugarcane) shows significant deceleration of the growth of yield potential, with negligible increase over the last decade.

At the same time, frontline trials of various research departments provide clear evidence of large gaps between what can be attained at the farmer’s field with adoption of technology as compared to what is obtained with existing practices.

Take a look at the box below. It says that we cannot achieve much higher yields in several crops in several regions by simply disseminating existing techinology.


 Wheat:     Punjab                  6%                   M.P.                    84%Maize:    Gujarat                 7%                  Assam                300%Jowar:     M.P.                     13%                   Karnataka          200%Mustard:  Haryana               5%                    Chattisgarh       150%Soybean:  Rajasthan           7%                    Karnataka        185%Sugarcane: A.P.                   16%                       M.P.                167%Rice:  Over 100% in Assam,            Bihar, Chattisgarh & UP

2. Another issue is that most of the resources have been deployed towards higher subsidies and low investments in general.

Budgetary subsidies to agriculture have increased from around 3% of agriculture GDP in 1976-1980 to about 7% in 2001-03. During the same period, public investment in agriculture declined from 3.4% of agriculture GDP to 1.9%. Most of the subsidies are on fertilizer, power and irrigation water and have actually contributed to the degradation of natural resources noted earlier.

3. Another reason is despite terms of trade of agriculture have fallen sharply even as as farm production decelerated. So that is the real reason for distress. The terms of trade ratio fell as Indian farm prices became more aligned with corresponding international prices at a time when world commodity prices were on the decline.

A long-run road map is required to decouple farm protection as envisaged in WTO, but in the short-run it would be much more economic to fully use the flexibility provided by our relatively high bound tariffs and devise MSP operations accordingly. However, we have neither used tariffs as flexibly as possible nor extended MSP operations adequately.

The document is disappointing though as it focusses only on agriculture. How about the other areas like rural roads which I pointed out earlier. The study by Gulati et al showed that eitherway – whether u want to increase growth rates in agri or want to reduce rural poverty, rural roads are important.

Why don’t we have comprehensive ways to look at things? Most of the policy documents I see made by India’s policymakers are either too focussed or are too vague and tend to ignore important aspects which could help make the resulting policy a lot better.

Another story on India’s agriculture in ET. After reading all this, why would someone want to be a farmer?


Get every new post delivered to your Inbox.

Join 1,607 other followers