Inefficiencies in Indian Agriculture: Problems Facing the Industry and Recent Legislation
India’s agricultural industry is a massive enterprise. India is one of the world’s largest producers of agricultural commodities and is consistently among the leading producers of several important crops such as rice, wheat, and cotton. Home to one of the world’s most productive economies, India boasted a GDP of $2.6 trillion in 2020 and high economic growth rates over the last decade. A large portion of this economic success is thanks to India’s status as one of the world’s leading food producers of staples like pulses, milk, and jute in 2018. India was also the second-largest producer of fruits and vegetables in 2019 and was home to the second-largest cattle population in 2012.
However despite its relative robustness compared to other countries, the Indian agricultural industry continues to struggle to meet the high demand for food and rising population across the country. As of 2018, over 30% of the population lived on less than $1.25 per day -- well below the World Bank’s 2018 poverty line of $1.90 per day. Those living under such extreme poverty often live in one-room houses with dirt floors and walls made of anything from bricks to mud, straw, and plastic; and thousands die each year of starvation or lack of clean water. These issues are only slated to increase as the food demand increases: the total foodgrain production was estimated at 292 million tonnes in 2019-20, while the demand for foodgrains is forecasted to increase to 345 million tonnes by 2030.
As indicated above, one of the major problems facing the Indian agricultural industry is that its huge agricultural output is not being used effectively to feed its population, and as a result, the people of India are going hungry and the country is failing to realize its full economic potential. Let’s take a closer look at some of the underlying issues that are causing this massive discrepancy.
Fragmented Land Holdings
The custom in India, since its independence in 1947, has been for landowners to divide their land among their children. Although this may be the most equitable solution, plots will eventually become so small that they are infeasible for production. In 2015, there were roughly 175 million farms, each with an average size of 0.2 acres -- a dramatic increase from the ~70 million farms that existed in 1970. Small land holdings introduce a number of challenges for farmers. For instance, farmers cannot let their land recover between seasons and regain nutrients. The soil rapidly becomes depleted of nutrients, forcing farmers to buy expensive manure and fertilizers to keep their soil fertile. Small plots also cannot support more competitive forms of farming such as intercropping (growing multiple crop varieties on a single plot), animal husbandry, and commercial crops. Additionally, small private farmers feed their families with their own agricultural products, leaving a small percentage of the crops to sell for profit. These farmers often cannot personally take their products to market or sell directly to major retailers due to inefficient transportation networks in rural parts of the country, so they must rely on middlemen to buy and resell their crops. These middlemen typically charge throw-away prices that eat into the farmers’ already meager profits.
Food waste is another major issue curtailing access to food throughout India. The UN estimates that some $14 billion in food is wasted every year, amounting to 40% of the total farm output. This loss is significant given the fact that India has actually already reached self-sufficiency levels in food production based on agricultural output from farms. The magnitude of this food waste was illustrated in 2015, when farm output exceeded 270 million tons, well over the estimated 230 million tons required to feed the entire population in a year. Perhaps the greatest cause of food waste is the deficiencies in India’s supply chain and food transportation networks. One ongoing issue is the severe lack of cold storage throughout rural parts of India, as cold storage infrastructure is mostly relegated to big cities. Amidst the harsh heat of India’s summers, it is nearly impossible for perishable items to survive the long trips without cold storage, especially considering the great distances food must travel from grower to consumer. A single piece of fruit must travel from farm to processing unit to temporary storage, before finally reaching retail centers. For the last two years, the government has been expanding road networks to ease traffic congestion and allow shipments to move faster, as well as investing in integrated supply cold chains for agricultural products.
India’s population of 1.3 billion (15% of the world population) has only 4% of the world’s water resources. Already a water-poor country, India’s water access issues are made worse by the high demand that private farmers place on water resources. One reason for the high water consumption rates is that farmers tend to grow notoriously thirsty crops such as wheat and rice. One example is the northern state of Punjab, colloquially known as the “breadbasket of India” because of its high concentration of wheat and rice fields. Punjabi rice paddies consume over 3 times the amount of rainwater that Punjab receives yearly. Thus, despite plentiful monsoons, farmers cannot subsist solely on rainwater and are forced to extract groundwater to feed their crops. The constant, high extraction rates -- 90% of extracted groundwater is consumed by farmers -- have taken a serious toll on the supply of groundwater. Groundwater depletion increased by 23% from 2000 to 2017; when speaking about Punjab, agricultural scientist Kirpal Aulakh laments that “It’s becoming a desert”.
