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ISSN 0971-3441 Online ISSN 0974-0279

JulyDecember 2013
Volume 26 Number 2 AGRICULTURAL ECONOMICS RESEARCH REVIEW Vol. 26 (2) July-December 2013

Agricultural Economics Research Review

V.P.S. ARORA: Agricultural Policies in India: Retrospect and Prospect SURESH C. BABU , P.K. JOSHI, CLAIRE J. GLENDENNING, KWADWO ASENSO-OKYERE AND RASHEED SULAIMAN V.: The State of Agricultural Extension Reforms in India: Strategic Priorities and Policy Options RASHMI AGRAWAL, S.K. NANDA, D. RAMA RAO AND B.V.L.N. RAO: Integrated Approach to Human Resource Forecasting: An Exercise in Agricultural Sector LIJO THOMAS, GIRISH KUMAR JHA AND SURESH PAL: External Market Linkages and Instability in Indian Edible Oil Economy: Implications for Self-sufficiency Policy in Edible Oils ELUMALAI KANNAN: Does Decentralization Improve Agricultural Services Delivery? Evidence from Karnataka ANJANI KUMAR, SHINOJ PARAPPURATHU AND P.K. JOSHI: Structural Transformation in Dairy Sector of India HARI KRISHNA SHRESTHA, HIRA KAJI MANANDHAR AND PUNYA PRASAD REGMI: Investment in Wheat Research in Nepal An Empirical Analysis GIRISH K. JHA AND KANCHAN SINHA: Agricultural Price Forecasting Using Neural Network Model: An Innovative Information Delivery System AKHTER ALI: Farmers Willingness to Pay for Index Based Crop Insurance in Pakistan: A Case Study on Food and Cash Crops of Rain-fed Areas RANJIT KUMAR PAUL, SANJEEV PANWAR, SUSHEEL KUMAR SARKAR, ANIL KUMAR, K.N. SINGH, SAMIR FAROOQI AND VIPIN KUMAR CHOUDHARY: Modelling and Forecasting of Meat Exports from India PAVITHRA S. AND KAMAL VATTA: Role of Non-Farm Sector in Sustaining Rural Livelihoods in Punjab Y. LATIKA DEVI, JASDEV SINGH, KAMAL VATTA AND SANJAY KUMAR: Dynamics of Labour Demand and its Determinants in Punjab Agriculture A.N. SHUKLA, S.K. TEWARI Banks: A Rural Perspective

P.P. DUBEY: Factors Affecting Profitability of Commercial

AJMER SINGH, RAJBIR YADAV AND SATYAVIR SINGH: Exploring Possibilities of Extending Wheat Cultivation to Newer Areas: A Study on Economic Feasibility of Wheat Production in Southern Hills Zone of India VINOD KUMAR VERMA, VISHNU SHANKER MEENA, PRADEEP KUMAR AND R.C. KUMAWAT: Production and Marketing of Cumin in Jodhpur District of Rajasthan: An Economic Analysis D.K. GROVER Present
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J.M. SINGH: Post-harvest Losses in Wheat Crop in Punjab: Past and


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Agricultural Economics Research Association (India)

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Chairman Chief Editor Managing Editor Members : : : : Dr. S.S. Acharya, Honorary Professor, IDS, 33, Shahi Complex, Sector 11, Udaipur 313 002 (Rajasthan) Dr. Ramesh Chand, Director, National Centre for Agricultural Economics and Policy Research, Pusa, New Delhi 110 012 Dr. Pratap S. Birthal, Principal Scientist, National Centre for Agricultural Economics and Policy Research, Pusa, New Delhi 110 012 Dr. J.R. Anderson, Emeritus Professor of Agricultural Economics, University of New England, Armidale (Australia) Dr. Derek Byerlee, Member, Independent Science and Partnership Council, CGIAR, c/o FAO, Rome (Italy) Dr. R. S. Deshpande, Director, Institute for Social and Economic Change, Nagarabhavi P.O., Bangalore 560 072 (Karnataka) Dr. Madhur Gautam, Lead Economist, The World Bank, Washinton DC 20433 (USA) Dr. Kisan Gunjal, Economist, Food and Agriculture Organization of the United Nations (FAO), Rome (Italy) Dr. Girish K. Jha, Division of Agricultural Economics, Indian Agricultural Research Institute, New Delhi 110 012 Dr. P.K. Joshi, DirectorSouth Asia, International Food Policy Research Institute, NASC Complex, Dev Prakash Shastri Marg, New Delhi 110 012 Dr. M. Krishnan, Principal Scientist and Head, Division of Fisheries Economics, Extension and Statistics, Central Institute of Fisheries Education, Versova, Andheri (W), Mumbai 400 061 (Maharashtra) Dr. Surabhi Mittal, Senior Scientist, CIMMYT-India, NASC Complex, DPS Marg, New Delhi 110 012 Dr. S. Mohanty, Head (Social Sciences), International Rice Research Institute, Manila (Philippines) Dr. K. Palanisami, Director, IWMI-TATA Policy Research Program, International Crops Research Institute for the Semi-Arid Tropics, Patancheru 502 324 (Andhra Pradesh) Dr. P. Parthasarthy Rao, Principal Scientist (Economics) and Assistant Research Program Director, RP-Markets, Institutions & Policies, International Crops Research Institute for the Semi-Arid Tropics (ICRISAT), Patancheru 502 324 (Andhra Pradesh) Dr. R.S. Sidhu, Dean, College of Basic Sciences and Humanities, Punjab Agricultural University, Ludhiana 141 004 (Punjab) Dr. H.S. Vijaya Kumar, Professor, Deptt. of Agril. Marketing, Cooperation and Agribusiness Management, College of Agriculture, Dharwad 580 005 (Karnataka)

ISSN 0971-3441 Online ISSN 0974-0279

Agricultural Economics Research Review

Agricultural Economics Research Association (India) National Agricultural Science Centre Complex Dev Prakash Shastri Marg, Pusa New Delhi - 110 012

Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013

Agricultural Economics Research Association (India) 2013

Financial support from: Indian Council of Agricultural Research (ICAR), New Delhi

Published by: Dr Suresh Pal, Secretary, AERA on behalf of Agricultural Economics Research Association (India) Printed at: Cambridge Printing Works, B-85, Phase II, Naraina Industrial Area, New Delhi 110 028

ISSN 0971-3441

Agricultural Economics Research Review

[Journal of the Agricultural Economics Research Association (India)]

Volume 26

Number 2

July-December 2013

Agricultural Policies in India: Retrospect and Prospect V.P.S. Arora The State of Agricultural Extension Reforms in India: Strategic Priorities and Policy Options Suresh C. Babu , P.K. Joshi, Claire J. Glendenning, Kwadwo Asenso-Okyere and Rasheed Sulaiman V. Integrated Approach to Human Resource Forecasting: An Exercise in Agricultural Sector Rashmi Agrawal, S.K. Nanda, D. Rama Rao and B.V.L.N. Rao External Market Linkages and Instability in Indian Edible Oil Economy: Implications for Self-sufficiency Policy in Edible Oils Lijo Thomas, Girish Kumar Jha and Suresh Pal Does Decentralization Improve Agricultural Services Delivery? Evidence from Karnataka Elumalai Kannan Structural Transformation in Dairy Sector of India Anjani Kumar, Shinoj Parappurathu and P.K. Joshi Investment in Wheat Research in Nepal An Empirical Analysis Hari Krishna Shrestha, Hira Kaji Manandhar and Punya Prasad Regmi Agricultural Price Forecasting Using Neural Network Model: An Innovative Information Delivery System Girish K. Jha and Kanchan Sinha Farmers Willingness to Pay for Index Based Crop Insurance in Pakistan: A Case Study on Food and Cash Crops of Rain-fed Areas Akhter Ali Modelling and Forecasting of Meat Exports from India Ranjit Kumar Paul, Sanjeev Panwar, Susheel Kumar Sarkar, Anil Kumar, K.N. Singh, Samir Farooqi and Vipin Kumar Choudhary Role of Non-Farm Sector in Sustaining Rural Livelihoods in Punjab Pavithra S. and Kamal Vatta 135 159

173 185

199 209 221 229





Contents contd.... Dynamics of Labour Demand and its Determinants in Punjab Agriculture Y. Latika Devi, Jasdev Singh, Kamal Vatta and Sanjay Kumar Research Notes Factors Affecting Profitability of Commercial Banks: A Rural Perspective A.N. Shukla, S.K. Tewari and P.P. Dubey Exploring Possibilities of Extending Wheat Cultivation to Newer Areas: A Study on Economic Feasibility of Wheat Production in Southern Hills Zone of India Ajmer Singh, Rajbir Yadav and Satyavir Singh Production and Marketing of Cumin in Jodhpur District of Rajasthan: An Economic Analysis Vinod Kumar Verma, Vishnu Shanker Meena, Pradeep Kumar and R.C. Kumawat Post-harvest Losses in Wheat Crop in Punjab: Past and Present D.K. Grover and J.M. Singh Abstracts of M.Sc. Theses Abstracts of Ph.D. Theses Book Review Guidelines for Submission of Papers/Abstracts 275 281 267

287 293

299 303 305 307

Author Index
Agrawal, Rashmi 173 Ali, Akhter 241 Arora, V.P.S. 135 Asenso-Okyere, Kwadwo 159 Babu, Suresh C. 159 Choudhary, Vipin Kumar 249 Dubey, P.P. 275 Farooqi, Samir 249 Glendenning, Claire J. 159 Grover, D.K. 293 Jha, Girish K. 185, 229 Joshi, P.K. 159, 209 Kannan, Elumalai 199 Kumar, Anil 249 Kumar, Anjani 209 Kumar, Pradeep Kumar, Sanjay Kumawat, R.C. Latika Devi, Y. Manandhar, Hira Kaji Meena, Vishnu Shanker Nanda, S.K. Pal, Suresh Panwar, Sanjeev Parappurathu, Shinoj Paul, Ranjit Kumar Pavithra, S. Rama Rao, D. Rao, B.V.L.N. Regmi, Punya Prasad 287 267 287 267 221 287 173 185 249 209 249 257 173 173 221 Sarkar, Susheel Kumar Shrestha, Hari Krishna Shukla, A.N. Singh, Ajmer Singh, J.M. Singh, Jasdev Singh, K.N. Singh, Satyavir Sinha, Kanchan Sulaiman V., Rasheed Tewari, S.K. Thomas, Lijo Vatta, Kamal Verma, Vinod Kumar Yadav, Rajbir 249 221 275 281 293 267 249 281 229 159 275 185 257, 267 287 281

Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013 pp 135-157

Presidential Address

Agricultural Policies in India: Retrospect and Prospect

V.P.S. Arora
Vice-Chancellor, Supertech University, Rudrapur, Uttarakhand

Agriculture continues to be an important sector of Indian economy, though its share in the gross domestic product (GDP) has declined from about 50 per cent in early-1950s to 14 per cent in 2011-12. Employment in agriculture has also shown a decline, albeit slowly, and presently it accounts for 52 per cent of the countrys total labour force. The declining share of agriculture in GDP and employment is consistent with the theory of economic development. However, a faster and sustainable growth in the sector remains vital for creation of jobs, enhancing incomes, and ensuring food security. India has 140 million hectares of net cropped area, next only to that of the USA. Similarly, Indias irrigated area (63.26 Mha net and 86.42 Mha gross) is also the second largest in the world, next only to China. The country is well-endowed with natural resources and diverse climatic conditions, and much of the land in India can be double cropped. Traditionally, crop production has accounted for over four-fifths of the agricultural output, but over the past two decades or so the situation has changed dramatically. The share of livestock in the agricultural production has risen sharply and now accounts for close to 30 per cent of the total agricultural output. Overall, the composition of agricultural output has gradually been shifting towards high-value crops and animal products, especially milk. The performance of agricultural sector has been quite impressive, making the country self-reliant in food. The country has even started exporting some food products. This performance is due largely to green
Based on Presidential Address delivered on 10 September, 2013 at the 21st Annual Conference of Agricultural Economics Research Association (India) held at SKUAST-Kashmir, Srinagar.

revolution. During the Eleventh Five-Year Plan, the agriculture and allied sector has registered an average annual growth rate of 3.6 per cent, slightly lower than the target of 4.0 per cent, but higher than the average annual growth rate of 2.4 per cent attained during the Tenth Plan. This improved performance in recent years is also credited to the impressive growth in capital formation in the sector. The gross capital formation in agriculture and allied sector has more than doubled in the past 10 years with an average annual growth of 8.1 per cent. As per the latest Agricultural Statistics at a Glance (2012), India is the worlds largest producer of pulses, milk, many fresh fruits and vegetables, major spices, select fresh meats, select fibrous crops such as jute, several staples such as millets and castor oil seed. India is the second largest producer of wheat and rice, groundnut, fruits, vegetables, sugarcane, and cotton. India is also the worlds third largest producer of cereals, rapeseed, tea, tobacco, eggs, several dry fruits, and roots and tuber crops.

Evolution of Agricultural Policies

Agriculture has remained a highly regulated sector in India with government agencies and parastatals exercising a pervasive influence over it. These regulatory controls are imposed by both central and state governments. The state governments, however, continue to retain the constitutional authority over the sector. After independence, India pursued a policy of food self-sufficiency in staple foods rice and wheat. The policies were initially focused on the expansion of cultivated area, introduction of land reforms, community development, and restructuring of rural credit institutions. Trade was strictly regulated through quota restrictions and high tariff rates.


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The main policy measures in the agriculture sector were adopted in the mid-1960s. These included input subsidies, minimum support prices, public storage, procurement and distribution of foodgrains, and trade protection measures. The gains from green revolution technologies continued through the mid-1980s, but slowed down thereafter. Unlike reforms in other emerging economies of the world (e.g. Brazil and China), a series of reforms instituted in India in the early-1990s, left its agricultural sector relatively untouched, except for the removal of export controls. While reforms in agriculture have been modest, the macroeconomic reforms of the 1990s had two important impacts. First, the reforms increased per capita income and strengthened the domestic demand. Second, they reduced industrial protection and improved agricultures terms of trade to attain food self-sufficiency, ensure remunerative prices to farmers, and maintain stable prices for consumers. Indias protectionist trade policies, introduced in the 1960s, continued virtually unchanged, until the major economic reforms were introduced after signing the AoA (Agreement on Agriculture) under WTO.

Phase II: Green Revolution Period (1965-80)

The second phase of agricultural and food policy started in the mid-1960s with the advent of green revolution. The adoption of improved crop technologies and seed varieties became the main source of growth during this period. The Government of India adopted the approach of importing and distributing the high-yielding varieties (HYVs) of wheat and rice for cultivation in the irrigated areas of the country. This was accompanied by the expansion of extension services and increase in the use of fertilizers, agrochemicals and irrigation. A number of important institutions were set up during the 1960s and 1970s, including the Agricultural Prices Commission (now Commission for Agricultural Costs and Prices), the Food Corporation of India, the Central Warehousing Corporation, and State Agricultural Universities. Another major policy decision was the nationalization of major commercial banks to enhance credit flow to the agricultural sector. Several other financial institutions, for example the National Bank for Agriculture and Rural Development (NABARD) and Regional Rural Banks (RRBs), were also established to achieve this objective. The cooperative credit societies were also strengthened. This strategy produced quick results with a quantum jump in crop yields and consequently, in the foodgrain production. However, impact of the green revolution technology was largely confined to two crops, wheat and rice, and in the irrigated regions. The traditional low-yielding varieties of rice and wheat were replaced by the high-yielding varieties. Today, more than 80 per cent of the area under cereals is sown with high-yielding varieties. The use of fertilizers (NPK) has risen sharply over the past three decades, albeit from a low base. In 2011-12, the Indian farmers used almost 144.3 kg of fertilizer per hectare of cultivated land. The use of pesticides, including herbicides, increased until 1990, but has fallen steadily, partly due to the shift in emphasis, away from the heavy use of chemical pesticides to a more environment-friendly integrated pest management system. The biggest achievement of the green revolution era was the attainment of self-sufficiency in foodgrains. The green revolution also had an impact on the agricultural input industry, resulting in a rapid growth in the fertilizer, seed and farm machinery industries. A

Phase I: Pre-Green Revolution Period (1950-65)

The main policy thrust in the first phase (after Independence) was on enhancing food production and improving food security through agrarian reforms and large-scale investment in irrigation and power. The first major agricultural legislation enacted by the state governments after Independence was the Zamindari Abolition Act (1950s). The basic objective of this policy was to eliminate land intermediaries, ensure ownership rights to the tillers of land, and ensure a permanent improvement in the quality of the landholding. The government made additional changes to the land ownership policy to ensure greater equity in the rural society. These decisions involved placing a ceiling on the size of holdings, state control on idle or unused lands, and the distribution of some of the idle land to the underprivileged rural people. Provisions were also made to ensure that recipients of this land do not lease out or sell the land. The consolidation of fragmented and scattered landholdings was encouraged so that farmers could have better access to mechanization and land improvements could be made. Other policy measures during this period included enhancing of farmers access to credit, markets and extension services.

Arora : Agricultural Policies in India: Retrospect and Prospect


significant increase in the funding of agricultural research and extension, marketing of agricultural commodities and provision of credit to farmers was also noted.

Phase III: Post-Green Revolution Period (1980-91)

The third phase in agricultural policy development started in the early-1980s and was characterized by the expansion of green revolution technology to other crops and regions. This resulted in a rapid growth in agricultural output. During this period, the main policies aimed at encouraging investment in the sector. Moreover, the agricultural economy started experiencing the process of diversification towards high-value commodities like milk, fish, poultry, vegetables and fruits. The growth in output of these commodities accelerated. Finally, the ongoing research on pulses, oilseeds and coarse grains started showing a positive impact with the expansion of these crops into the drier areas.

However, there were several policy challenges facing the agricultural sector, including the need to reverse the sharp decline in output growth, which occurred in the late-1990s, and the need to ensure more sustainable use of the existing natural resources. A steady fall in the public sector investment in agriculture posed a big challenge which necessitated policy initiative to attract private investment in agriculture for the long-term growth and competitiveness of the sector. Another important challenge during this phase was on improving competitiveness along the agro-food chain, especially through enhancing efficiency in production, marketing and processing of agricultural commodities. In 2000, the Government of India, for the first time, published a comprehensive agricultural policy statement the National Agricultural Policy (NAP) that sets out clear objectives and measures for all the important sub-sectors of agriculture. Over the next two decades, this policy aims to attain an agricultural growth rate in excess of 4 per cent per annum. The main elements of the policy include: Efficient use of natural resources, while conserving soil, water and biodiversity. Growth with equity, i.e. growth which is widespread across regions and farmers. Growth that is demand-driven and caters to the domestic markets and maximizes benefits from exports of agricultural products in the face of challenges arising from economic liberalization and globalization. Growth that is sustainable technologically, environmentally and economically.

