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Wednesday, July 28, 2021

‘Best chance of crop diversification is through animal agriculture… as countries become rich, they consume more animal protein and fruits-vegetables’

With the three new farm laws stuck, where is India's agri sector headed? Agriculture economist Dr Sudha Narayan and Godrej Agrovet Ltd MD Balram Singh Yadav speak to The Indian Express on a range of issues in the sector.

By: Express News Service |
Updated: April 26, 2021 4:21:21 pm
Labourers load wheat sacks at grain market near Sirhind road in Patiala, Wednesday, April 21, 2021. (PTI Photo)

With the three new farm laws stuck, where is India’s agri sector headed? Agriculture economist Dr Sudha Narayan and Godrej Agrovet Ltd MD Balram Singh Yadav spoke to The Indian Express on a range of issues in the sector, including crop diversification and self reliance in edible oils. The conversation was moderated by The Indian Express Rural Affairs Editor Harish Damodaran. Edited excerpts:

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On the disruptions in agriculture due to demonetisation (2016) and the farm laws:

Narayanan: Demonetisation was certainly a huge shock to the…mandi-based trade and our research suggests that the prices never recovered even after eight months. The total value of trade…was still down by 12 per cent relative to what it should have been had there been no demonetisation, and our field research suggests that traders were quite wary and afraid of transacting in cash. This was a big jolt; at the same time we didn’t see any seismic shift to cashless transactions… If demonetisation was seen as a way to migrate or transfer to cashless transactions, I don’t think that happened.

GST too had an impact; so for example, pesticides attracted 18 per cent GST, on fertilizers it was 12 per cent and then brought down to 5 per cent, tractors and machinery attracted 5 per cent. These are all taxes that farmers would bear without having an opportunity to get back credit. So I think this was also a big financial shock.

I would say that…the Covid-19 lockdown was a bit of a shock but there are very interesting outcomes to that. It was a dramatic lockdown without much warning and supply chains unravelled, but there was also a lot of course-correction very quickly, so things got back on track surprisingly quickly. And I think we’ve seen a lot of…little innovations. For example, they pushed farmer producer organisations to attempt things they have never done before that reach out to consumers directly… To the extent that we still face uncertainty associated with Covid, it’s possible that some of these actually gain traction and become something bigger and stay here to last. So in that sense it is not entirely a negative shock; how much farmers have benefitted or not is yet to be seen.

On the farm laws, it is actually a difficult question. The full ramifications of these will be known only when the uncertainty goes and we have enough time. I think…we are seeing a little bit of an exit from the mandis, the volumes are not huge, it is not something I would describe as an implosion… I think what happens in the coming months and years depends on…how the states respond. Some, like Jharkhand, already have no mandi charges, and if the states remove the mandi charges then there will be a situation where the mandis can’t function effectively anymore because you don’t have money for salaries and investments, so you’ll see the beginning of the decline of mandis.

I don’t think private players are going to come in en masse to invest in processing or storage or warehousing. Everyone is going to wait and watch. For one thing, many people who were innovating in this space were already there, this was not the binding constraint that let loose all the energy; they are going to be cautious before they invest in a big way. So we’ll have to hold our breath hopefully not for too long; both the positives and negatives of these farm laws will be apparent in the coming years.

On the anticipated ‘invisibilisation’ of mandi transactions as a consequence of the farm laws:

Narayanan: Businesses are very heterogeneous, not just in terms of those who are traditionally in agri-business, but also between large players and small players. We have traditional agri-businesses including Godrej Agrovet who expect to be there for years and there is a larger social commitment to not only farmers but also to environmental sustainability issues… But you are also going to see very, very opportunistic players. Capital is fickle, it goes to where the returns are highest, and with the uncertainty…extractive industries and agriculture and food become relatively safe spaces to invest…

I’ll give you an instance when I did fieldwork in gherkins across South India. The production zone has moved from New York City to southern US, to northern Europe, to southern Europe and now it is Vietnam and India, and everyone anticipates that in five years or 10 years, the boom will no longer be there. You have many investors…getting into gherkins, establishing processing plants through bank loans that they never intend to repay, and when the boom goes off, they default, get their profits, and move on. These are the players that are most likely to short-change the farmers… There is a huge asymmetry in information, when you invisibilise transactions and players, businesses will have more information on the farmers through credit scores, data stats, but the farmers won’t have that much information on these businesses and that puts them at a disadvantage…

But at the end of the day whether or not businesses, even traditional agri-businesses, are able to pass on benefits to farmers, depends on two things. At the end of the day they are accountable to the shareholders…, so they are going to be worried about their top line, bottom line. The second thing is, what does the market structure look like downstream? If I am competing globally or in retail markets where I don’t have much bandwidth to command prices, then I have to find ways of economising on my processing and procurement and there may be limits to how much they can transfer the benefits to farmers, even if they want to… So I think even in traditional agri-businesses we have heterogeneity. Invisibilising has a problem because we can’t understand these problems and processes adequately.

On the absence of APMCs in Bihar; buying the produce; farmers and middlemen there:

Yadav: We buy between 70,000 and 1,00,000 tonnes of corn, and most of the purchase is through aggregators. They are service providers, they don’t decide the price, they don’t take the price risk for us, they just provide services in terms of payments, quality, etc. Charges are 1-1.5 per cent; they can be anybody, they should have some local contacts with an ability to handle large volumes.