Punjab as a case study provides an informative look into the critical water situation in India. In 1970, the Indian government provided subsidies and mechanization to turn Punjab into a center for commercial farming. The state soon became a rich hub of agricultural activity, with farms and groundwater wells dotting the landscape. Fast forward to today, and the long-term extraction of groundwater has significantly reduced the water table -- the underground zone where the earth is saturated with water. The water table is decreasing by as much as a meter a year, a rate quite unsustainable in the long term. Gupinder Singh, one Punjabi farmer, explains that if the water table sinks lower, he will have to buy bigger, more powerful motors and incur higher energy costs in order to extract groundwater from deeper in the earth.
Across all of India, the water crisis is exacerbated by the fact that the government only subsidizes the growth of thirsty crops like wheat, rice, and sugarcane. In order to shore up national food reserves, the government buys these crops from farmers at a stable, non-fluctuating price. As a result, farmers grow these crops almost exclusively because they have a guaranteed market, while alternate crops often cannot fetch good prices among poor citizens and stingy middlemen.
Insufficient Profits for Small Farmers
Another problem closely related to the aforementioned ones is the prevalence of poor farmers with small land holdings who barely produce any surplus (i.e. the produce leftover after the farmer feeds his family). Since only the surplus can be sold for profits, these farmers earn very little profit and become entirely self-sufficient by subsisting on their own agricultural products. Because of their low profits, they often cannot afford to hire workers. As a result, many such farmers become disconnected from the economy, growing and consuming their own products. The overall effect of this trend is that an inordinately high percentage of the Indian labor force is in the farming industry, relative to the rather low economic output produced by the industry. In India, over half of the workforce is involved in agriculture, which contributes only 16% to the national GDP. By comparison, the US grows enough food for over 2 billion people with less than 2% of its population, and most East Asian countries dedicate up to 10% of their workforce to farming. The low profitability of these farms can be traced back to the issues described above; by addressing these underlying causes of inefficient farming, India could reverse this trend and experience great strides in its GDP.
Several of the challenges facing Indian farmers today can be traced back to agricultural policies implemented during the 1950’s and 60’s. These policies aimed to ensure food security at a time when India was not self-sufficient, but they allowed for a certain type of exploitation to occur: they allowed a rich class of farmers acting as “middlemen” to fix the terms of sale and manipulate the supply of produce. However, with technology improving and farmland territory expanding, the potential for agricultural output is increasing. The Indian Parliament recently passed 3 bills in September 2020 with the goal of liberalizing agriculture by lessening rules surrounding sale, pricing, and storage of produce. These bills will pave the way for the privatization of Indian agriculture, an industry that has historically been highly controlled by the State. Here are a few key actions taken by these bills:
- Revoke existing restrictions that prevent farmers from selling directly to private businesses and limit their sale to government-operated markets.
- Allow farmers to enter into contracts with buyers to negotiate prices on their own behalf. This will incentivize farmers to pool their resources, reversing the trend of fragmented land holdings.
- Facilitate private investment in cold storage and the creation of better value chains in agri-marketing.
The liberalization of the agricultural industry has led to some notable improvements, such as an increase in the volume of agricultural exports, free trade, and increased demand for commercial crops. Increased exports have in turn led to crop diversification and the creation of more jobs; farmers can increasingly move away from the limited variety of government-subsidized crops and begin growing highly sought-after, formerly prohibited commercial crops like oilseeds, sugarcane, pulses, and coconut. The recent nature of these reforms implies that there is still much potential for the continued growth of the agricultural industry and the Indian economy. Hopefully, as private investment into the industry increases and free trade stimulates competitive bargaining among farmers, we will continue to see positive trends in Indian agriculture.
With its tropical climate and rich biodiversity, India has a very high potential for agricultural output. Despite the low economic gains made by the agricultural industry, the total food grain output has historically exceeded the amount required to feed the entire population; this disparity is thanks to poor agricultural policy, outdated infrastructure, and insufficient access to technology. However, current events have shown an encouraging movement towards liberalization and privatization of the industry, which have fueled other positive developments such as increased trade among farmers and investment into vital technologies. As these trends continue, we may well see India becoming not only self-sufficient but a bigger producer of agricultural products on the world stage in the near future.
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