Phase IV: Economic Reforms Period (1991 onwards)

Following several decades of sustained output growth, the focus of agricultural policy since 1991 has shifted to improving the functioning of markets, reducing excessive legislation, and liberalising agricultural trade. Economic reforms launched in the 1990s virtually by-passed the agriculture initially. However, the subsequent trade policy reforms have been aimed at liberalizing the export and import of agricultural and food commodities by gradually removing various restrictions and controls on agricultural trade. Over the past 10-15 years, Indias share in world agricultural trade has been gradually increasing, albeit from a low base. India has also taken an active role in promoting regional economic co-operation and trade in South Asia through the South Asian Association for Regional Cooperation (SAARC). In April 1993, a regional trading block was formed with the signing of the SAARC Preferential Trading Agreement, which was improvised in 2004 in the form of an Agreement on South Asian Free Trade Area (SAFTA) that supersedes the Agreement on SAARC Preferential Trading Arrangement.

The policy also seeks to utilize large areas of wasteland for agriculture and afforestation. Moreover, the NAP calls for special efforts to raise crop productivity to meet the growing domestic demand for food and agricultural products. The major focus is on horticulture, floriculture, roots and tubers, plantation crops, aromatic and medicinal plants and bee-keeping. Higher emphasis is also placed on raising the production of animal and fish products. While the overall investment (public and private) in agriculture remains low (1% of the GDP), the reforms in domestic regulations would improve the incentive structure for increasing private sector


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investment in the agro-food sector and thus enhancing productivity growth. The new policy also proposes to re-channel resources from agricultural input and price support measures to capital investment in the sector. The NAP also mentions private sector participation through contract farming, assured markets for crops, especially for oilseeds, cotton and horticultural crops, increased flow of institutional credit, and strengthening and revamping of the cooperative credit system and agricultural insurance as other important issues deserving policy attention. The NAP is a very comprehensive statement covering almost all dimensions of the Indian agriculture. The land reforms launched during the 1950s and revisited in 1970s also find place in this document. The policy states that Indian agriculture is characterized by pre-dominance of small and marginal farmers. Institutional reforms will be so pursued as to channelize their energies for achieving greater productivity and production. The approach to rural development and land reforms will focus on the following areas: Consolidation of holdings all over the country on the pattern of north-western states; Redistribution of ceiling surplus lands and waste lands among the landless farmers, unemployed youths with initial startup capital; Tenancy reforms to recognize the rights of the tenants and share croppers; Development of lease markets for increasing the size of holdings by making legal provisions for giving private lands on lease for cultivation and agribusiness; Updation and improvement of land records, computerization and issue of land pass-books to the farmers; and Recognition of womens rights in land.

responsibility of respective state governments. The allocation of funds to agriculture is guided by the Planning Commission and is routed primarily through the Ministry of Agriculture to various departments. Box 1 gives an idea of the number of ministries, departments, and institutions involved in evolving, implementing and monitoring agricultural policies.

Land Reforms
Indian agriculture is dominated by a large number of small-scale operators that are predominantly owneroperators. In 1995-96, there were 115 million farmers operating on an average holding size of 1.41 hectares. This number increased to 137.76 million in 2010-11. About 67 per cent of the landholdings have an average size of only 0.38 ha, and another 17.9 per cent have an average size of 1.42 ha. Land reforms now need to address three important issues:(i) to map land carefully and assign conclusive titles, (ii) to facilitate land leasing, and (iii) to create a fair but speedy process of land acquisition for public purposes. The National Land Records Modernization Programme (NLRMP) which started in 2008, aims at updating and digitizing land records by the end of the Twelfth Plan. Eventually, the intent is to move from presumptive title where registration of land does not imply that the owners title is legally valid to conclusive title, where it does. Digitization will help enormously in lowering the cost of land transaction, while conclusive title will eliminate legal uncertainty and the need to use the government as an intermediary for acquiring land so as to cleanse the title. Given the importance of this programme, its rollout in various states needs to be accelerated. For large public welfare projects, such as the proposed National Industrial and Manufacturing Zones and National Highway Project, large-scale land acquisition may be necessary. Given that the people currently living on the identified land will suffer significant costs, including the loss of property and livelihoods, a balance has to be drawn between the need for economic growth and the costs imposed on the displaced. The Land Acquisition, Rehabilitation and Resettlement Bill 2011 passed by the Lok Sabha recently, is likely to ensure the Right to Consent, Fair Compensation and Transparency to farmers in the process.

Current Agricultural Policies

The process of formulating and implementing agricultural policies in India is very complex, involving a number of ministries, departments and institutions at both the centre and the state levels. The Union Ministry of Agriculture, under the guidance of the Planning Commission, provides the broad guidelines for agricultural policies. However, the implementation and administration of agricultural policies remain the

Arora : Agricultural Policies in India: Retrospect and Prospect Box 1


Ministries and public institutions involved in implementation and monitoring of agricultural policies in India Particulars Production Prices Agencies at central level Ministries of Agriculture, Food Processing, Water Resource, Energy, and the ICAR Ministries of Agriculture, Food Processing, Commerce, and Commission on Agricultural Costs and Prices Ministries of Agriculture, and Rural Development, APEDA, Directorate of Marketing and Inspections, NAFED, Food Corporation of India (FCI), Cotton Corporation of India (CCI), Central Warehousing Corporation (CWC), Jute Corporation of India (JCI), National Dairy Development Board (NDDB), Special marketing/processing corporations, Commodity Boards, Ministry of Finance, Reserve Bank of India, and National Bank for Agriculture and Rural Development (NABARD) Ministry of Commerce, Commodity Boards, Agricultural and Processed Food Export Development Authority(APEDA), National Agricultural Cooperative Marketing Federation (NAFED) Indian Council of Agricultural Research, Veterinary Council of India (VCI), Indian Council of Forest Research (ICFR), Central Agricultural Universities, Deemed Universities Indian Council of Agricultural Research, Indian Institute of Management, Central Agricultural Universities, MANAGE, IRMA, NIAM Ministry of Agriculture, Indian Council of Agricultural Research Agencies at regional/state level Ministries of Agriculture, Horticulture, Food Industry/ Processing, Irrigation, Power, SAUs Ministries of Agriculture and Finance, SAUs


Ministry of Agriculture, Directorate of Agricultural Marketing, State Level Agricultural Cooperative Marketing Federation, State Level Agricultural Marketing Boards, Primary, Central and State level marketing societies/unions, Special marketing/processing societies, Tribal Cooperative Marketing Federation (TRIFED)


Ministry of Finance, State Level Bankers Committee, Regional Offices of NABARD, Commercial Banks, Credit Cooperatives, Regional Rural Banks Agri Export Zones (AEZs), Ministry of Agriculture



State Agricultural Universities, Private Agricultural Colleges, Private Institutions and Autonomous Institutions State Agricultural Universities, Private Colleges, Agribusiness Management Institutes (e.g. CABM) State Agricultural Universities, Krishi Vigyan Kendras, Krishi Gyan Kendras, State Government Departments



Agricultural Credit Policy

The Third Five-Year Plan emphasized the urgent need to create an institution to provide funds for investment in the agricultural sector. This resulted in the establishment of the Agricultural Refinance Corporation (ARC) in 1963. In 1969, the Lead Bank Scheme was introduced with the primary objective of taking a territorial approach to rural development. The

scheme involved commercial banks, cooperative institutions, government, and semi-government agencies in the process of economic development. The nationalisation of 14 scheduled commercial banks in 1969 made this transition easier and influenced further developments in banking for agriculture. However, during 1990s, a cut on bank branch network in the rural areas; fall in the credit-deposit ratios; disproportionate decline in credit to small and marginal farmers; and a


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worsening of the regional inequalities in rural banking were noted. The gap so created was attempted to be filled with expansion of micro credit projects in the rural area. However, this met with only limited success due to high transaction costs. Several issues in the area of rural credit still remain to be addressed. The major one relates to the provision of cheap and timely credit to the small and marginal farmers with low transaction costs and associated risks. Another issue relates to the developing of ways to provide working credit to tenant farmers. The recent developments in credit policy include agricultural loans waiver of margin/ security; advances granted for agricultural purposes being treated as NPA (nonproductive assest); incentives to bank branches to finance self-help groups with minimum of bureaucratic procedures; and launching of Kisan Credit Card Scheme.

Marketing (Development and Regulation) Act was formulated in 2003 and circulated to all the state governments for amending respective Act. The rules under the Act were also circulated in August 2007. The reforms proposed under the Act include : Replacement of fragmented nature of markets by an integrated and unified market place Permission for direct procurement from farmers Promotion of grading and quality control services Introduction of single point reasonable market fee within the state. Formulation and implementation of legal and institutional framework for contract farming Simplification and introduction of a unified single licensing system Single window clearances to replace multiple authorities for various market operations. Simplification of market tax laws Encouragement of private investment in market infrastructure development Permitting functioning of private mandis outside the purview of the APMC Act Creation of Special Markets for commodity or commodity group specific Permitting electronic pan-geographic spot mandis Promotion of commodity exchanges Linking spot markets closely with futures markets for price discovery Managing market committees more professionally The Essential Commodities Act should be either repealed or provisions relating to stock limits and movement restrictions removed from its purview.

Marketing Reforms and Policies

The process of market regulations started in the mid-1960s with the enactment of Agricultural Produce Market Regulation Act (APMC). It is, however, noted that in many ways the physical markets are restrictive, over-regulated and monopolistic. Direct procurement from the farmers was seldom permitted; in most states private players were not permitted to create private mandis; cartelization of local traders often resulted in lower price realization by the farmers; and there was often lack of transparency in the process of price formation and dissemination. There has remained a huge variation in the density of regulated markets in different parts of the country. While the all-India average area served by a regulated market is 459 sq km, the same is 103 sq km for Punjab and 11,215 sq km in Meghalaya. The National Commission on Farmers had suggested that the services of a market should be available within a radius of 5 km. This and the monopoly of APMCs have led to large intermediation and have effectively resulted in limiting the access of farmers to market. The agricultural marketing policies in the country have moved considerable distance away from the restrictive regulations of 1960s and 1970s, dominated by the excessive and needless use of the Essential Commodities Act and other restrictive laws. To further reform the sector, a model Agricultural Produce

In 2004, there were 7418 (2402 principal markets and 5016 sub-market yards) regulated markets, to which the central government provided assistance in establishing the required market infrastructure and in setting up rural warehouses. The number of regulated markets, however, came down to 7190 (2456 principal and 4734 sub-market yards) as on 31st March 2013 with the Bihar State Government repealing the APMC Act.

Arora : Agricultural Policies in India: Retrospect and Prospect


There is an urgent need to legalize contract farming in the interest of farmers as well as the sponsors. There should be an institutional arrangement to record all contractual arrangements with a government body or a local body such as the Panchayat. There is a strong need for an independent market regulator for the issue of single registration/license to the market functionaries to transact their business in the entire state and collect single point market fee, specially for Contract Farming (including recording, registration and dispute settlement) and direct marketing or sourcing of produce from the farmers, setting markets in more than one market area and to ensure transparency and quality service to the farmers. The Terminal Markets are wholesale markets which ensure better price realization and timely payment of sales proceeds to the producer, lower price payable by the final consumer, and remove impediments to smooth supply of raw materials to agroindustries and minimize post-harvest losses and wastages by allowing direct procurement from the producer. The private sector can bring in the required investment and management skills for successful development of these markets. The Central Government is committed to support the initiative by providing equity assistance up to 49 per cent of the project equity, returnable at par on successful operation of the project through the Venture Capital Fund of the Small Farmers Agribusiness Consortium. The Terminal Market Complex (TMC), based on PPP model, at Patna (Bihar) and Perundurai and Chennai (Tamil Nadu) have been approved under the National Horticulture Mission (NHM). The recent rapid growth in the organized retail has attracted attention of media as well as elected representatives. The critics fear that organized retail will be to the detriment of the large multitude of small retailers. These fears appear to be largely misplaced as the retail space that would be occupied by the large corporates would remain insignificant. It also needs to be recognized that small retailers in India have inherent advantages. They are located next to the consumer, know them well, some even by name, offer sale on credit, and enjoy low fixed costs. The organized food retail business in India is among the least developed in the world. A large chunk of fresh fruits and vegetables is lost because of

inadequate post-harvest handling, cold storage, and processing facilities and convenient marketing channels. A huge quantity of grains too is wasted because of improper handling and storage, pest infestation and poor logistics management. The farmer gets low price as his produce varies in size, shape and quality. The small harvest lots do not bring economies of scale in transportation and lower net realization. With the growth of organized retailing, new supply chain structures, using global technologies and best practices and offering customized product and services, will become possible. Involvement of global players in retailing would improve services to consumer and would lead to efficiency in supply chain, reducing costs and realization of better prices, benefiting both the supplier and the end consumer. The enactment of the Warehousing (Development and Regulation) Act 2007 in October 2010 should facilitate improved commodity financing and also give a fillip to attracting investment in warehousing. This along with initiatives being taken both by the government and the private sector in setting up cold storages and grading, standardization and quality certification would significantly contribute to modernizing agricultural marketing practices. Under the legislation, Warehouse Receipts (WRs) have become negotiable instruments that can be traded. The legislation also provides for the establishment of a Warehouse Development and Regulatory Authority (WDRA) to regulate the WR system. Notwithstanding the lacunae in the legislation, this is landmark legislation and will provide a lot of fillip to both collateral commodities financing as well as the growth of private sector investment in agriculture warehousing. The establishment of commodity exchanges in recent past has provided a new platform for price discovery and price risk management for the farming community. The challenge is to widen farmer participation in the exchanges and ensure that the exchanges provide a platform for genuine price discovery and hedging opportunities for the farming community. Futures markets, by themselves cannot improve supply efficiency and boost agriculture credit and financing of the agricultural sector unless concomitant reforms take place along the entire value chain. The next generation of reforms should facilitate emergence of pan-Indian electronic trading platforms (Spot Exchanges) leading to an integrated market.


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Simultaneously, there should be freeing of the futures market by providing autonomy to the Forward Markets Commission (FMC), empowering it to regulate the futures market professionally sans government control and interference. An electronic spot exchange will ensure greater transparency in price determination as electronic screen terminals across the country will display the prices and quantities of various commodities traded. Transparency of transaction would help governments in addressing evasion of mandi taxes. Electronic exchanges will promote quality standardization which would ensure greater access to finance from banks and other financial institutions (FIs) to the farmer. Transaction costs are lower under the electronic auction system as compared to the current mandi system by about 10 per cent. Futures markets provide a platform for risk mitigation, price discovery, arbitrage and clearing and settlement. For speculators, hedgers, and other traders, trading in the futures markets offers an opportunity for financial leverage. The participants in the exchange are able to control a large quantity of a commodity with a comparatively small amount of capital, because of the small margin, normally set at 2-5 per cent of the value of commodity.There are, however, a number of misconceptions and concerns about future exchanges, few of which are briefed hereunder. Price Volatility Empirical evidence suggests that the introduction of derivatives does not destabilize the underlying market; either there is no effect or there is a decline in volatility. Further, the literature strongly suggests that the introduction of derivatives tends to improve the liquidity and informativeness of markets. To the extent that carrying costs are predictable, price smoothing through storage becomes an arbitrage activity. If agents are risk averse, this should lead to increase inter-temporal price smoothing. Futures markets may also influence spot prices if they have an effect on the behaviour of producers. Since futures markets allow the producers to hedge price risk, the existence of futures may affect a producers decision of what to produce, how much to produce, and what production techniques to use. In addition, the futures price may contain information about anticipated demand that can feed back into production decisions. Futures Trading and Inflation It is widely recognized that prices of several agricultural commodities have been rising at the global level in

recent years, and India has been no exception. Apart from the increase in money supply which has contributed to the price rise, inflation in food articles has been primarily due to continuous shortages on the supply side and increase in demand which has led to an upward thrust to prices. Further, global shortages in agricultural commodities also got translated into higher domestic prices with the correlation between international and domestic prices being very strong. It needs to be noted that the annual average inflation in both pulses and cereals has been generally higher than the overall inflation rate even in the period prior to the introduction of futures trading in these commodities. Growing current account deficit and fiscal deficit are also responsible for inflation in the country. Some observers have noted that the benefit of futures trading to farmers has been limited due to lack of awareness. It is true that the direct participation of farmers on the futures trading platform has been limited in India as elsewhere.

Price Policy
The major objective of the price policy is to protect both producers and consumers. Currently, food security system and price policy basically consist of three instruments: procurement prices/minimum support prices (MSP), buffer stocks operations, and the public distribution system (PDS). Originally, the price support policy of the government aimed at providing a safety net or insurance to farmers against sharp fall in farm gate prices. Subsequently, however, need was felt to provide remunerative prices to farmers for maintaining food security and increase farm incomes. The policy has had a positive effect on farm income and led to economic transformation, particularly in wellendowed, mainly irrigated, regions. Besides announcement of MSP, the government also organizes procurement operations of concerned agricultural commodities through various public and co-operative agencies such as Food Corporation of India, Cotton Corporation of India, Jute Corporation of India, Central Warehousing Corporation, National Agricultural Co-operative Marketing Federation of India Ltd, National Consumer Co-operative Federation of India Ltd and Tobacco Board. The state governments also appoint state agencies to undertake price support scheme (PSS) operations. The Department of Agriculture and Cooperation is the nodal agency to implement PSS.