The issue is, why do we go there and why don’t we go elsewhere? The reason is, who wants to go and procure from an APMC state because of the licencing and the documentation? In this country, for a corporate, documentation is such an important thing and such a big problem, whereas a small trader may or may not do it… Productivity (of corn) in Bihar is the highest in India, 4-5 metric tonnes per hectare; hybrid seed penetration is 100 per cent; slowly it is eating into the areas of wheat and paddy. Most of the big traders, feed millers, buy directly from the farmers or through aggregators… Every year, between 5 and 15 lakh tonnes of corn is exported to Bangladesh… If the farmer was not making money, why does he keep increasing and growing the area of corn?

I’ll use a very contemporary word for Bihar — people are focussing on APMCs, but they don’t look at the ‘comorbidities’. Bihar can be compared to Maharashtra in population, 12 crores here, 12 crores there. Bihar has 5.5 million hectares of arable land; Maharashtra has 11.5 million hectares. There is no comparison in industrialisation. Everything is a problem (in Bihar). What a wonderful location Bihar has, fertile land, and no dearth of water. What it needs is good governance, that’s all. Anybody who wants to do any kind of aggregation goes to Bihar first. Tobacco is growing in Bihar; lychee, banana, fox nuts are growing; all driven by the private sector.

From left: Agriculture economist Dr Sudha Narayan, The Indian Express Rural Affairs Editor Harish Damodaran and Godrej Agrovet Ltd MD Balram Singh Yadav 

On self-reliance in edible oils:

Yadav: Today our per capita consumption is about 15-16 kilos per annum. That means we need about 22-23 million tonnes; we produce about 8 million tonnes, and import largely palm oil, about 13 million tonnes, and some soya oil. So will we become self-reliant? Never. My sense is we will stabilise at about 20-21 kilos of per capita consumption per annum, which means we will require about 30 million tonnes and there is no way we can get to that. The prices for oilseeds are very lucrative, all prices are 10, 15, 20 per cent more than MSP and that is wonderful news. But the gap is too high.

Our traditional oilseeds produce about 300-500 kilos of oil per hectare, whether it is rapeseed, mustard, groundnut, cottonseed, rice bran, whereas oil palm produces about 3.5-4 tonnes. But only about 2 million hectares can be dedicated to oil palm in this country because of agro-climatic conditions. The policies of state governments keep changing, and that is why we are pushing the central government to step in and stabilise the policy for some time, because unlike other oilseeds, processors have to make big investments in oil palm and it takes about eight years for us to see the first positive cash flows. So opportunity is only in oil palm…

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On getting farmers to diversify their crops:

Narayanan: Wherever you see diversification, there are a couple of principles that work. Price comes later, but you need market access to be able to sell. You need some control over the water; if you don’t have irrigation, there is no way in which you can diversify away from sturdy, traditional indigenous varieties. Also, we’ve neglected soil quality over the years, (and) in many places, you still have only one crop per year, the soil quality just doesn’t support multiple crops and seasons. So if these three are there then diversification will automatically happen.

On the fall in demand for chicken and milk:

Yadav: Because of Covid, there was a big shrinkage of the animal and protein market. If you take milk, chicken, eggs, and fish and shrimp, almost one-third of the market is the institutional market, and that is still not back. One good thing about this industry is because there is no MSP or procurement system etc., the industry and farmers re-adjust supplies very quickly. So that is why you see patches of undersupply and patches of oversupply and very quickly demand matches the supply. I think that has happened, so if you ask me, are we at the same level pre-Covid, the answer is no. In milk we are down, in chicken-egg consumption we are down by 15-20 per cent and all animal proteins are down. But there are shortages because they already reduced the supplies… Our big consumption is in big banquets, big marriages, where thousands of people come in; those things need to come back for the demand to come back. Slowly recovery will happen, I think in the first six months of the current financial year or say, the next financial year. We will see food inflation largely driven by animal protein and edible oil.

And adding to what Dr Sudha said, I think the best chance of crop diversification is animal agriculture. Innumerable studies have suggested that as countries become rich, their animal protein consumption and fruits and vegetables consumption go up, and fruits and vegetables is definitely a function of water…

Audience questions 

Can India shy away from genetic modification and genetic engineering of food crops?

Yadav: We have become the largest producer of cotton. It is risky definitely, but if handled well it is a very profitable crop and it has also done great benefit to the environment. I think half our pesticide usage is focussed on bollworm and I think BT cotton has solved this issue. I am for genetic engineering and genetically modified technologies, albeit with a very thorough clearance process.

Narayanan: A big concern with these technologies is that they are in the hands of very powerful private players. Many argue that the public sector should take control but even there I think the challenges in implementing this, where the GMOs have to be cultivated in certain conditions and farmers are not always adhering to the norms… There is a question of how do you do it in a way where the externalities are minimised.

What do the farm laws do to ensure private monopolies or technology monopolies do not dominate this sector?

Narayanan: I don’t think any laws governing… even in the APMC, there is no explicit thing that monopolies should not happen. In APMC there is a mandated way of deciding prices, auction or tender, and here that is left open. So without a place where multiple sellers and buyers come to discover prices, however flawed or however much collusion there is, there is a danger that between a buyer and a seller it can become a question of who exercises greater power… We don’t have any data at all, and that’s a problem. So even we have the CCI, which is a competent authority, their ability to do anything is taken away because of complete absence of data.

— Transcribed by Mehr Gill

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