Arora : Agricultural Policies in India: Retrospect and Prospect


Market Intervention Scheme (MIS) For horticultural and agricultural commodities, not covered under the MSP, Market Intervention Scheme (MIS) provides ad hoc support measure. If price of a commodity covered under MIS falls below the specified economic level, the Government of India can intervene, on the request of the state government, by purchasing the product at intervention price, not exceeding the cost of production. The central and state governments share equally the losses incurred in the implementation of MIS. However, the loss is restricted up to 25 per cent of the total procurement value including Market Intervention Price (MIP) paid to the farmer plus permitted overhead expenses. Profit earned, if any, in the implementation of the MIS is retained by the procuring agencies. The MIS is implemented when there is at least 10 per cent increase in production or 10 per cent decrease in the ruling prices over the previous normal year. Procurement of Foodgrains With increasing MSP over the years and assured purchase through more robust procurement machinery, the percentage of procurement of foodgrains like wheat and paddy to the total quantity produced is also increasing (around 42% of total production of wheat in 2012-13 and 36% of rice in 2011-12). The procurement of wheat and rice is done in both centralized (through FCI) and decentralized (State agencies) modes. The scheme of Decentralized Procurement (DCP) of foodgrains was introduced in 1997-98 for rice and wheat with a view to enhance the efficiency of procurement and the Public Distribution System and to encourage local procurement and reduce out go of food subsidy. At present, the states of West Bengal, Madhya Pradesh, Chhattisgarh, Uttarakhand, Andaman and Nicobar Islands, Odisha, Tamil Nadu, Karnataka and Kerala are procuring rice under the decentralized procurement scheme. The Government of India is actively pursuing this issue with the remaining state governments to adopt the DCP scheme. The average annual combined procurement of wheat and rice has increased from 38.22 Mt during 2000-01 to 2006-07 to 56.99 Mt during 2007-08 to 2010-11. The comfortable position of central stocks of foodgrains and procurement increase helps deliver more towards the food security. Market Taxes on MSP Some of the state governments have viewed the growing size of procured

agricultural commodities as an opportunity for realizing more revenues. Thus, it is noted that the rate of VAT has been increased in Punjab and Andhra Pradesh, and purchase tax has been imposed in Madhya Pradesh. The high level of taxes and other statutory duties in states like Punjab, Haryana, Andhra Pradesh have driven away the private traders and bulk purchasers from the market, forcing the government agencies to step into procure more so as to protect farmers from market risks. Some states announce bonus on procurement of wheat or rice over and above the MSP fixed by the central government that cause price distortions in the market at national level. Since MSP takes care of all the relevant economic factors like cost of production, marketability and cost of living, etc. and the government decides the MSP by taking into account various socio-political and economic considerations, there is no justification for any state announcing such a bonus over and above the national MSP. Reforming Price Policy So far, the price guarantee to farmers could not be implemented in all the states and markets for obvious reasons. Further, it has not been found feasible for the public agencies to procure the marketed surplus of each and every commodity everywhere in the country to prevent price falling below a floor level; nor would this be desirable. Thus, some innovative mechanisms have to be devised to protect producers against the risk of the price falling below the threshold level throughout the country. One way of doing this is to provide a price guarantee for all the major crops grown in each state either through MSPs or a Minimum Insured Price (MIP). The basis for the MIP could be the paid-out cost or average price of the past three or four seasons. The MSP should be restricted to basic staples like paddy and wheat, and it should be made effective through a procurement mechanism in all the districts that have a reasonable surplus of the crops. All other major crops should be covered by the MIP. Food Security Concerns To ensure the food security in the country, the agricultural price policy should shift focus on harnessing the agricultural potential of low productivity regions like Bihar, eastern Uttar Pradesh, Odisha, Assam, Madhya Pradesh, and Chhattisgarh. This can be done by extending procurement operations under MSPs therein including remunerative and assured prices. It is stated that the


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Government of India is focusing on the eastern region of the country where there is good potential to harness ample natural resources for enhancing agricultural production under a programme namely, Bringing Green Revolution to Eastern India (BGREI). As a result, against an average production of 42.60 Mt of rice in the 7 Eastern States of Assam, Bihar, Chhattisgarh, Jharkhand, Odisha, Uttar Pradesh (eastern part) and West Bengal prior to launch of BGREI, the production increased to 46.97 Mt in 201011, 55.27 Mt in 2011-12 and 55.62 Mt in 2012-13. The Targeted Public Distribution System is one of the core programmes of the Government of India which plays a vital role in ensuring food security of the people. Under the TPDS, subsidized foodgrains are provided to about 18 crore households under Below Poverty Line [including Antyodaya Anna Yojana (AAY)] and Above Poverty Line categories, through a network of more than 5 lakh fair price shops in the country. Besides, the government is also implementing schemes to specifically address the nutrition-related concerns, especially among women and children, through schemes like Integrated Child Development Services, Mid-Day Meals, etc. If the 1960s saw India as an importer of food aid, today, India is poised to commit over 60 Mt of home-grown and nutri-millets to fulfill the legal entitlements under the Food Security Act. The National Food Security ordinance has been passed in July, 2013 and government is keen to implement the same in different states.

3. 4. 5. 6. 7. 8. 9.

Eligible households to be identified by the states Special focus on nutritional support to women and children Food security allowance in case of non-supply of foodgrains States to get assistance for intra-state transportation and handling of foodgrains Reforms for doorstep delivery of foodgrains Women empowermentEldest women will be the head of a household Grievance redressal mechanism at district level

10. Social audits and vigilance committees to ensure transparency and accountability, and 11. Penalty for non-compliance.

Agricultural Subsidies and Investment

Agricultural subsidies are of two kinds: investment subsidies and input subsidies. Investment subsidies aim to improve the farm productivity on sustainable level by encouraging farmers to develop infrastructural facilities like installation of drip irrigation system, construction of rain water harvesting system, and acquiring farm implements. The input subsidies are provided primarily through subsidizing fertilizers, irrigation water, and power (electricity) used for irrigation and other agricultural purposes. From time to time, input subsidies have also been provided on seeds, as well as on herbicides and pesticides. In addition, commercial banks, cooperatives and regional rural banks are required to provide credit to agricultural producers at interest rates below the market rate. One of the most contentious issues in India about input subsidies is how much of these subsidies actually find their ways to the farmers and how much are siphoned away along the path. Further, the debate is also about the real beneficiaries of the subsidies, small or large, poor or rich, and well-endowed or lessendowed areas. Other issues of concern are to what extent input and price support subsidies are essential for sustaining increased farm productivities or to what extent these subsidies damage the environment. The fertilizer subsidy has increased significantly from 0.85 per cent of GDP in 1990-91 to about 1.50 per cent of GDP in 2011-12. Further, these subsidies are concentrated in a few states, namely, Uttar Pradesh, Andhra Pradesh, Maharashtra, Madhya Pradesh, and

Food Security Bill 2013

The Food Security Bill, 2013, was passed by Lok Sabha in August 2013. It gives right to the people to receive adequate quantity of foodgrains at affordable prices. The Bill has special focus on the needs of poorest of the poor, women and children. In case of non-supply of foodgrains, people will get Food Security Allowance. The Bill provides a wide scale redressal mechanism and penalty for non-compliance by public servant or authority. Other features of the Bill are as follows: 1. 2. Coverage of two-thirds population to get highly subsidized foodgrains Poorest of the poor continues to get 35 kg foodgrains per household per month at subsidized price

Arora : Agricultural Policies in India: Retrospect and Prospect


Punjab. Rice is the most heavily subsidized crop, followed by wheat, sugarcane and cotton. These four crops account for about two-thirds of the total fertilizer subsidy. The small and marginal farmers have a larger share in fertilizer subsidies as against their share in the total area cultivated by them. Thus, any cut in fertilizer subsidies will hurt the small and marginal farmers most as they are not benefitted much from price support programme. The biggest problem in agricultural subsidy is its targeting to the deserving beneficiaries. Only 30 per cent subsidies go to marginal, small, and medium farmers. There is an urgent need to increase the subsidies to investment categories and to make the distribution of subsidies transparent, targeted, and short-term in nature. Until 1980, the public investment in rural/ agricultural infrastructure continued to rise and contributed to the rapid growth in agricultural output. Since early-1980s, however, the increase in investment in rural infrastructure ceased and has steadily fallen over. More specifically, from 4 per cent of total GDP in the early-1980s the public investment in agriculture fell to about 1.5 per cent in 2002. The decline in public investments in agriculture is considered to have had an adverse impact on the development of rural infrastructure and on the long-term growth prospects for the farm sector. However, the policy measures initiated during the previous decade resulted in gradual rise in public investment and also attracted private investment too. In the year 2010-11, the total investment in agriculture and allied sector was estimated at 2.7 per cent of the total GDP (Table 1).

Table 1. Public and private investment in agricultural and allied sectors as percentage of total GDP Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Public investment 0.5 0.6 0.6 0.5 0.5 0.5 0.4 Private investment 1.8 1.9 1,8 1.9 2.4 2.3 2.3 Total investment 2.3 2.4 2.4 2.5 2.9 2.7 2.7

Source:National Accounts Statistics (various issues), Central Statistical Organisation, GOI.

consisting of ICAR with its wide network of research institutions and SAUs. The strong emphasis on research has contributed to a number of technology driven revolutions including the green (foodgrains) revolution, white (milk) revolution, blue (fish) revolution and the golden (oilseeds) revolution. The number of ICAR research units increased as well as the number of coordinated research programmes rose from a handful to about 100 and that of State Agricultural Universities rose to over 50. Moreover, ICARs involvement and investment in extension through training by Krishi Vigyan Kendras (KVKs) and frontline demonstrations also increased substantially. The World Bank sponsored National Agricultural Technology Project (NATP) was established in 1998 and ambitious National Agricultural Innovative Project in 2008 to give boost to research activities. The NARS continues to be largely publicly funded sharing less than one per cent of agricultural GDP.

Agricultural Research, Extension, and Education

The major reforms in agricultural research and education took place in the 1960s with the establishment of first Farm University at Pantnagar on the land grant system in the US. This resulted in the development of the State Agricultural University System in the country. This approach revolutionized the system of agricultural education, research, and extension in India, under the auspices of the Indian Council of Agricultural Research (ICAR). As a result, a strong agricultural research and development programme has emerged through the publicly funded National Agricultural Research System (NARS)

Agricultural Trade Policies

Despite having a comparative advantage in production of many agri-food products, Indias share in international trade remains as small as about 1.5 per cent. By commodity, Indias share in total world exports of dairy products is 0.2 per cent, of cereals 1.4 per cent, of coffee, tea and spices 4.4 per cent; and of fisheries 2.6 per cent. Brazil gives India tough competition in case of sugar, coffee, tobacco and mango. USA competes for groundnut, rice, tobacco, grape, apples, wheat, poultry meat and fish exports while China has recently emerged as a major


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Table 2. Competitive strength of Indias agricultural exports (in per cent) Commodity Groundnut Tea Rice Sugar Coffee Tobacco Mangoes Potatoes Tomatoes Grapes Wheat Rapeseed Cocoa Apples Bananas Cucumbers Poultry meat Fish Eggs Major exporting countries/major competing suppliers for India Argentina (32.7) Sri Lanka (23.3), Kenya (18.6) Thailand (35.2), Viet Nam (12.5), USA (11.3), Pakistan (11.1) Brazil (43.6), Thailand (10.6), France (5.2), Mexico (3.5), Germany (2.4) Brazil (22.3), Viet Nam (7.8), Germany (7.7), Colombia (7.4), Switzerland (4.8) Germany (14.3), Netherlands (14.2), Brazil (7.5), Poland (4.6), USA (4.3) Mexico (15.9), Netherlands (12.8), Brazil (10.9), Peru (8.9), Thailand (7.4) Netherlands (22.3), France (15.5), Germany (8.8), Egypt (5.8), Canada (5.2) Mexico (25.2), Netherlands (18.4), Spain (14.1), Morocco (5.4), Turkey (5.2) Chile (19.4), USA (15.2), Italy (9.3), Netherlands (7.9), Turkey (7.9) USA (23.7), France (14.4), Australia (13.4), Canada (12.2) Canada (43.2), Australia (10.2), France (10.1), Ukraine (5.9), UK (3.9) Cte dIvoire (29.2), Ghana (25.5), Nigeria (8.7), Netherlands (6.6), Indonesia (6) Italy (14.2), USA (13.6), China (13.1), France (10.6), Chile (9.7) Ecuador (24.2), Belgium (14.3), Colombia (8.8), Costa Rica (7.8), Guatemala (5.1) Spain (28.3), Netherlands (20.5), Mexico (13.1), Canada (6.9), Jordan (6.3) Brazil (28.4), USA (17.7), Netherlands (8.9), France (5.8), Poland (4.7) China (11.5), Norway (9.4), USA (5.3),Viet Nam (4.4), Canada (3.9) Netherlands (21.6), USA (9.1), Turkey (8.9), Germany (7.4), Poland (6.3) Indias share in world exports 17.2 8.7 4.1 2.3 2.0 1.7 1.1 1.0 0.9 0.8 0.1 0 0 0 0 0 0 2.6 0.2

Source: Authors compilation from ITC Trade Map, 2012 Note: Figures within the brackets are the percentage share in total world export of respective countries.

competitor for groundnut, apples and fish. Relative competitive strengths of Indian major agri-products is shown in Table 2. The agricultural trade policy has been basically designed to pursue twin objectives of food selfsufficiency and promotion of exports of the so-called commercial crops. These twin objectives witnessed four phases of implementation of the policy: 1. The county adopted the policy of protectionism after Independence under which agricultural trade was strictly regulated with high tariffs and quantitative restrictions and was channelled through public trading agencies. Regulation and control of agricultural trade was taken over by the canalizing agencies, State Trading Corporation (STC) and the cooperative federations. Public sector agencies played the important role of importing inputs, particularly fertilizers and chemicals.


In the phase starting from the mid-1960s, this policy was pursued more rigorously, and food selfsufficiency became the corner stone of the development strategies in agriculture. Two severe droughts in 1965-66 and 1966-67, and the difficulties in importing foodgrains from food surplus countries forced the policymakers to opt for such a policy. The policy continued till early1990s. The economic reforms of 1991-92 brought about major changes in Indias import trade barriers. Indias agricultural export policies liberalized in part since 1994 in terms of reduction in products subject to state trading, relaxation of export quotas, and removal of minimum export prices. Finally, under the WTO regime, India had to revamp its policy of import substitution to an open economy with export-oriented growth in agriculture. Agricultural trade policies of India



Arora : Agricultural Policies in India: Retrospect and Prospect


were to be structured in line with the WTO commitments under three pillars of Agreement on Agriculture (AoA) (i) Market access (reduction in import tariffs), (ii) Domestic support (reduction in farm subsidies) and limits on public stock holdings of grains for food security, and (iii) Export subsidies. The Government of India utilizes a variety of policy instruments in attempting to achieve the commitments made at the WTO front. These measures include: Border measures such as tariffs, quotas, and nontariff measures to protect domestic producers from import competition, manage domestic price levels, and guarantee domestic supply. Domestic subsidies to inputs, outputs, transportation, storage, and consumption to reduce producer costs and consumer prices.

market access regime for agricultural products did not undergo a parallel process of liberalization. The rules of the WTO agreement fortunately permitted India to maintain quantitative restrictions on agricultural products under the balance-of-payments exception and during the negotiations they were allowed to offer ceiling bindings on the products on which such restrictions were maintained. Consequently, India had bounded its agricultural tariffs at 100 per cent for commodities, 150 per cent for processed products and 300 per cent for some edible oils. Only on a few products including cereals and milk products, the pre-existing GATT bindings at zero tariffs were carried forward. With such high bound levels India was under no pressure to bring down its applied levels of tariffs. Even so, the applied rates of duty trended lower. It was not until April 1, 2001 that India decided to lift all quantitative restrictions, following the ruling in a WTO dispute that the balance-ofpayments justification for these restrictions had ceased to exist. The elimination of tariff restrictions in 2001 led India to increase tariffs in a number of agricultural products because of the fear of large-scale imports. In the year 2000, in view of the impending phase-out of quantitative import restrictions, India re-negotiated the bound tariffs and raised them from zero to 60 per cent for skimmed milk powder, from zero to 60 per cent to 80 per cent for maize, rice and certain other cereals, and from 45 per cent to 75 per cent for rapeseed, colza and mustard oils. In these re-negotiations, India made compensatory reductions in a number of agricultural products. A wide gap between applied and bound tariff rates still existed for most products. These gaps provided India with the discretionary ability to adjust tariffs to balance competing producer and consumer interests. In order to further protect the domestic economy with import surge, India offered tariff-ratequotas (TRQ) at a lower in-quota tariff in respect of skimmed milk powder, maize and rape, colza and mustard oils (Table 3). The wide gap between Indias bound and applied tariffs on agricultural products has been a matter of concern for Indias trading partners. The gap occurred principally because India has been reducing the applied tariffs unilaterally and autonomously. For instance, in the case of certain edible oils, the duty has been eliminated, although the bound level is as much as 300

Market Access
Even though export-oriented measures were taken in the post-WTO period, the issue of import protection continued to be important in the agricultural trade policies. This is justified due to the reason that the early years of the Uruguay Round Agreement did not cause much difficulty because international prices of bulk products were high. Subsequently, as international prices fell, Indias imports started to steadily rise. Over the three year period of 1996-99, imports almost doubled to reach a peak of USD 3.7 billion in 1999. This caused concern as policymakers expectation of big gains in export earnings in the post-WTO period through increased market access to developed countrys markets did not materialize. This surge in imports threatened the domestic production of the staple food products. For example, the world price for cereals in 2001 was only 50 per cent of the price recorded in the mid-1990s. This occurred at a time when India had large and rising stocks of rice and wheat. Understanding that the international prices were far more volatile than domestic prices, allowing foodgrains imports to any sizeable extent would have been tantamount to importing price instability. It was this concern of the policymakers which prompted India to find out measures of WTO compatible import protection measures. Therefore, while quantitative restrictions were eliminated on industrial products,


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Table 3. Basic customs duty on selection products Product Bound rates ad valorem (%) Schedule rates of BCD 30-100 Remarks All tariff lines are at 30 except chicks cut in pieces at 100 TRQ of 50,000 tonne at zero for SMP Zero from 2007-08 onwards Rates under exemption

Meat and poultry 35-150


Peas, beans, lentils Fresh fruits Rice

40-100 TRQ of 10,000 tonne bound at 15 for SMP 100 30-150 70-80


30 25-50 70-80

Wheat 100 Tea, coffee 100-150 Spices 100-150 Vegetable edible 45-300 TRQ of oils 150,000 for rapeseed, coiza and mustard oils at 45 Sugar 100-150

50-100 100 30-70 0-7.5

The BCD of 70 on milled rice was fully exempted during 2009-12 but raised in 2012-13 Zero until 1.4.2013

Zero for crude oil and 7.5 for refined


10 for raw and white sugar (conditional on end-use and registration) BCD on cotton, carded not carded and combed is zero

Wool Cotton

25-100 100-150

5-10 0-30

Source: Goyal, Arun BIGs Easy Reference Customs Tariff 2013-14, 34th Budget edition

per cent ad valorem. High bound or statutory applied tariffs on some basic foodstuff products are needed in India in the context of high volatility in international commodity prices, which in the past has been exacerbated by the domestic support and export subsidy practices of industrialized countries. India cannot afford to allow a situation to develop in which a sudden drop in international prices threatens to rob millions of farmers of their livelihood. Once special agricultural safeguards have been agreed to in the WTO, during future multilateral negotiations there would be greater willingness on the part of India to bring down the bound duties on agricultural products across the board. In the meantime, in order to impart greater stability to the applied tariff regime, India could take a step autonomously towards lowering the statutory rates to

the exempted levels, particularly in cases in which the exempted levels have remained low for many years.

Input Subsidies
The input subsidies are the far most expensive instrument of Indias food and agricultural policy regime, requiring a steadily larger budget share. The government pays fertilizer producers directly in exchange for the companies selling fertilizer at lower than market prices. Presently (November 2012), farmers pay only 58 to 73 per cent of the delivered cost of potassic and phosphatic fertilizers, while the rest is borne by the government as subsidy. Irrigation and electricity, on the other hand, are supplied directly to farmers at prices that are below the production cost.

Arora : Agricultural Policies in India: Retrospect and Prospect

Waiver/relief for farmers excluding marginal and small farmers Subsidy in other schemes


Subsidies (in billion USD)

Interest subvention for providing short-term credit to farmers Irrigation subsidy Fertilizer subsidy Electricity subsidy for agricultural use Subsidy as a % of total value of output


Figure 1. Trend in non product specific subsidies in India

The cost of agricultural input subsidies as a share of agricultural output almost doubled from 6.0 per cent in 2003-04 to 11.6 per cent in 2009-10, driven mostly by large increase in the subsidies to fertilizer and electricity (Figure 1). According to GoI reports, input subsidies have resulted in overutilization of inputs. This overutilization has in turn led to soil degradation, soil nutrient imbalance, environmental pollution, and groundwater depletion, all of which have caused decreased effectiveness of inputs. The growing cost of input and food subsidies has also contributed to fiscal deficits in many states. Food subsidies were instituted to minimize the impact of higher food prices on the consumers. In general, domestic support to agriculture needs to move from measures that cause more than minimal tradedistortion and effects on production to measures that do not have such effects, from input to investment subsidies and from consumption subsidies in kind to direct or conditional cash transfers. The funds so saved might be used for greater public investment in physical infrastructure and in research, extension and measures to safeguard animal health. Moreover, organic agriculture, which uses little pesticides and experiences relatively little nitrate runoff, should be encouraged with subsidies. Replacement crops can also reduce the countrys reliance on subsidies. For instance, instead of importing sugar, a nation can make sugar from sugar beets, maple sap, or sweetener from stevia plant. Paper and clothes

can be made of hemp instead of trees and cotton. Soybean plant cellulose can replace plastic (made from oil). Ethanol from farm waste or hempseed oil can replace gasoline. Rainforest medicinal plants grown locally can replace many imported medicines. Such measures can reduce farmers dependency on subsidies. The first task in fertilizers must be to extend the Nutrient Based Subsidy (NBS) scheme to urea. The NBS should be fixed in nominal terms, allowing inflation to erode it in real terms over time. An alternative could be to shift to the system of conditional cash transfers, whereby direct payments are made on the condition that farmers get soil analysis done and know the proportions of nutrients suitable for their holdings. Agricultural credit subsidy may be phased out and the policy initiatives in future must aim at improving the adequacy of credit. To avoid the pitfalls of leakage and diversion of benefits, the TPDS must be replaced by a system of conditional cash transfers, in which the transfers are conditional on the beneficiary families sending children to primary schools and meeting basic health care requirements. To cut down the burden of Food Corporation of India of open-ended procurement, the private sector be engaged in foodgrains trade by not limiting exports, reducing or eliminating purchase tax, abolishing levies on rice-millers, and finally eliminating restrictions on stocks and inter-state movement. Alternatively, schemes such as deficiency payments may be introduced.


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Export Controls
Indias policy on exports of key agricultural product in the past has reflected a greater concern for the consumer than for the farmer. Exports are curtailed or prohibited if there is an estimated shortfall in domestic production in order to pre-empt an upward pressure on prices. Recently, however, the government has tended to show greater sensitivity to the interests of the farmer and there has been a willingness to give them the opportunity to sell the produce in the international market in which they can earn a better price. The government has been influenced also by the criticism coming from outside the borders as export control measures have played a role in exacerbating price spikes on global markets at times of shortages. Since a number of countries have adopted measures for restricting exports of foodstuffs in particular, and effective disciplines on such restrictions are lacking in the WTO Agreement, there has been a growing demand
Mangoes in USA

(in the G20) and elsewhere for a worldwide political consensus on prohibiting such restrictions. The time has, therefore, come for the government to go for the alternative of limiting exports, if needed, through export duty rather than prohibition or quantitative restriction. Despite efforts at WTO forum, Indian exports have not been able to make their mark in most of the agriimporting countries. Indias agricultural products export markets do not coincide with the major importing countries for the respective products in the world market (Annexure I). This implies that Indian export products do not get acceptance in these markets. The possible reasons for the mismatch and absence of India in major importing countries are as follows: One of the reasons of losing our export share in major importing nations for the commodities of export interest to India is the high final landing price in these markets as compared to other competing suppliers. Figure 2 supports the situation, taking the instances of
Tea in USA

Rice in UK

Refined sugar in Australia

Figue 2. Price comparisons for select export items in major importing countries Source: Authors calculations

Arora : Agricultural Policies in India: Retrospect and Prospect


prices of mangoes and tea in case of USA, rice in case of UK and sugar in case of Australia. The poor price competitiveness in the form of high C.I.F is further aggravated by the presence of high tariff/import duty rates levied in the importing developed country markets. The European Union, Japan, and the United States use, to varying degrees, such protection tools: low but highly dispersed ad valorem tariffs, specific duties, seasonal tariffs, tariff escalation, and preferential access along with tariffrate quotas. Marine products, which are the highest export earner of India, attract zero per cent duty in USA and 5 per cent in Japan (refers to shrimp and prawns). In the European countries, duty on shrimp is around 7 per cent to 8.5 per cent and for different marine products duty rate varies from 0 to 18 per cent. China, which is the third largest importer of fish from India, applies 21 per cent MFN duty though general duty in China is 70 per cent. Oil meal and cakes are the second biggest agricultural exports of India. Their import to Indonesia is free. Korea and Japan levy 3 per cent and 4.2 per cent duty on oil cake. The duty rate in Singapore is 12 per cent, while Bangladesh applies highest duty at 15 per cent, MFN. Indias rice export attracts zero per cent duty in South Africa, Bangladesh and Malaysia and 50 per cent in Philippines. Indonesia imposes specific duty of Indonesian Rupiah 430 per kg. Wheat from India is imported freely into Indonesia and Malaysia, while other trading partners impose a small duty, e.g. Korea Republic imposes a duty of 1.9 per cent, Bangladesh 5 per cent and Philippine impose a 7 per cent duty on feed grade wheat and 3 per cent on other wheat. There is no duty on Indias maize exports to Bangladesh and Indonesia, while Sri Lanka and the Philippines impose tariffs of 35 per cent and 40 per cent, respectively. Oilseeds like rapeseed/ mustard and groundnut are imported without duty into the EU, Oman and Japan; Singapore and Nepal levy 11.7 per cent and 10 per cent duty, respectively. The duty imposed on sugar varies from zero per cent in Malaysia and the EU for limited shipments under the SP agreement to 20 per cent in Indonesia and Pakistan and 25 per cent in Bangladesh. There is no duty on Indias cotton exports to major destinations, except China, which imposes a duty of 54 per cent.

Bangladesh, Indias major trading partner, imposes a tariff of 37.5 per cent on milk imports. On other livestock products, Oman imposes a 5 per cent duty on eggs and no duty on sheep meat. Malaysia also does not impose any duty on sheep meat. The tariff on coffee imports to Russia was 5 per cent and zero per cent in the US. The EU imposed zero per cent duty on caffeinated coffee that is not roasted and 8.3 per cent duty on de-caffeinated coffee. Duty rate on roasted coffee is 7.5 per cent for non-decaffeinated and 9 per cent on caffeinated. Like coffee, Russia imposes a 5 per cent duty on tea imports. Duty on tea imports into the EU varies from zero to 3.2 per cent, and from zero to about 6.3 per cent in the US. The rate of duty on tobacco is 5 per cent in Russia. The EU and the US impose specific duties on tobacco. In the EU, flue cured Virginia tobacco from India is charged at EUR 18.4 to EUR 22 per 100 kg, while the rate of duty in the US ranges from USD 0.77 to USD 0.85 per kg. The prevalence of non-tariff barriers, as highlighted in Annexure II and high cost of compliance worsen the price competitiveness of Indian agro-exports. The compliance of sanitary and phyto-sanitary requirements of most trading partners calls for substantial investment in developing quality standards and infrastructural facilities. These non-tariff barriers are important in view of WTO commitments. This becomes important due to the fact that about 14 per cent of Indian agricultural exports are subject to only NTMs and 79 per cent are subject to both Tariffs and NTMs. It is generally expressed that farm exports from India are not given fair treatment in some developed countries. It is also believed that sanitary and phytosanitary (SPS) measures are applied in the guise of protecting plant, human and animal life to keep a check on exports. These measures are believed to be applied in an indiscriminate manner, lack transparency and are costly in compliance. These apprehensions are largely based on the survey of exporters whose exports were detained or rejected in the importing countries and provide anecdotal evidence of NTBs on selected products. These relate to export of spices, fishery products, rice, tea, and egg powder. Moreover, there are also general bans on the exports of some products. Export of meat and milk to the EU and that of mango to US and Japan is subject to strong conditions. The EU bans imports of meat from India due to rinderpest disease in Indian livestock (cattle, buffaloes,


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sheep, goat, etc). While the country has been free of rinderpest since 1995, the ban has not yet been lifted. Exports of milk to the EU are not permitted due to quality control measures. The research literature supports the existence of non-tariff barriers in the case of exports of spices, peanut, fish products, rice, tea, and egg powder. Indias exports of chilli and pepper have faced NTBs in Spain, Italy and Germany. Indias peanut exports also face severe standard requirements in the EU markets. Some tests are required only for products from India and Egypt, whereas exports from other countries are exempt from these tests. India has made good progress to improve aflatoxin standards of peanut and to meet the various regulations and requirements of the EU. There are several reports of the rejection of basmati and non-basmati rice shipments to the US on the grounds of low hygiene standards. The US regulations require the manual sorting of rice and the treatment for weevils. The issue of pesticides residues is frequently raised by the EU and Japan. Pesticide residues are also a concern in the case of tea exports to the EU. In the light of strict import controls in both developed as well as developing countries in the form of tariff as well as non-tariff measures, it is important for India to develop a focused and suitable trade policy which ensures a strong linkage between the domestic and international markets. The policy should take holistic view of food security, poverty alleviation, sustainable development, WTO rules and Indias commitments therein. Some of the steps taken under Foreign Trade Policy in this context include: A new scheme called Vishesh Krishi Upaj Yojana, has been introduced to boost the exports of fruits, vegetables, flowers, minor forest produce and their value-added products. Duty-free import of capital goods under the Export Promotion Capital Goods (EPCG) scheme. Capital goods imported under EPCG for agriculture permitted to be installed anywhere in the agri-export zones. Assistance to States for Infrastructure Development of Exports (ASIDE); funds to be also utilized for the development of agri-export zones. Import of seeds, bulbs, tubers and planting material has been liberalized.

Export of plant portions, derivatives and extracts has been liberalized with a view to promote exports of medicinal plants and herbal products.

Export policy for food commodities and non-food agricultural commodities is expected to vary. The well established policy of encouraging exports of commercial crops has to continue. Further, our trade policy needs to be inclined towards the commodities in which we have a comparative advantage. A study by Reddy and Badri Narayanan (1992) has revealed that we do not have any comparative advantage as a wheat exporter. Therefore, our policy should not encourage the export of wheat. We have distinct advantages in rice, and can emerge as a moderate exporter of rice. We need to continue the export of basmati rice to West Asia, Europe and the US, but should recognize the limit beyond which we will not be able to export basmati and other fragrant rice varieties. The potential market for rice is in South East Asian countries, Indonesia, Malaysia and Philippines and in East Asian countries, Japan and South Korea. To summarize, the following could be used as guidelines: Commodities such as cereals deserve an export thrust only after the domestic demand is satisfied. Commodities with large fluctuations in the supply or in prices (cotton, sugar) should be traded with caution, unless compensatory mechanisms are put in place, such as forward trading to compensate for the risk and uncertainty. Commodities where we have dynamic comparative advantage, such as fruits and vegetables (because of diverse climate and soil conditions), and dairy products (because of large cattle herd and low cost of production) should receive special attention. The commodities having growing world market (rice for the East Asian markets, millets for cattle feed, and maize and barley as industrial raw materials) should be given high priority in our export strategy.

Concluding Remarks and Implications

Indian agriculture is becoming export-oriented after having attained nearly self-sufficiency in basic food production. In addition to the traditional export

Arora : Agricultural Policies in India: Retrospect and Prospect


commodities, India is now also an exporter of rice and wheat, as well as livestock products. The direction of trade is also changing. Although, trade with the neighbouring countries in the region continues to dominate, trade with OECD country markets is becoming important, especially for exports of highvalue food products. The emerging agricultural policy directions include liberalization of the sector by cutting tariffs, removing QRs, globalization of agriculture by providing outward look to the mindset; and focusing on commercial dimensions of agriculture as never before. As a result, there has been an increase in the private investment in agriculture (besides public investment), farmers are becoming market-oriented, level of value addition has gone up, agricultural exports are growing, and farm income is rising. None the less, a number of critical issues remain to be solved such as significant dependence of agriculture on vagaries of nature, monsoon being inconsistent and unpredictable; small and fragmented landholdings, land reforms not being pursued; lack of infrastructure for marketing of perishable commodities efficiently and effectively; shortage of labour for farm operations in general and of skilled labour in particular; high cost of critical farm inputs, e.g., hybrid seeds, agro-chemicals, etc; lack of market assurance; low and stagnating returns per unit area; and inadequate government support. The major challenges before the policymakers are sustainability of farm productivity; protection of environment; degradation of natural resources like land; depleting sources of water; and value addition and agribusiness. Moreover, the drive for more downstream processing of agricultural products and greater competitiveness along the agro-food chain are also key priorities. Addressing of the problems being confronted by farmers as mentioned above and macro level challenges before policymakers call for inclusion of the followings in the policy framework: Legalization of Leasing of Agricultural Land The leasing of land for agricultural use is not permitted in many states, except Punjab, West Bengal, Maharashtra, and Tamil Nadu. Though land lease is in practice. Legalization of landleasing will attract entrepreneurs with passion for agriculture to undertake commercial farming. Such entrepreneurs will adopt scientific technology to

attain maximum yield and also to maintain the soil health in a sustainable manner. Small landholders will prefer to lease out their fields without the risk of losing title and will seek engagement elsewhere. This will lead to consolidation of landholdings and size of holdings will become sufficiently large for adoption of technology. Liberalization of APMC Act Flexibility in APMC Act will enable farmers to benefit from demandsupply phenomenon. Currently, this benefit is reaped in by middlemen, as buyers are not allowed to trade directly with farmers. Investment in food processing industry is also not happening due to this reason. Under APMC Act, operating cost is high which is keeping the investors away. Investment in Infrastructure in Agricultural Sector The infrastructures like roads, canals, micro irrigation, tube-wells, warehouses, food processing facility, etc. are important for the growth in agriculture. Investment in such infrastructure is to be made by the government as well as attract private investment to make agriculture processing viable. Higher the investment, better would be the growth and income of farmers. Skill Development Skill deficit in agriculture has been a major concern. It hampers the adoption of technology and mechanization of agriculture. Looking at the importance of agricultural productivity to ensure food security, mechanism to institutionalize skill development is critical to growth. Skilled drivers, operators and technicians in agriculture will arrest the growing inefficiencies and encourage farmers to adopt modern technology for higher yields. Accurate Forecast of Monsoon More than 50 per cent of foodgrains production is dependent on monsoon. Accuracy in forecast of monsoon is important for sustaining and enhancing productivity. Scientific technology is available for proper forecasting for adoption. Producer Company at Village Level Landholdings are fragmented making agriculture less remunerative. Concept of producer company is well thought out proposition for small farmers to aggregate not only resources for efficient


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utilization but also decision-making process like what crop to grow, which varieties to use, where to buy seed from, when to sow, etc. Producer company concept facilitates this in most democratic manner for the benefit of all. Mechanization of Small Farms Shortage of labour is the biggest pain farmers are experiencing post-MNREGA. Mechanization is the answer. This is not possible unless sufficient skills are developed at the village level. Besides, government needs to provide support, especially at the initial stages, for promotion and adoption of mechanized operations. Regulatory Authority in Agriculture Land being a precious resource of the country with high population, cannot be allowed to be under-used. Regulatory authority in agriculture must develop processes and systems to gauge and monitor optimum utilization of land for foodgrain production. Government Support Commensurates with Farmers in Agriculturally-advanced Countries In the global economy, farmers from not so rich countries suffer due to uneven support of the government. In a free market, support needs to be equitable to provide level playing fields to all and remove any natural or manmade advantages in the larger interests of the farmers with lower income. Food Processing Food habits in urban India are fast changing, creating the need to promote food processing. A proper mechanism is to be tabled in a phased manner to encourage changes in food habits in the urban areas. Cold chains, warehouses, processing facilities, etc. will automatically flourish as a result of growing demand for processed foods in the urban areas. This will also establish strong linkages between rural and urban economy for mutual benefits. Leverage Potential of Hills Hills are boon for any nation. They provide diversity in climate, florafauna and opportunity to grow what cannot be grown in the plains. The potential of hills has to be assessed properly and investments on infrastructure have to be made to exploit the opportunity for the benefit of all.

Acharya, S.S. (1985) Regulation of agricultural produce markets, some observations on the impact, Development Policy and Administrative Review , 11 (2): JulyDecember. Acharya, S.S. (1988) Agricultural Production, Marketing and Price Policy in India, Mittal Publishers, New Delhi, pp. 317; 320-27. Bhalla, G.S. and Singh, G. (1997) Recent developments in Indian agriculture: A state level analysis, Economic and Political Weekly, 32(March): A2.18. Bhattacharya, B. and Pal, Parthapratim (2002) Agricultural trade policy during the tenth five year plan, Agricultural Situation in India, LIX(5): 255-258. CMIE (Centre for Monitoring Indian Economy), Public Finance (various Issues). Chadha, G.K. (2002) Indian agriculture in the new millennium: Human response to technology challenges, Presidential address delivered at 62nd Annual Conference of Indian Society of Agricultural Economics, IARI, New Delhi Chadha, G.K. and Sahu, P.P. (2002) Post reforms setback in rural employment: Issues that need further scrutiny, Economic and Political Weekly, 37(21), May 25. Chand, Ramesh (2002) Trade Liberalisation, WTO and Indian Agriculture: Experience and Prospects, Mittal Publications, New Delhi. Chand, Ramesh (2003a) Government Intervention in Foodgrain Markets in the Changing Context, Policy Paper 19, National Centre for Agricultural Economics and Policy Research, New Delhi. Chand, Ramesh (2003b) Minimum support price in agriculture: Changing requirements, Economic and Political Weekly, 38(29): 3027-3028. Chand, Ramesh, Kumar, P. and Sinha, Sapna (2003) Impact of Agricultural Trade and Related Reforms on Domestic Food Security in India, Report of the study done for FAO Rome, Institute of Economic Growth, Delhi, November. Dholkia, Bakul H. (1997) Impact of economic liberalisation on the growth of Indian agriculture, In: Agricultural Development Paradigm for the Ninth Plan Under New Economic Environment, Ed: Bhupat M. Desai, Oxford and IBH Publishing Co. Pvt. Ltd, New Delhi. Fan, S., Hazell, P. and Thorat, S. (1999) Linkages between Government Spending, Growth, and Poverty in Rural India, Research Report 110, IFPRI, Washington, DC.

Arora : Agricultural Policies in India: Retrospect and Prospect Fan, S., Hazell, P. and Thorat, S. (2000) Government spending, growth and poverty in rural India, American Journal of Agricultural Economics, 82(4): 1038.51. Fan, S., Hazell, P. and Thorat, S. (2001), Returns to public investments in the less-favored areas of India and China, American Journal of Agricultural Economics, 83(5): 1217.22. GoI (Government of India) (2012) Agricultural Statistics at a Glance, Ministry of Agriculture and Cooperation, New Delhi. GoI (Government of India) (2012-13) Economic Survey, Economic Division, Ministry of Finance & Company Affairs, New Delhi. Haque, T. (2003) Land reforms and agricultural development: Retrospect and prospect, In: Institutional Change in Indian Agriculture, Eds: Suresh Pal, Mruthyunjaya, P. K. Joshi and Raka Saxena, National Centre for Agricultural Economics and Policy Research, New Delhi. Jha, S. and Umali-Deininger, D. (2003) Public Expenditures on Food and Nutrition Security Programs in India: Are They Meeting the Challenge, Rural Development Sector Unit, Working Paper, World Bank, Washington, DC. Kahlon, A.S. and George, M.V. (1986) Agricultural Marketing and Price Policies, Allied Publishers, New Delhi. Krishnaswamy, K.S. (1994) Agriculture development under the new economic regime, Economic and Political Weekly, 29(26): A-65 . A-71. Marothia, D.K. (2003) Institutions for common pool resources, In: Institutional Change in Indian Agriculture, Eds: Suresh Pal, Mruthyunjaya, P. K. Joshi and Raka Saxena, National Centre for Agricultural Economics and Policy Research, New Delhi. Mehta, Rajesh and George, J. (2003) Implementation issues in SPS: A developing country perspective for development agenda on the mmeandering pathways from Doha to Cancun, RIS Discussion Paper 58, Research and Information System for Non Aligned and Other Developing Countries, New Delhi. Ministry of Agriculture (2000) National Agricultural Policy, Department of Agriculture and Cooperation, New Delhi.


Nayyar, Deepak and Sen, Abhijit (1994) International trade and agricultural sector in India, In: Economic Liberalisation and Indian Agriculture, Ed: G.S. Bhalla, Institute for Studies in Industrial Development, New Delhi. Pal, Suresh and Saxena, Raka (2003) Agricultural R&D reforms in India: Policy and institutional imperatives, In: Institutional Change in Indian Agriculture, Eds: Suresh Pal, Mruthyunjaya, P. K. Joshi and Raka Saxena, National Centre for Agricultural Economics and Policy Research, New Delhi. Pal, Suresh, Mruthyunjaya, Joshi, P.K. and Saxena, Raka (2003) Institutional change in Indian agriculture: an overview, In: Institutional Change in Indian Agriculture, Eds: Suresh Pal, Mruthyunjaya, P. K. Joshi and Raka Saxena, National Centre for Agricultural Economics and Policy Research, New Delhi. Rao, C.H. Hanumantha and Gulati, Ashok (1994) Indian agriculture: Emerging perspective and policy issues, Economic and Political Weekly, 29(53): A-158 . A-170. Rao, V.M. (1994) Agriculture and liberalisation: Some implications for development policies, Economic and Political Weekly, 29(16/17): 999-1004. Reddy, V. Ratna and Badri Narayan, K. (1992) Trade experience of Indian agriculture: Behaviour of net export supply function for dominant commodities, Indian Journal of Agricultural Economics, 47(1): January- March. Satyasai, K.J.S. (2003) Micro-finance in India: Progress and perspectives, In: Institutional Change in Indian Agriculture, Eds: Suresh Pal, Mruthyunjaya, P. K. Joshi and Raka Saxena, National Centre for Agricultural Economics and Policy Research, New Delhi. Singh, R.B., Kumar, P. and Woodhead, T. (2002) Smallholder Farmers in India: Food Security and Agricultural Policy (FAO Study), RAP Publication: 2002/03, Food and Agriculture Organisation of the United Nations, Regional Office for Asia and the Pacific, Bangkok, Thailand, 54 p. Schultz, T.W. (1964) Transforming Traditional Agriculture, Yale University Press, New Haven, CT. Vaidyanathan, A. (1996) Agricultural development: Imperatives of institutional reforms, Economic and Political Weekly, 31(35/37): 2451-2458.


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Annexure I
Indias export markets do not match with the major importers Commodities Indias top export partners# UAE (54.81), Bangladesh (37.50) Major importing countries USA Netherlands UK Mangoes Saudi Arabia (33.88), Netherlands (18.60), UK (10.33) Oranges Bangladesh (93.32), Nepal ( 3.11) USA Netherlands China Russian Fed France Netherlands Onions Bangladesh (26.88), Malaysia (23.20), UAE (17.99), Sri Lanka (10.09) Tomatoes Pakistan (49.67), UAE (32.80), Bangladesh (11.95) USA UK Competing suppliers in importing markets* Chile (60.2), Mexico (32.7), Peru (3.7) South Africa (36.6) , Chile (18.1) , Brazil (6.9) Turkey (15.7), South Africa (15.5), Chile (14.3) Mexico (56), Peru (11), Brazil (8.8) Brazil (47.6), Peru (25.1), Mexico (3.3) Thailand (81), Indonesia (15.2), Egypt (29.5), South Africa (26.1) Turkey (15.7) Spain (73), South Africa (11) , Tunisia (3.8) South Africa (40.5), Spain (20) Mexico (65.2), Canada (13.5), Peru (11.4) Netherlands (40), Spain (18.3) , Poland (8.5) Indias share in import markets (%) 0 4.9 2.9 0.5 0 0 0 0 0 0 0.3


USA Germany

Mexico (83), Canada (15.9), Guatemala (0.4) Netherlands (27.8), Egypt (15.2) , France (7.9)

0 0

Source: Authors compilation from ITC Trade Map, 2012 Note: Figures within the brackets are the percentage share in total world export of respective countries

Arora : Agricultural Policies in India: Retrospect and Prospect Non-tariff barriers on Indias agricultural exports to the EU, USA and Japan Product Spices (chillies) Meat Milk Fishery product Peanut Non-tariff barriers No uniform standard and common regulation in EU. No fixed permitted level of aflatoxin or pesticide residue. Adversely affecting spices exports from India. India free from rinderpest since 1995 still export to EU not permitted Exports to EU not permitted as Indian cows are not mechanically milked EU put a ban in 1997. Allows only the form at its approved plants in India. EU standards for fishery products are very stringent, cumbersome, and costly Aflatoxin standards of EU are more stringent than international standards on Indias export. Prescribed testing method known as Dutch code and other required methods are very rigorous and very costly. Permissible limits are different in different countries and keep changing. Some tests are required only for India and Egypt and not for exports from USA and Argentina. Requirement of costly vapour heat treatment for export of fresh mango, labelling, pesticide residues. Pesticide residues consignment of basmati and rice rejected in US on ground of being filthy and containing foreign matter. US regulation require manual sorting of rice and fumigants and weevils have to be blown out. Delay in clearing consignments, repeated tests. Pesticide residue. Complaint of high residue level of Ethicon in Darjeeling tea Anti-dumping duty imposed by US on Indian shrimp in 2005 Internationally permissible level of DDT residue is 6 ppm while Japan and USA had set their DDT levels at much lower level; Japan insists on 0.4 ppm of DDT level Indian tobacco has DDT level of 1-2 ppm which is well below the international standard but Japan does not allow tobacco import from India. Consignment first time subjected to additional criteria of MRPL (minimum required performance limit) in May 2003 despite valid equivalence issued by EU. No action on applications for equivalence for 7-8 years. Country Spain, Italy and Germany EU EU EU EU


Annexure II

Mango and mango pulp Rice

US, Japan, and Jordan EU, Japan, USA

Tea Fish Tobacco

EU and Germany USA Japan, USA

Egg powder


Sources: Adapted from Jha (2003 ); Mehta and George (2003); RIS (2003)

Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013 pp 159-172

The State of Agricultural Extension Reforms in India: Strategic Priorities and Policy Options
Suresh C. Babua* , P.K. Joshib, Claire J. Glendenningc, Kwadwo Asenso-Okyerec and Rasheed Sulaiman V.d
International Food Policy Research Institute, Washington DC, USA International Food Policy Research Institute, New Delhi-110 012, India c Formerly at International Food Policy Research Institute, Addis Ababa, Ethopia d Centre for Research on Innovation and Science Policy, Hyderabad, Andhra Pradesh, India
a b

Agricultural extension in India has undergone several changes since independence. Still, a large number of smallholder farmers and other vulnerable groups remain unreached by the public extension system. A number of organizational performance issues hinder the effectiveness and efficiency of public extension system. These include inadequate staff numbers, low partnerships, and continued top-down linear focus to extension. This paper has presented a critical review of the current state of agricultural extension reforms in India and based on the field case studies in four states Bihar, Himachal Pradesh, Maharashtra, and Tamil Nadu has identified policy priorities and strategic options for further refining the on-going reform process and effective implementation of the public agricultural extension system. Key words: Agricultural extension, strategic priorities, policy options, extension reforms JEL Classification: Q16, Q18

The Indian agriculture is at the crossroads today. Its strength to alleviate poverty and hunger is wellrecognized, yet, the agricultural growth rate in the past 20 years has been visibly less impressive and the * Author for correspondence
Email: s.babu@cgiar.org This is a substantially expanded version of the paper presented at the workshop on Policy Options and Investment Priorities for Accelerating Agricultural Productivity and Development in India, organized by the Indira Gandhi Institute of Development Research, Mumbai and the Institute for Human Development with the support from the Planning Commission, Government of India, Food and Agriculture Organization (FAO) and The World Bank, during 10-11 November, 2011 in New Delhi. We are grateful to FAO- New Delhi for funding this study and for the discussions and comments during the above workshop. Usual disclaimers apply.

productivity in the agricultural sector continues to be low compared to the international standards. While investments in research and extension have increased in recent years, their impact on smallholder farmers livelihoods remains debatable. Even when these investments may address relevant problems of the farmers, the benefits of improved technologies will not fully accrue to the farmers. The yield gap between research stations and farmers field remains high. For translating research results into tangible gains at farmlevel, well-functioning agricultural extension and advisory services are required. The Indian public agricultural extension system is one of the largest knowledge and information dissemination institutions in the world. The system played a critical role during the Green Revolution period, but in recent years, it has undergone a high


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level of scrutiny (Sontakki et al., 2010; Pal, 2008; Joshi et al., 2005). Several efforts have been made in the public sector over the past one decade to initiate various reform measures and operational models to improve the organizational performance of this system. Yet, the challenge of enhancing relevance, efficiency, and effectiveness of the public sector agricultural extension system in meeting its organizational goals and objectives remains unresolved (WGAE, 2007; Raabe, 2008; Glendenning et al., 2010; Desai et al., 2011). Undoubtedly, without a well-functioning national agricultural research system (NARS) capable to produce relevant technologies and knowledge base, any amount of reforms in the agricultural extension system will be unsuccessful (Binswanger-Mkhizi and Zhong, 2012). The reforming of NARS in India has been the subject of extensive analysis and the focus of several high-powered committees (NAAS, 2005; NFC, 2006; Pal, 2008; ICAR, 2011). India is endowed with a strong NARS, comprising the Indian Council of Agricultural Research (ICAR) and State Agricultural Universities (SAUs). The ICAR is the apex body for agricultural research and education in the country. The contributions of agricultural research have been commendable to the global agri-food systems, especially during the Green Revolution period in the mid-1960s and early-1970s. A perfect symphony of research, technology, and input delivery, and agricultural policies was responsible for the impressive performance of Indian agriculture in the 1970s and the 1980s. The production of rice and wheat witnessed a spectacular increase, and transformed Indian agriculture from deficit to selfsufficiency in food grains (Joshi et al., 2005). Although the NARS has been responding to the challenges faced by Indian agriculture, it is often criticized for not attending to the demands for improved technologies and also for the poor linkages between research and extension systems (Desai et al., 2011). This paper examines the current state of agricultural extension reforms and their linkages to the agricultural research system reforms in India, and identifies the policy options and strategic priorities for making it relevant, responsive and efficient. It explores how the NARS responded with its own set of reforms that were sought to increase its relevance and its linkages to the extension systems reforms. It also provides an assessment of the organizational performance of the major public sector policy reforms

in the agricultural extension the Agricultural Technology Management Agency (ATMA) model using the case studies of seven districts in four Indian states (Bihar, Himachal Pradesh, Maharashtra and Tamil Nadu), located in different agro-ecological zones of the country. The paper is organized in seven sections. After a brief background in section one, the following section provides the evolution of agricultural extension system in the country. In section three, a snap-shot on emerging challenges and issues for agricultural extension and advisory services is given. Farmers access and sources of extension are discussed in section four, using NSSO data and also several case studies conducted in recent years. Section five examines the performance of Agricultural Technology Management Agency with respect to its relevance and reach to the farmers. It is followed by the section that prescribes policies and strategies for reforming agricultural extension system in the country. Finally, in the last section, we conclude the conditions for successful extension reforms in the country.

Evolution of the Extension System in Indian Agriculture

The evolution of agricultural extension system in India has a long history. Its contribution to productivity enhancement during the Green Revolution era has been well documented. During this period, the public extension system played the key role in conducting field demonstrations of high-yielding varieties and improving the input delivery that ensured timely availability of quality seeds, fertilizers and agricultural chemicals at affordable prices. Along with extension services, the price policy and procurement support through public agencies provided additional encouragement to the farmers for adoption of highyielding varieties in the 1960s and 1970s. By the end of 1970s, the Green Revolution type of extension system had largely achieved its major goal of increasing the area under high-yielding varieties (Ameur, 1994). In the late-1970s, the agricultural extension system became mostly involved in the distribution of agricultural inputs through the state agricultural depots and handling of the subsidies that were provided through various agricultural development programs. The public sector extension system as a whole seemed

Babu et al. : The State of Agricultural Extension Reforms in India


to have become a monolithic organization without specific goals to achieve. Sustaining such a large system without added benefits to agricultural productivity became a big challenge for agriculture ministries at both the central and state levels. Therefore, reforming of the system towards goal orientation and better operational efficiency was sought. A Training and Visit (T&V) system was introduced in extension services on a pilot scale in Rajasthan in 1974 with World Bank funding support and was scaled up to several other states in 1977 (Ameur, 1994). While impressive results were documented by the studies that evaluated the T&V system, the issues related to sustainability of funding, high requirement of staffing, and the quality of staff became the key concerns (Federet al., 1987; Anderson and Feder, 2004). The state governments could not meet the high level of recurrent costs of the system and stopped recruitment of new staff after the World Bank funding ended in the early-1990s. Over the next ten years, due to the low level of staff and low resources to cover their costs, no serious efforts were made to hold the extension officials accountable. No specific goals were set and the agricultural extension system as a whole had become moribund, although the T&V system continued as a method of public extension (Anderson et al., 2006). Thus, began a period of low commitment from the policymakers at the state level. This was reinforced by the ineffectiveness of the extension system as a whole in contributing to farmers needs. As a result, the T&V system, or whatever remained of it, was seen as an unrealistic model by many state governments, though some elements of the model still continue to be implemented in several states. About a decade ago, in order to introduce reforms in the public sector agricultural extension system and increase its relevance, accessibility, and efficiency of knowledge sharing among various actors, players, and stakeholders, the Agricultural Technology Management Agency (ATMA) was introduced as a pilot (1998-2003) in 28 districts (DAC, 2005). Following a positive feedback from the pilot implementation (IIM, 2004), the ATMA model was scaled up across 251 rural districts in 2005 and throughout the country in 2007 (Reddy and Swanson, 2006). In June 2010, revised guidelines for ATMA were issued in order to incorporate the lessons learnt from the implementation thus far (DAC, 2010). However, several operational and organizational challenges continue to confront the

ATMA as a system of extension. The ATMA faces severe capacity and institutional constraints. Yet, ATMA is seen as the key intervention for reforming the extension system in India. There is increased call for evaluating the impact of ATMA model on the farm level benefits. However, an understanding of the variance between the intended guidelines and the actual implementation of the program is still lacking. Further, the organizational and capacity challenges in its implementation have not been fully recognized (Anderson, 2007). Such information is the first step towards the analysis of the impact of the program. In what follows we take a critical look at the organizational performance issues faced in the implementation of ATMA to provide program and policy feedback for further refining the reform process. But, first we examine the global patterns in extension reforms, followed by the existing use of extension by the farmers in India.

Issues for Extension and Advisory Services

India is not alone in the world in reforming its extension and research systems. There are many countries where extension and advisory services reforms are occurring globally (Swanson and Rajalahti, 2010; World Bank, 2012). A common pattern in most developing countries is to decentralize the extension systems since agro-ecological conditions and access to markets vary within most countries. Making extension decentralized and demand-driven gives the farmers a better say in setting the agenda and demanding extension and research priorities. The extension reforms strive to reach those groups smallholders, resource-poor, and women farmers which often remain unreached by the existing extension systems, and instead often tend to address the needs of progressive and commercially-viable farmers. The reform measures also focus on sustainability. Without adequate public funding, agricultural extension systems in many developing countries will not be sustainable in the long-run. Donor funds are not highly reliable and are targeted mostly to pilot projects. When the donor funds dry up or the pilot projects end, the farmers no longer have access to the extension services (Birner and Anderson, 2007). The public sector has a role to play in developing a sustainable system of extension services delivery. Recognizing that a top-down approach does not always address the needs of farmers,


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extension reforms also focus on making extension and advisory services farmer-led and demand-driven. However, in any extension reform, poorly developed and inadequate monitoring systems, coupled with low human and institutional capacities, remain a major constraint to scaling-up successful pilot programs. Another reform option is the increased use of modern information and communication technologies (ICTs), but this calls for a higher level of investment in order to make them accessible by the smallholder farmers (Aker, 2011). Given the broad lessons emerging from global experiences and the immediate need for understanding the challenges and constraints in continuing the reforms in agricultural extension system in India, we next review the farmers access to agricultural extension and advisory services and the various sources from which farmers access these services in the context of extension system reforms.

2003 survey (NSSO, 2005). A survey of 810 households each in Uttar Pradesh, Madhya Pradesh and Andhra Pradesh revealed a different extent of extension-use in these states in 2009; it was 18 per cent in Uttar Pradesh (Reardon et al., 2011a), 80 per cent in Madhya Pradesh (Reardon et al., 2011b) and 95 per cent in Andhra Pradesh (Chandrasekhar et al., 2011). While the recent small-scale surveys have shown that extension access might have improved since the time of the NSSO 2003, a nation-wide survey is needed to show the difference in extension-use since the implementation of major reforms in public sector agricultural extension through programs like the Support to State Extension Programs for Extension Reform (SSEPER) and the Agricultural Technology Management Agency (ATMA). Progressive farmers and family members, as well as mass media and the private sector constitute a large past of farmers sources of information. Another issue is that the quality and reliability of public extension system is still a constraint (Babu et al., 2012). On sources of extension services, the NSSO survey results have shown that nearly one-third of the farmers who had accessed information, obtained it from progressive farmers and input dealers. Broadcast media, including radio, television and newspapers, was also largely used to obtain information (by about 29.3% farmers). The public sector extension system was a source of information for about 10 per cent of the farmers. The private and NGO extension services were accessed by only 0.6 per cent of the farmers. Farmers tried and adopted the information that they received from progressive farmers and input dealers more than from other sources. The service delivery by public-sector extension workers was lowest for small farmers (4.8% versus 12.4% for large farmers), which suggests that the system may be biased against small farmers (Adhiguru et al., 2009). In a recent survey of farmers in Tamil Nadu in 2010, the input dealer was reported to be the main source of information (68.6%), followed by the state department of agriculture extension staff (51.2%), TV (43.6%), family members or relatives (39.9%), progressive farmers (36.2%), Primary Agricultural Cooperative Banks (35.7%) and newspapers (30.6%). Farm magazines were accessed by 9.2 per cent of the farmers. Only a small percentage of farmers used radio (5.4%) and farmer group associations (4.7%) to access

Farmers Access and Sources of Extension Services

The only nation-wide survey of farmers access to extension is the 2003 National Sample Survey Organization (NSSO) 59th round, 33rd schedule on Situation Assessment Survey of Farmers. Sixty per cent of the farmer-households in India did not access any information on modern technologies that year. That such a large proportion of the farming population does not use any extension service indicates the poor organizational performance of the public extension in 2003. It was aptly identified in the 10th and 11th fiveyear plans, which recognized that the public extension system needed revamping and revitalizing. While a more recent nation-wide survey is not available, a number of IFPRI studies have shown a picture different from the NSSO 2003 survey. In Tamil Nadu, a 576 farmer-households survey in two districts has shown that only 1 per cent of the respondents had not accessed any information to support their farm enterprise in 2010. By comparison in 2003, the NSSO survey data show that 50 per cent of the farmers in Tamil Nadu did not access extension for information. From a survey of farmer-households, Birner and Anderson (2007) have reported that of the 966 farmerhouseholds surveyed, 22 per cent had at least one contact with a government extension worker during the past one year, which was greater than the average of 11.5 per cent reported for Karnataka in the NSSO

Babu et al. : The State of Agricultural Extension Reforms in India


information (Babu et al., 2012). The main reasons for the choice of information source were proximity (33.7%), assured quality (21.1%), sole option (20.6%), and timely availability (13.7%). In Uttar Pradesh, Reardon et al. (2011a) have reported that 7 per cent of the sample farmers availed the services of state extension staff, while other publicsector extension sources (KVKs, All-India Radio, university extension, and plant protection units) were collectively a source of information for 18 per cent of the farmers. Madhya Pradesh has presented a more positive picture of public sector extension-use, with 37 per cent of the farmers accessing state extension staff (Reardon et al., 2011b). Other major sources of extension services for farmers in Madhya Pradesh were All-India Radio and TV (21%), and KVKs (12%). The private-sector sources accounted for 25 per cent. The studies reported above suggest that the organizational performance of extension system could be influenced by local conditions. Therefore, reforms in the extension system would need to allow flexibility in the service delivery to adapt to different situations. Consideration of state variabilities is important in developing extension strategies, particularly at the national level where much of the public sector extension policy is formulated. A greater flexibility at the state level to implement effective extension programs is needed. The provision and delivery of agricultural extension and advisory services to small and marginal farmers remain the important elements of extension reforms in the developing countries. The challenge for smallholder farmers in India is typical (Birner and Andersen, 2007; Chandrasekhar Rao et al., 2011; Reardon et al., 2011a; 2011b). These farmers tend to have minimum access to information. Reaching farmers who search for information the least, would, therefore, require different content, approach and delivery mechanisms, as they have different information needs and rely mostly on interpersonal sources. Targeting smallholder farmers, who have low agricultural income, is important as they search less for information. These farmers mostly lack motivation and interest in agriculture, so improving the timely delivery and reliability of information will be important to encourage them to improve their information search strategies. The studies have revealed that membership of farmer based organizations (FBO) is associated with

high information search behaviours. Being a significant factor in determining information search behaviours, membership in a FBO, self-help group (SHG) or cooperative could be an approach extension services could target to improve access to extension of low and moderate information searchers. A group-based approach could also improve the delivery of demanddriven extension services. This is the main aim of district level public extension institution, the ATMA, though several implementation issues are hindering its effectiveness. Further, the public sector is only one of the many sources farmers use to access extension and advisory services. Pluralistic Extension and Advisory Services and their Performance The public sector agricultural extension system in India has gone through a number of changes since independence (Glendenning et al., 2010; Raabe, 2008; Sulaiman and Holt, 2002). Still, several organizational performance issues hinder the effectiveness and efficiency of public agricultural extension system. These include inadequate staff numbers, low partnerships, and continued top-down linear focus to extension. Innovations from the private sector and civil society organizations show that providing an integrated service to farmers, which incorporates local needs, could be more relevant. But, it is clear that the private and civil society sectors will not fulfil the entire role of extension and advisory service in India. The private sector should work in areas where business is sustainable and should interact with farmers on an individual basis. The civil society tends to be projectbased and is not widespread. On examining where the capacity lies in each sector, partnerships emerge as an important need; non-governmental organizations (NGOs) and civil society organizations (CSOs) have the capacity to build social capital, but they tend to work on a small scale; the technical expertise lies in the national agricultural research system (ICAR and state agricultural universities), but it is also not able to reach a reasonable scale with limited staff in each district; the private sector can improve market linkages; and the state department of agriculture has the reach across each district of India, but staff are overburdened with other duties. During the past ten years, the central government has recognised the need to converge and integrate


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extension activities at the district level and has implemented a major reform in extension. It aims to achieve this through the institution of Agriculture Technology Management Agency (ATMA). While this is viewed as a huge innovation in agricultural extension system r, it is also not without implementation and organizational challenges.

Organizational Performance Assessment of Agricultural Technology Management Agency

The Agricultural Technology Management Agency (ATMA) is the flagship program for agricultural extension reforms in India. It was implemented as a pilot in 28 districts from 1998 to 2004 as part of the World Bank-funded Innovations in Technology Dissemination (ITD) component of the National Agriculture Technology Project (NATP) (Reddy and Swanson, 2006; Singh and Swanson, 2006; Swanson, 2008). The constraints of the Training and Visit (T&V) and post-T&V extension were considered to be addressed in the ATMA pilot. Over the past one decade, the implementation of extension reforms in the form of ATMA has gone through three phases; the NATP pilot 1998-2004 ATMA (phase I), the 2005-2010 Government of India (GoI) ATMA (phase II), and the post-2010 GoI ATMA (phase III). On the basis of the ATMA pilot, in 2005-06 the Government of India initiated the Support to State Extension Programs for Extension Reforms (SSEPER) project, which was operationalized through ATMA, across 262 districts in all states about one-third of all districts in India. In 2007, the XIth Five-Year Plan expanded ATMA to all the districts of India, but it was not supported with the provision of additional funding and staff. The XIth Five-Year Plan working group on agricultural extension (WGAE, 2007) identified the organizational performance challenges of the program, including (i) lack of qualified personnel at all levels, (ii) absence of a formal mechanism to support extension delivery below the block level, (iii) inadequate infrastructure support at the state agricultural management and extension training institutes (SAMETIs), and (iv) lack of convergence with other central and state projects. It was not until 2010 that the plan for increased funding to ATMA was approved, resulting in revised guidelines for the ATMA (DAC, 2010).

ATMA is a registered society at the district level. The district extension activities are based on a strategic research and extension plan (SREP) prepared using the participatory rural appraisal (PRA) technique for each district. The ATMA governing board (AGB), chaired by the district magistrate, reviews and approves the SREP for the district and also the annual block action plans (BAP). Other members of the board include the heads of line departments and research organizations as well as stakeholder representatives, including farmers and private sector representatives. The ATMA project director chairs the ATMA management committee (AMC). The AMC is responsible for coordinating the extension activities in the district. The AMC includes the heads of all line departments and research organizations in the district. At the block level, the farm information and advisory centre (FIAC) is the physical platform where the block technology team (BTT) and farmer advisory committee (FAC) meet to prepare the block action plan (BAP) and implement extension activities. The BTT includes technical officers from various line departments at the block level and consults with the FAC, which includes the heads or representatives of farmer interest groups (FIGs) and self-help groups (SHGs). When FAC approves the BAP, it is reviewed by the AMC and approved for funding by the AGB. The FAC meets monthly to discuss the implementation of the annual BAP. The decision-making process is decentralized to the block level, with active participation of farmer representatives in the development and approval of the BAP. At the state-level, an interdepartmental working group (IDWG) formulates a state extension work plan (SEWP) to consolidate the district SREPs. The SREP and SEWP are the instruments that promote convergence of extension activities between line departments and research institutions at the district and state levels, respectively. In each state, a state agricultural management and extension training institute (SAMETI) has been established. This institute provides training and undertakes human resource development on the concepts and processes of ATMA to the junior and middle-level extension functionaries. The current performance of ATMA at all of these levels varies from state to state.

Babu et al. : The State of Agricultural Extension Reforms in India


In 2010, the Department for Agriculture and Cooperation (DAC) released new guidelines for ATMA (phase III), which included a revised structure. The block to village extension link was formally institutionalized through the concept of a farmer friend (FF) for every two villages. A farmer friend is a progressive farmer who has the minimum qualification of a pass in matriculation or intermediate examination and is directly engaged by the block technology manager. Some additional personnel exclusive to the ATMA project have been assigned; these include a state coordinator; faculty and supporting staff for the SAMETI at the state level; a project director, project deputy directors, and supporting staff at the district level (five employees per district); one block technology manager and two subject matter specialists (SMSs) at the block level. Additional activities have been added to the ATMA cafeteria (the list of extension-related activities to choose from for funding), including farm schools. Farmer advisory committees (FACs) at the state, district, and block levels now provide advice to the administrative bodies at each level, which were previously defined only at the district level (DAC, 2010). The block-level structure remains similar to the previous structure but with higher emphasis on incorporating the ICAR institutes, such as the Krishi Vigyan Kendras (Farm Science Centres) (KVKs) and Zonal Research Stations (ZRS). It is expected that the KVK scientists will provide technical advice to the BTT and will be involved in preparation of the BAPs. The SREP also aims to involve the Panchayati Raj institutions, the lowest tier of local government. At the village level, the Agriclinics and Agribusiness projects will be incorporated into the ATMA structure. To examine the organizational performance of the ATMA, this paper has considered the following factors, in addition to the main processes that ATMA is trying to reform in the extension system, namely: Decentralization Are the activities of ATMA determined from the decisions made at district or block level? What aspects of organizational performance are hindering decentralization of decision-making at the district and block levels? Linkages in ATMA Is ATMA integrating the extension-related activities of ICAR institutes, including KVKs, state line departments, NGOs

and the private sector at the district and block levels, which have been traditionally working in parallel? What aspects are hindering this integration? Farmer Participation Are farmers effectively participating in decision-making at the block and district levels? What mechanisms are used in ATMA to understand the needs/demands of farmers (to make it demand-driven)? What aspects are hindering farmer participation? What model of farmer participation is envisaged?

Answers to these questions can help in further refining the design and implementation of ATMA to reach its goals. To understand how ATMA has been implemented and how new guidelines may address the challenges being faced, seven districts in four states Bihar, Himachal Pradesh, Maharashtra, and Tamil Nadu were selected as case studies in 2011-12. In each case study, district interviews were conducted with key informants involved in ATMA at the district and block levels. This assessment provided a first look at how different states were implementing ATMA, and the main challenges and constraints in linking different agencies involved in extension in India, particularly between the state department of agriculture and the KVKs, and also empowering farmers to participate and contribute to block and district level extension plans and programs. The results from the case studies have highlighted several changes brought out by ATMA, although the degree to which they were achieved in different states varied. These included: There has been increased recognition of the importance of extension services by the policymakers at centre and state levels as evidenced through more funding and human resources for extension systems. ATMA has expanded the range of extension activities (field technology demonstrations, farmer trainings, study tours, farm schools, exhibitions, and farmer-scientist interaction) at the district and block levels. It has improved the extension systems ability to respond quickly to the demands of different stakeholders and thereby has enhanced the credibility of extension services. It has also widened the range of topics dealt with by extension system beyond agriculture.


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Fund Flow

Work Plan


Fund Flow

(b) Figure 1. (a) ATMA in phase I; and (b) ATMA in phase II Source: DAC (2005; 2010)

ATMA has helped to achieve some convergence among different programmes being implemented by the Department of Agriculture (DOA). The ATMA funds are used for trainings and technology demonstrations to support beneficiaries of several national schemes, such as the National Food Security Mission, National Horticulture Mission, etc., which have funds only for distribution of subsidized equipments and inputs. ATMA has helped to improve working relationships of the DOA with other line departments (animal husbandry, horticulture, fisheries, sericulture, forestry, and agricultural engineering), KVKs, research centres of SAUs and ICAR, NGOs, and private entrepreneurs involved in agricultural development. It is partly through regular meetings at the district and block levels and partly through additional funding from ATMA that help some of these departments to implement their extension activities. ATMA has brought in new concepts, tools, and approaches to extension planning such as bottomup planning, farmer involvement in decisionmaking, participatory rural appraisal, publicprivate partnerships, commodity interest groups, and beneficiary contributions.

By implementing a series of activities including regular staff training through establishment of SAMETI at the state level, development of the Strategic Research and Extension Plans (SREPS), formation of Commodity Interest Groups (CIGs), and collection of beneficiary contributions, ATMA has been recognized as a reformed system of extension at the block and district levels. However, it is yet to establish itself as an autonomous institution since it is still implemented as a scheme of the central government and continues to be attached to the DOA at the state and district levels. ATMA has created a constituency for its support at the ground level through the mechanism of farmer advisory committee (FAC) and commodity interest groups (CIGs) at the local level and to some extent has expanded public sector extensions reach to the rural communities. In some states, some of the CIGs are becoming farmer federations for value addition and marketing. The registration with ATMA helps the CIGs to better access finance from the commercial banks to set up processing facilities. ATMA is also facilitating the CIGs links with other knowledge and service sources such as marketing agents and equipment manufacturers.

Work Plan

Babu et al. : The State of Agricultural Extension Reforms in India


However, the effectiveness of these initiatives varies widely from state to state, from district to district, and from block to block, as ATMAs effectiveness is closely dependent on the interest and time devoted to it by the officials of DOA and other government departments, BTT members, BTM and FAC members as well as their perception of ATMA. Some of the findings on the factors associated with the performance of ATMA are discussed below. At the district level, the ATMA is recognized as a new demand-driven and multi-agency approach to extension; but at the block levels and with farmers, this role was not well articulated. The performance of ATMA depends crucially on the availability of dedicated staff at all levels. Filling staff positions and providing adequate incentives to retaining them by timely renewal of contracts and creating an enabling environment for them to unleash their full potential are also critical. KVKs have begun to work closely with the ATMA at the district level, but this depends on personal interest. Linkages between the ATMA and KVK could still be greatly improved. Funding support from ATMA to KVKs for adaptive research trials helps in this research-extension linkage. However, there has not been much enthusiasm from the ICAR or SAU scientists to pro-actively undertake research on issues identified in the SREP. The district officials of various line departments, the KVKs and farmer representatives participate at the district level management meetings. While the research-extension linkage is ensured at the district level, it is not so at the block level. Funding for the ATMA has been increasing in recent years. Apart from the actual quantum of resources available, the actual time when the funds are available also affects the performance of ATMA. Delays in release of funds from the centre to the states affect the implementation of SREPs and SEWPs. This is a major policy issue and addressing this can help improve the performance of ATMA. A large number of schemes, involving subsidised inputs, are implemented at the district level. These include National Horticultural Mission (NHM),

National Food Security Mission (NFSM), watershed development through rural infrastructure development fund (RIDF)NABARD, initiative for nutritional security through intensive millets promotion (INSIMP), and centrally sponsored scheme on micro irrigation (sprinkler and drip). These schemes provide opportunity for using ATMA for achieving specific goals. In Maharashtra for example, the ATMA funds were used to provide extension support to the scheme beneficiaries. This is a positive sign of harmonization at the district level. However, most of the centrally sponsored schemes have provision for distribution of inputs, but very little resources for knowledge support. This is an area where further convergence of extension goals could be achieved. At the block level, the FAC provides a forum for obtaining farmers input in planning and implementation of ATMA activities. But, farmers decisions do not strongly influence extension activities, with the majority of extension activities being decided at the district level. Farmers empowerment to influence decision-making at the block level needs more research. Also, the FAC members tend to be the DOA contact farmers, so increased reach for more farmers needs special consideration. Besides, taking farmer participation one step further to village level through the concept of the farmer friend has not gained a firm footing. The capacity building of farmer representatives of the CIGs and farmer friends could yield better results at the village level and block and district level participation in ATMA meetings. The formation of farmer interest groups (FIGs) depicted some progress. However, maintaining and nurturing them to function as effective organizations will require further investments in their capacity building. As the farmer interest groups mature, they need extension support on several aspects (training, demonstrations, market linkages, etc.). These groups also need handholding support especially during the first few years. This is presently a major lacuna. Despite prescriptive program guidelines from the centre, there are strong state level differences in the implementation of ATMA. State flexibility to


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implement an appropriate reform model of extension is an important need. For example, in some areas farmer groups may be more effective than farmer friend. Research System Reforms and their Linkage to Extension Reforms The success of extension system reforms crucially depends on how the research system responds to meet the needs of extension reforms. The most important reform measure from ICAR that relates to the implementation of the extension reform was the issue of a set of directives jointly with the Department of Agriculture and Cooperation (DAC-DARE, 2011; ICAR, 2011). The directives emphasize the need for research entities from ICAR (KVKs and research institutes) and for the SAUs to contribute to the research priorities set by the SREPs and SEWPs as identified by the AMCs and ATMA Governing Boards AGBs at the district level and approved by the IDWG at the state level. While KVKs linkages with the SREPs are ensured with the ATMA funding at the district level for adaptive research trials, such linkages were not clear from the ICAR and SAU research institutes/centres. At the ICAR level, the zonal directors (extension) may use the inputs from SREPs to develop regional or sub-regional research agenda and foster linkages between PME (priority setting, monitoring and evaluation) units in research system and extension machinery (KVKs and ATMAs). There is a need for monitoring the priority setting process of research institutions in order to ensure that the research needs identified by SREPs and SEWPs are seriously addressed by the research programs implemented by the ICAR and SAUs. This may be ensured through the participation of SAUs and ICAR institutions operating in the state in the interdepartmental working groups (IDWGs). The increased transparency of discussions and public sharing of the outcomes of IDWG meetings will help in holding the SAUs and ICAR institutions more accountable.

states. These have been grouped under the following broad categories: organizational and structural refinements, human resource development, communications, and monitoring and evaluation. Organizational and Structural Refinements Moving from Decentralization to Devolution The decentralization of extension services has been successful to a large extent. Yet, there is a need to move this to further devolution by involving Panchayati Raj institutions to have a monitoring role in the delivery of extension services and holding extension functionaries accountable to the farmers. However, little is known about the ability of the Panchayati Raj institutions to play this role; pilot testing of the reporting mechanisms involving Panchayati Raj institutions will be needed. Further, the implications of such arrangements for elite capture should be understood before such a mechanism can be scaled out. Improving Convergence through Harmonization The ATMA has made some progress in the convergence of extension services at the district level. Further convergence of the extension services at all levels requires careful harmonization of work plans of the Rashtriya Krishi Vikas Yojana (RKVY), national missions, and other schemes that will require support of the extension services to succeed. Allocation of resources for extension services should be made under these national schemes to support the ATMA activities. This will not only increase the operational resources for effectively targeting the ATMA activities but also will help national schemes to meet their objectives and make ATMA sustainable in the long-run. Allowing Implementation Flexibility and Innovation to Reach the Unreached Further innovations are needed in extension services for reaching the unreached. The formation of farmer groups and introduction of the concept of farmer friend is a good start. However, these mechanisms as implemented currently, do not guarantee total inclusion of smallholder, marginal, resource-poor, and women farmers. Allowing new models that are context-, commodity-, agro-ecology-, and

Policy Implications and Strategic Priorities for Extension System Reforms

Several policy and strategic priorities emerge from the review of the extension and associated research reforms and the case studies conducted in the four

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market-specific to emerge based on the local needs that engage different groups of farmers, should be encouraged. Flexibility in experimentation and implementation of the reform packages is needed not only at block and district levels, but also at the state level. Increasing Integration by Choosing Appropriate Lead Departments Integration of line departments continues to face challenges at the district and block levels. The choice of the lead department, at least at the district level, should be based on the agro-ecology of the district and contribution of various commodities to the district economy. The choice of DOA as the lead department for ATMA may not be appropriate in a district where, for example, horticulture or animal husbandry dominates in its contribution to rural livelihoods, especially in states where these are not under the direct control of DOA. This aspect requires serious policy consideration. Increasing Accountability for Better ResearchExtension Linkages Improving research extension linkages will require transparency and accountability that goes beyond written documents. For example, research priorities identified by the ATMA in consultation with farmers and approved by IDWG at the state level, need to be reflected in the research priorities of the SAUs and the ICAR research institutions. Such priorities need follow up and the solutions from research must reach the farmers. This flow of problems and solutions needs effective monitoring by the FACs at all levels. Transparency and sharing of such information by making them public through the ATMA websites is the first step towards accountability.

further strengthening at the block, district, and state levels. There is also the need to develop the capacity of farmers involved in the ATMA committees to make them effective members. A revised human resource capacity development and management strategy is also needed. Public-Private Partnerships Going beyond Technology Transfer Going beyond the current linear technology transfer mode of extension requires a pragmatic and programmatic approach to the delivery of extension services. For example, development of the value chains will require technical expertise that goes beyond the capacity of the current extension functionaries. While they need to be trained for such innovations, hiring experts at the district and block levels to provide such services will help in the involvement of the private and NGO sectors in extension advice and delivery to support the farmers. A strategic approach to effective involvement of private and NGO sectors expertise is needed. Involving Private Sector through Better Partnerships The public-private partnerships need further nurturing in agricultural extension services. The role of private dealers of inputs and the operators of agriclinics in advising farmers could be made more effective by improving their capacity at the district levels. Specific courses before beginning of each crop season may be needed to equip them to meet the farmers needs. The SREPs and SWEPs should reflect these needs and the DAPs and BAPs should budget for such training activities.

Communications Developing a Communications Strategy for Extension Reforms Increasing the use of ICT in reaching the farmers through use of mobile phones, better internet connections and context and locality-specific portals could be useful tool to support extension. The SAUs should play an important role in converting their research results into readily available information for farmers. The use of community radio and television stations to develop locality-specific agriculture-related programmes could be effective in providing

Human Resource Development Developing a Human Resource Development Strategy Investing in personnel building capacity is seriously needed at all levels to make the extension reforms effective at different levels. It is not enough to train the extension functionaries in the new extension process. They need additional skills to be able to generate innovation in the system and address the newly emerging problems with area and context specific solutions. The institutional and organizational capacities need


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knowledge and information to smallholder farmers. However, specific strategies for effective use of modern communications methods to support knowledge intermediaries are needed. Financial Sustainability Developing and Communicating a Long-term Financing Strategy Reducing uncertainty in the funding levels and making the states understand the expectation of the central government will be important for ensuring better ownership of the extension reforms by the state governments, which presently see ATMA as a centrally sponsored scheme rather than an autonomous institution. Allowing them to experiment and use resources innovatively will help in increased ownership of the extension reforms. The scheme perception of extension reforms need to be removed and efforts to mainstream them with the state extension system will ensure the sustainability of extension reform measures. A long-term strategy for guiding the financing of the reforms is needed.

constraints that hinder effectiveness of the reforms is the immediate concern.

This paper has presented the current status of the agricultural extension and associated research system reforms in India. The reform measures need to be fully understood for their organizational, structural and implementation challenges before they could the assessed for achieving their impact on farm productivity and other welfare measures. Using the case study of four Indian states, several organizational performance challenges related to the extension reforms have been identified. Compering the lessons emerging from these four case studies, has presented several policy and program suggestions for improving the functioning and sustainability of extension reforms. While the broad objectives of decentralization and farmers participation have been achieved, the reforms fall short in terms of increased accountability to farmers and being fully demand-driven. Inclusiveness of smallholder and marginal farmers has been achieved only partially. The group approach to extension remains weak and needs strengthening at the block and village levels. While the reform measures provide opportunities to the states in terms of flexibility, adaptability, and learning and thereby leading to the sustainability of reformed system, huge gaps in organizational and human capacity suggest the need for long-term capacity development strategy. The monitoring and evaluation system needs to go beyond process monitoring to the provision of inputs for learning and change. Incentives for motivating and retention of human resources need further attention to strengthen the current fragility of the system. Effective synergies need to be established with the ongoing agricultural interventions in the form of national missions for both sustainability and leveraging the limited resources available for extension. This will improve both allocative and operational efficiency of the extension system and the Department of Agriculture at the state level. Increasing the effectiveness of the extension system in meeting its objectives will require readdressing of the above policy and programmatic interventions. Finally, the financial dependence of the states on central government needs to be gradually reduced to enable the states, and ultimately the farmers, to take ownership of their reformed extension systems.

Monitoring and Evaluation Moving from Activity Monitoring to Evaluating Outcomes for Learning and Change Monitoring and evaluation of the extension reforms should go beyond activity monitoring to output, outcome and impact. Rewarding the states with total ownership and making them innovative will require an effective monitoring system. Independent evaluation of the state level ATMA should be based on choosing the evaluators through an open bidding system and the evaluating entity must be directly accountable and paid by the central government. A revised monitoring and evaluation strategy is needed for an effective learning and change process.

Finally, there is the need to understand the political economy of extension and research reforms as they involve several stakeholder groups. The centre-state relations in resource-sharing, priority-setting, and reporting-mechanisms need better transparency. The role of DOA in making effective use of central governments support through ATMA needs to be studied further. While there has been some success in pushing forward the reform measures, removing

Babu et al. : The State of Agricultural Extension Reforms in India


Adhiguru, P., Birthal, P.S. and Ganesh Kumar, B. (2009) Strengthening pluralistic agricultural information delivery systems in India, Agricultural Economics Research Review, 22: 71-79. Aker, J.C. (2011) Dial A for agriculture: A review of information and communication technologies for agricultural extension in developing countries, Agricultural Economics, 42: 6. Ameur, C. (1994) Agricultural Extension: A Step beyond the Next Step, World Bank Technical Paper 247, The World Bank, Washington DC. Anderson, J.R. and Feder, G. (2004) Agricultural extension: Good intentions and hard realities, The World Bank Research Observer, 19(1): 41-60. Anderson, J.R., Feder, G. and Ganguly, S. (2006) The Rise and Fall of Training and Visit Extension: An Asian Minidrama with an African Epilogue, The World Bank, Washington DC. Anderson, J.R. (2007) Background Paper for the World Development Report 2008: Agricultural Advisory Services, Agriculture and Rural Development Department, The World Bank, Washington DC. Babu, S.C., Glendenning, C.J., Asenso-Okyere, K. and Govindarajan, S.K. (2012) Farmers Information Needs and Search Behaviours A Case Study in Tamil Nadu, India, IFPRI Discussion Paper 01165, International Food Policy Research Institute, Washington, DC, USA. Binswanger-Mkhizi, H. and Zhong, Y. (2012) The Roundtable Consultation on Agricultural Extension for Strengthening Sustainable Agriculture and Farmers Participation in Value Chains in Asia, Proceedings of a meeting held during 15-16 March, 2012, Beijing. The Syngenta Foundation, Basel, Switzerland. Birner, R. and Anderson, J.R. (2007) How to Make Agricultural Extension Demand-driven? The Case of Indias Agricultural Policy, IFPRI Discussion Paper 00729, International Food Policy Research Institute, Washington DC. Chandrasekhar Rao, N., Srinivasan, J., Das Gupta, S., Reardon, T., Minten, B. and Mehta, M. (2011) Agriservices in Andhra Pradesh for Inclusive Rural Growth: Baseline Survey Findings and Policy Implications. Submitted to USAID/New Delhi. International Food Policy Research Institute, New Delhi. DAC (Department of Agriculture and Cooperation) (2005) 10th Plan Scheme - Support to State Extension Programmes for Extension Reforms, Department of

Agriculture and Cooperation, Ministry of Agriculture, Government of India, New Delhi. <http:// w w w. a g r i c o o p . n i c . i n / P o l i c y I n c e n t i v e s / XPlanScheme.htm>. Accessed July 28, 2010. DAC (Department of Agriculture and Cooperation) (2010) Guidelines for Modified Support to State Extension Programmes for Research and Extension Reforms Scheme, 2010, Department of Agriculture and Cooperation, Ministry of Agriculture, Government of India, June 2010. DAC-DARE (2011) Convergence between Research and Extension, Department of Agriculture and Cooperation and Department of Agricultural Research and Education. Ministry of Agriculture, Government of India, New Delhi. Desai, B., DSouza, E., Mellor, J.W., Sharma, V.P. and Tamboli, P. (2011) Agricultural policy strategy, instruments and implementation: A review and the road ahead. Economic and Political Weekly, XLVI.53: 4250. Feder, G., Lau, L.J. and Slade, R. (1987) Does agricultural extension pay? The training and visit system in northwest India, American Journal of Agricultural Economics, 69(3): 688-686. Glendenning, C.J., Babu, S.C. and Asenso-Okyere, K. (2010) Review of the Agricultural Extension in India, IFPRI Discussion Paper 01048, International Food Policy Research Institute, Washington DC. ICAR (Indian Council for Agricultural Research) (2011) Vision 2030, New Delhi. IIM (Indian Institute of Management) (2004) Impact Assessment Report on the Innovations in Technology Dissemination (ITD) Component of the National Agricultural Technology Project, Indian Institute of Management, Lucknow. Joshi, P.K., Pal, S., Birthal, P.S. and Bantilan, M.C.S. (2005) Impact of Agricultural Research: Post Green Revolution Evidence from India, NCAP/ICRISAT, New Delhi. NAAS (National Academy of Agricultural Sciences) (2005) Redefining Agricultural Education and Extension System in Changed Scenario. Policy Paper 31, National Academy of Agricultural Sciences, New Delhi. NCF (National Commission on Farmers) (2006) Serving Farmers and Saving Farmers. Jai Kisan: Revised Draft National Policy for Farmers, Fifth and final report, October 2006, Ministry of Agriculture, Government of India, New Delhi.


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NSSO (National Sample Survey Organization) (2005) Situation Assessment Survey of Farmers Access to Modern Technology for Farming, 59th Round (JanuaryDecember 2003), Ministry of Statistics and Programme Implementation, Government of India, New Delhi. Pal, S. (2008) Agricultural R&D policy and institutional reforms: Learning form the experiences of India and China, Economic and Political Weekly, pp. 145-155. Raabe, K. (2008) Reforming the Agricultural Extension System in India. What do We Know about What Works Where and Why?, IFPRI Discussion Paper 00775, Washington DC. Reardon, T., Minten, B., Mehta, M., Das Gupta, S., Rajendran, S., Sarawygi, A. and Beohar, B. (2011a) Synthesis Agri-services in Madhya Pradesh for Inclusive Rural Growth: Baseline Survey Findings and Implications, Submitted April 2011 to USAID/New Delhi; IFPRI, New Delhi. Reardon, T., Minten, B., Mehta, M., Das Gupta, S. and Singh, S. (2011b) Synthesis Agri-services in Uttar Pradesh for Inclusive Rural Growth: Baseline Survey Findings and Implications, Submitted May 2011 to USAID/New Delhi; IFPRI, New Delhi. Reddy, M.N. and Swanson, B. (2006) Strategy for up-scaling the ATMA model in India, In: Proceedings of the Association for International Agricultural and Extension Education, Ed: J.R. Vreyens. AIAEE 22nd Annual Conference, Clearwater Beach, Florida, USA. Singh, K.M. and Swanson, B. (2006) Developing Marketdriven Extension System in India, Paper presented at

the 22 nd annual meeting of the Association for International Agricultural and Extension Education, May 14, Clearwater Beach, Florida, USA. Sontakki, B.S., Samanta, R.K. and Joshi, P.K. (2010) Redesigning Agricultural Extension in India: Challenges and Opportunities, Summary proceedings and recommendations of NAARM-IFPRI workshop held during 20-21 August 2010. National Academy of Agricultural Research Management, Hyderabad, Andhra Pradesh. Sulaiman, R. and Holt, G. (2002) Extension, Poverty and Vulnerability in India, Country Study for the Neuchatel Initiative, Overseas Development Institute, London. Swanson, B.E. (2008) Global Review of Good Agricultural Extension and Advisory Service Practices, United Nations Food and Agriculture Organization, Rome. Swanson, B. and Rajalahti, R. (2010) Strengthening Agricultural Extension and Advisory Systems: Procedures for Assessing, Transforming, and Evaluating Extension Systems, Agricultural and Rural Development, Discussion Paper 45, The World Bank, Washington DC. WGAE (Working Group on Agricultural Extension) (2007) Recommendations of Working Group on Agricultural Extension for Formulation of Eleventh Five-Year Plan (200712), Planning Commission, Government of India, New Delhi World Bank (2012) Agricultural Innovations Systems An Investment Source Book, The World Bank, Washington D.C. 658 p.

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Integrated Approach to Human Resource Forecasting: An Exercise in Agricultural Sector

Rashmi Agrawala*, S.K. Nandab, D. Rama Raoc and B.V.L.N. Raoa

Institute of Applied Manpower Research (IAMR), New Delhi-110 040 National Academy of Agricultural Research Management (NAARM), Hyderabad-500 030, Andhra Pradesh c National Agriculture Innovative Project (NAIP), New Delhi-110 012

This paper has described methodological framework for human resource forecasting in agriculture, especially for transforming human resource needs to educational requirements. It has provided a detailed description of methodological adaptations applied to human resource assessment in Indian agriculture. It has offered a mixed method with a brief revisit to classical Parnes manpower requirements approach and its adaptation to Indian agriculture. The method is perhaps suitable to many developing countries, where data needed for applications of more sophisticated forecasting methods adopted in the developed countries have limitations in terms of quality and quantity. Key words: Manpower forecasting, human capital assessment, human resource planning, mixed method forecasting; manpower supply & demand JEL Classification: Q11

Human resource forecasting is a critical element in the process of human resource planning, both at the micro (enterprise, etc.) and macro (regional, national, industrial, etc.) levels. The forecasts of human resource demand and supply not only provide insight into the right quantity and quality of the human resources required to maintain the desired growth of a sector but also help in planning educational curricula commensurate with the labour market needs. Manpower planning, at various levels of sophistication, has been integral to the economic development plans in most developed countries for over half a century, while in developing countries, the subject has started gaining interest and attention in the past few decades (Willems, 1996; Ozay Mehmet, 1977; Psacharopoulos, 1984; 1991). In the developing * Author for correspondence
Email: rashmi_agrawal56@rediffmail.com

countries, there is a strong urge to match the skills required with the skills available, and put efforts in human resource development leading to optimum utilization and wastages minimization (World Bank, 2006). The emergence of interest in human resource planning has led to methodological advances as well as debates about the relevance and efficacies of alternative methodologies under various conditions (Willems, 1996). This paper elaborates some of the commonly practised techniques in human resource forecasting and their applicability in various situations, especially under data constraints in developing countries. The paper surveys methods adopted in various countries and provides an overview on the history of manpower planning in India from a methodological perspective. It concludes with a recent exercise in human resource forecasting in the agricultural sector in India as example and recommends a suitable model for human resource forecasting under


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Figure 1. Essentials of human resources demand and supply processes A schematic diagram

Indian conditions, which can be replicated in other developing countries with adaptations.

Conceptual Overview
Human Resources Supply-Demand Process Human resources demand and supply can be viewed in terms of both flows as well as stocks. When considered in terms of flows, these terms imply net additional demand and supply during some period, say a year. In terms of stocks, they imply the total quantum of human resources deployed and the total stock of economically-active human resources available at a particular point of time. A graphical representation incorporating the essentials of human resources demand and supply processes is shown in the Figure 1, which presents the manner in which analysis of supply and demand data would lead to educational strategy. Forecasting Approaches in Practice Over the past half century, a variety of techniques for human resources forecasting have been employed in different countries and under different situations of data availability. Some of the widely used approaches are:

Employers Survey It is a straight-forward method of ascertaining the anticipated needs of human resources over the forecast period directly from the employing agencies. Norm-based Forecasts This method uses the ratios between human capital and tasks, as a norm for estimating the required human resources. These ratios are based on either the existing situation or the desirable situation (IAMR, 1979; Rowat, 1983; Nichakorn et al., 1998). Time-series and Regression Models Time-series models forecast the human resources requirement on the basis of trend, i.e. the historical pattern of changes (Bartholomew and Forbes, 1979). The regression models establish the relationships between human resources and other associated predictable variables (Lee Hong and Chen, 2001; Susiganeshkumar and Elangovan, 2010). Econometric Model The econometric models postulate the interplay of a number of variables through a set of structural equations that have been developed for forecasting human resources (Psacharopoulos, 1973). Some of the extensively used econometric models are Timbergen-Jos model (Timbergen and Correa, 1962), and BACHUE models1 developed by ILO during the 1970s.

The BACHUE models were developed under ILOs World Employment Programme for the Philippines, Kenya, Brazil and Yugoslavia

Agrawal et al. : Integrated Approach to Human Resource Forecasting


Mathematical Models These models include Markov models, Simulation models, and System Dynamic models. Markov chain models extensively use the concept of transition probability matrix. On this, various tools have been developed over time for forecasting (Trivedi et al., 1987; Raghavendra, 1991; kulj et al., 2008). The simulation and system dynamics (SD) models determine the requirements by imitating the system (Deane and Yett, 1979; Song and Rathwell, 1994; Mondal et al., 1992; Shivanagaraju et al., 1998; Mohapatra et al., 1990). Rate of Returns Approach In this approach, the rates of return to investments in different streams of education are computed by assessing the life-time earnings for different streams. Manpower Requirements Approach (Parnes Model) The model propounded by Parnes (1962) in the context of Mediterranean Regional Project (MRP) during the early-1960s was designed to forecast manpower requirements by occupation and then by educational categories so that the forecasts could be rendered directly relevant to educational planning exercises. Qualitative Forecasts The qualitative methods such as Delphi, Focus Group Discussions, and Nominal Group Technique, etc. are also applied to forecasting through qualitative data (Kerr and Tindale, 2011). Notwithstanding their limitations, these approaches are used independently or in combination to develop occupational forecasts on a fairly regular basis. In India, the exercise of human resource planning started in 1946 with forecasting of the number of medical professionals required in the next 25 years. Since then the forecasting exercise has been extended to cover a wide range of professionals such as engineers, scientists, managers, information technology personnel, etc., and economic sectors like agriculture, health service, manufacturing industries, etc. (ESCAP, 1999; AFF, 2000; TCS, 2000, IAMR, 2001, Rama Rao et al., 2005; NSDC, 2011;). The forecasting approaches followed in some of these exercises have been summarized in Table 1. In most of these studies, the projections were made following norm-based or trend approach. However, with the advent of advanced computing facilities, modelling approaches were adopted.

Methodological Issues and Constraints Severe constraints in applying various sophisticated methods of forecasting in developing countries like India are the data availability and its quality. Either the data are not available at all, or in requisite details or with sufficient frequency that enables establishment of trends. The authenticity of available data is often open to question. Difficulty in reconciliation of data on the same variables from different sources is yet another difficult issue. Over the years, India has evolved an elaborate statistical system in the field of employment and manpower. The decennial population censuses provide the basic benchmark data on available workforce in various economic sectors and its characteristics. The National Sample Survey Offices five-yearly labour force surveys generate substantial data on employment and unemployment using a variety of concepts relevant to a predominantly unorganized labour force. Data from these two sources enable the planners to the project the total labour force reasonably well over the mediumterm (Five-Year Plan periods). However, data on sectoral occupational and educational patterns with the desired degree of disaggregation and precision that enables the assessment of current occupational/ educational profile in various sectors are not available. Some data on educational and occupational profiles of employment in various segments of the organized sector (comprising all public sector establishments and the larger establishments in the private sector) are collected by the Ministry of Labour, Government of India, once in two years. Such data were indeed used to develop manpower forecasting using Parness approach in the late-1960s. However, the system of data collection and analysis has become so cumbersome that the analysis and dissemination of such data have in due course become highly discontinuous, and are not available for about a decade now. There are elaborate data collection systems for several individual sub-sectors such as educational services, health services, small-scale industries, etc., each of which has its own content, but often with inadequate attention to human resource aspects. In view of this, the human resource forecaster is generally left with no alternative but to make with bits and pieces of


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Table 1. Approaches for human capital forecasting in India Year 1946 1947 Sector forecast Medical manpower over a 25-year period (Health Service and Development Bhore Committee-1946) Scientific and technical manpower in public and large private sectors (Scientific Manpower Committee-1947) Method Normative Normative ratios between production target and manpower requirement Survey Direct enquiry for medium-term & analytical approaches for long- term Normative and growth rate Parnes approach Norm based Norm based Co-efficient based model Norm based and growth trend Mixed approach and system dynamics modelling Norm based, macroeconomic modelling Reference Cited from GOI, 1997 Virendra Kumar, 1976

1957 1959

Agricultural personnel requirement (Agricultural Personnel Committee-1957) Technical personnel requirement for third (1961-66) and fourth five-year (1966-71) plans

Cited from Brand, 1960 Cited from Verma, 1985

1966 1967 1999 2000 2000 2001 2004

Manpower demand estimate (Education Commission of GOI, 1964-66) Occupational manpower requirements over the period 1968-69 to 1978-79 Human requirement in tourism sector in India Agricultural manpower requirement in Haryana Manpower needs of the agricultural sector in Tamil Nadu Manpower needs in agriculture and allied sector Trained agricultural manpower requirement in India

Cited from Verma, 1985 DGE&T, 1967 ESCAP,1999 AFF, 2000 TCS, 2000 IAMR, 2001 Rama Rao et al., 2011


Food sector

NSDC, 2010

information available from various sources and/or undertake own survey of the labour market relevant to the industry/ human resource group of interest. Apart from quantitative data, a number of other qualitative factors influence the forecast analysis. These factors relate to the frequently-changing labour market indicators which can be captured only through interaction with various stakeholders. Mixed Methodology The limitations of availability of quality data pose methodological constraints in application of the

majority of forecasting approaches. To overcome various data-related and other constraints, composite or mixed forecasting methods have been used successfully (Milton, 1975). A mixed method approach is being proposed that could depend on a range of data sources of varying details and quality. The steps in developing the forecasts are: i. ii. iii. iv. v. Employment stock in different sectors Projection of future stock Required occupational structure Required educational structure Current stock and flow from actual supply

Agrawal et al. : Integrated Approach to Human Resource Forecasting


vi. Supply demand gap vii. Future strategy on education

Step 1: Stock in Different Sectors

The base years industry-occupation-education profile of employment is to be derived from the labour force surveys or censuses. Different sectors that are important absorbers of manpower of the disciplines under consideration are to be identified first on the basis of experience, judgment and consultation. Select the most recent year for which data are available as base year. The methods for estimation of employment in different sectors depend on the availability of information. Generally, the following methods can be used: (a) In the case of sub-sectors for which data on total employment are available from any authentic source, the estimate for base year can be obtained on the basis of trend analysis. (b) For sub-sectors for which employment data are not available, but data on the number of units are available, the total number of units in the base year is first estimated. Employment per unit can be obtained based on norms available from the secondary sources or from establishment survey. The total employment in the sub-sector can be obtained by scaling. (c) In the absence of the above, it is possible to make quick forecasts based on the normative approach. This approach provides a simple means for international comparisons and is often used to guide the planning requirements.
Step 2: Projection of Future Stock

The projection of future stock can be made for a number of alternative scenarios based on past trends, target growth rates, planned future targets and likely achievements based on judgment and consultation with experts. Alternative forecasts are to be made sub-sectorwise and aggregated by discipline. In all the subsectors, it is desirable to attempt at least three alternative scenarios one considering the current growth of subsectors, and second based on relatively higher or lower growth envisaged by experts or government, and third the average of these two.
Step 3: Required Occupational Structure

Stock in a sector consists of employees from different occupational groups. The growth prospect of each occupational group is often different from the other. Therefore, it is preferable to forecast human capital for each occupational group independently. These could be aggregated to reflect a composite picture. Suppose there are j occupational categories in the sector k and the proportion of occupation j in the employment of sector k is ajk. Then, the total stock in occupation j in sector k (i.e., Sjk) is given by Equation (2): Sjk(t) = ajk (t) * Sk (t) (2) There are various ways of deciding the value of ajk, the future occupational distribution (a) assume no changes in the current occupational distributions, (b) study past trends, where data are available, in the occupational structure and extrapolate, (c) make international comparisons assuming that the occupational structures in the less-developed countries would gradually move towards those in the moredeveloped countries, (d) make inter-firm comparisons assuming that the structures would gradually move towards those in the advanced firms, or (e) use appropriate norms in cases where applicable. On completion of the forecast of total stock in the jth occupation of the kth sector, it is disaggregated at different educational levels on the basis of proportion of employees by education level, i.e. certificate/ diploma/ UG/ PG/ PhD, either obtained from any data source or from establishment survey for the base year. This gives the occupational structure of work force by the level of education. The stock of the ith education level in the jth occupational group in the kth sector of employment is given by Equation (3):

Let the total stock in the kth sector at any time t be S k(t). For the base year,t equals to zero (0). Estimation of the stock in future years can be made considering the growth rate computed from either the trend data, or growth targeted in the plan documents, or rationalizing the expert opinions. Employment in a given sector can be computed from Equation (1): Sk(t) = Sk(t-1) * (1 + Gk) (1) where, Sk(t) is the total stock in the kth sector in the tth year, Sk(t-1) is the stock in the kth sector in the previous year, and Gk is the growth rate of the stock in the kth sector.


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Sijk(t) = eijk(t) * S,jk(t)



(ii) requirement due to attrition, and (iii) adjustment for the fact that in any year, a number of alumni would be pursuing higher education and, therefore, would not be available for labour market.
(a) Estimation of Replacement Needs

where, Sijk(t) is the stock of the i education level in the jth occupation of the kth sector in the tth year, and eijk(t) is the proportion of stock of the ith education level in the jth occupation group of the kth sector in the tth year The disaggregation can be carried out by assuming that the present composition of the workforce would continue in the future also. If there are significant changes in the proportion of graduates from the education system, in such cases, or where necessary, some judgmental adjustments can be made. These steps lead to the estimates of stock by occupational groupwise and education level-wise for the base year and future.
Step 4: Required Educational Structure

The total attrition factor comprises depletion of manpower stocks due to retirements, deaths, migrations and other factors like voluntary withdrawal from labour force. The data on retirement can be taken from the average age of retirement in government and other organizations. Similarly, data on deaths can be derived from the population census. For information on migration and the extent of withdrawal of manpower from labour force due to other factors like disability, shift to other fields of activity, and voluntary abstinence from economic activity may not be easily available in many developing countries. Some estimates of this can be made from employees and employers survey, discussions with manpower departments in a number of organizations or by analogy in the related sectors in the country. The combined effect of all these factors would be normally less than one per cent. In the absence of such information leading to these factors, it can be assumed on an ad hoc basis based on experts views. The overall attrition rate normally ranges from two to three per cent of the manpower stock. This rate can be used in determining the annual flows of manpower required. The annual flow F(t) required in the tth year at an attrition rate of r is given by Equation (7): F(t) = S(t )S(t-1) + r * S(t-1) = S (t) (1-r) * S(t-1) (7) Similarly, the required annual flow for various levels of education is given by Equation (8): Fi(t) = Si(t) (1-r) * Si (t-1) (8) The various levels of education require certain numbers a year after the qualifying level. Considering this time lag, the required annual outturn Oi(t) to meet the annual flow at the level i in the year t would be: Oi(t) = Fi(t) + F(i+1) (t + time lag for i+1 level) (9) The total annual outturn for any educational sector would be the sum of outturns projected for all the levels.

The translation of these occupational forecasts into educational forecasts is a straightforward one. The total stock (Si) of educational level i over all occupational groups in the kth sector would be as under: (4) and the total stock of the ith educational level over all the sectors is: (5) The total stock projected at all the levels of education is given by Equation (6): (6) It is the projection for the total stock requirement in the forecast year.
Step 5: Current Stock and Flow from Actual Supply

The supply of human resources in the target year equals the incremental stock of an educational category, plus the number of fresh entrants into the labour market during the forecast year, less the number due to attrition, i.e. going out of the labour market for reasons such as deaths, retirements, higher educational needs and occupational or spatial migration. The required annual flows of human resource in each year can be derived from the stock estimates taking into account: (i) annual increment, being the excess of stock demand over the previous year;

Agrawal et al. : Integrated Approach to Human Resource Forecasting Step 6: Supply Demand Gap


The data on current level and pattern of employment and the current shortages and surpluses are to be calculated for the base year or for a year reasonably close to it. The difference between the estimated annual flow (Ot) and the actual number passed (Pt) from education system is equal to the demand-supply gap (Dt) in the tth year. The education level-wise gaps are computed using Equation (10): Di(t) = Oi(t) Pi(t)
Step 7: Future Strategy on Education

graduates) and the need of human capital at the subgraduate level (diploma holders), the number likely to be available over the next ten years, and the quantitative and qualitative skill gaps. The manner in which supply and demand are estimated using various forecasting tools are elaborated below. Supply Forecast In India, the decennial population census collects information on the number of graduates and postgraduates by qualifications, sex and age which include the agricultural (including dairy sciences) and veterinary sciences also. The latest available Indian Census Data relate to the year 2001and another major problem about data on technical graduates is the level of underestimation. It would, therefore, be difficult to rely on the census data for assessing the level of supply of agricultural human capital. Moreover, 2001 data cannot provide the current picture. The other possible source is the five-yearly household sample surveys conducted by the National Sample Survey Organization (NSSO, 2011) on the labour force, employment and unemployment. The latest survey in this series relates to the year 2009-10, the base year for the current study. However, NSSO surveys adopt a 12- category classification of the labour force by educational levels, in which there is just one category covering all the technical graduates engineering, medical, agriculture, etc., from which it is not possible to get separate data for the agricultural graduates. In view of the above data problems, it has become necessary to estimate the base year (2010) supply of agricultural human capital in the country indirectly through cumulation of annual institutional outturns. Assuming that the average age at the entry of agricultural graduates into the labour force is 22 years and at exit is 60 years, the working span of agricultural graduates comes out to be 38 years. In the case of postgraduates and doctorates, the entry age may be taken as 24 years and 27 years, respectively, implying a working span of 36 years and 33 years, respectively. Since graduates form about two-thirds of the total outturn, it has been assumed that the average active working span of agricultural scientists is 37 years. The annual attrition due to mortality, migration and nonparticipation in work is taken as three per cent.


The gap estimates give the likely additional outturns required from the educational system in the future years. The corresponding intake levels would then depend on the outturn-intake ratios (Qi) and the proportion of participation in economic activities (Ei) after completing the education. The desired additional intake level Ai for the educational level i can be expressed by Equation (11): Ai(t) = Di(t) / [Qi(t))*Ei(t)] (11) The data on supply, demand and the gap form the basis for developing the future strategy on education. This information has to be analysed keeping in view the qualitative aspects. At times the education system may produce enough graduates, but it may not fulfill the needs of the employment sector in terms of their affordability, skills, etc. Apart from the quantitative data, qualitative information on related employability, availability of graduates and adequacy of the education received are to be collected through employment survey, alumni survey and discussions with various stakeholders. Application of Mixed Method to Indian Agricultural Sector The mixed methodology framework was adopted recently for making forecasts about human resource in the agricultural sector of India in a study undertaken by the National Academy of Agricultural Research Management (NAARM) and the Institute of Applied Manpower Research (IAMR) during 2009-11 (Rama Rao et al., 2011). The two basic issues addressed through this study were forecasting of the number of graduates, postgraduates and doctorates (collectively called


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To assess the base year stock for different categories of agricultural graduates, it is necessary, in this approach, to have data on the annual outturns of alumni classified by disciplines from the year 1974 to cover the span of 37 years by 2010. The data problems surfaced even in this indirect estimation of supply stock as a continuous series of outturn data was not available from one source and a number of sources had to be tapped to build up the time series. The basis for assessing the supply of agricultural human resources is the annual institutional output from the education division of ICAR supplemented with the data available from the National Information System on Agricultural Education Network in India (NISAGENET) maintained by the Indian Agricultural Statistics Research Institute (IASRI, 2010). In the case of agricultural universities and research institutions, the coverage was on a census basis. In the case of colleges, offering agricultural and allied programmes that are affiliated to state agricultural universities (SAUs) or other universities, data on students and faculty were obtained directly from the colleges. Demand Forecast These projections were derived following the mixed methodology described above. Some salient points pertinent to the study carried out in India during 2009-11 are: Sub-sectors crops, horticulture, forestry, dairy, fisheries, veterinary, agri-engineering and agribiotechnology have been identified as important in the agriculture and allied sector. These eight sub-sectors have employees in the functional areas like government services, finance, processing industry, research, education, etc. The data on occupational structure of the employees are not available uniformly in all the occupations. Thus, occupational profiles have not been estimated. In view of this, the total employment has been translated into educational levels directly. The qualitative aspects of human capital needs have been captured through about 50 focus group discussions with various stakeholders and experts covering different regions of the country. These stakeholders included university faculty, research

institutions scientists, industry personnel, industry associations, farmers and farmers associations, non-governmental organizations, etc. An extensive and detailed employment survey covering 3500 agricultural establishments from 103 selected districts was carried out for establishing the base-line data (for the year 2010) on the current level and pattern of employment. Expert opinions on the adequacy of education received in the agricultural universities in securing jobs and in handling the jobs were obtained from 4200 individual agricultural experts working in various establishments. Trends in the utilization pattern of the output of agricultural universities were obtained from tracer studies covering 2105 recently passed out alumni. This survey provided information on employment by type, self-employment by nature, unemployment, migration to higher education or other occupations, staying out of labour force and perceptions about the skill gaps with reference to labour market.

Estimation of Manpower Replacement Needs

The total attrition factor comprises depletion of manpower stocks due to (a) retirements, (b) deaths, (c) migration, and (d) other factors like voluntary withdrawal from labour force, etc. The agricultural manpower attrition rates for the projection period 2010 to 2020 were estimated in the following manner: Retirements The average retirement age was taken as 60 years. On the basis of available information on the supply of graduates, the total attrition due to retirements worked out to be 9,000 during the projection period. The total required stock of agricultural graduates and above in 2010 was about 4,62,000. The annual attrition rate due to retirements would be around 1.95 per cent of the stock. Mortality For estimating attrition due to mortality, it was assumed that the mortality pattern among the urban population in the age group of 20-60 years would be relevant for the agricultural manpower stock. The annual losses due to mortality among urban population in the working age-groups were, thus, about 3.5 per 1000 or 0.35 per cent. Together with retirements, this raises the annual rate of attrition to 2.3 per cent.

Agrawal et al. : Integrated Approach to Human Resource Forecasting


Migration and other Factors No information was available on the migration of agricultural graduates to other countries, though the phenomenon was there. Similarly, no information was available about the extent of withdrawal of agricultural manpower from labour force due to other factors like disability, shift to other fields of activity, and voluntary abstinence from economic activity. The combined effect of all these factors has been assumed to be 0.7 per cent on an ad hoc basis. Overall Rate of Attrition The overall attrition rate, thus, may be placed at about three per cent of the manpower stock in all the disciplines, with the exception of bio-technology. Being of recent origin and having young work force, the attrition rate has been assumed to be only one per cent for mortality and other factors.
Alternative Forecast Scenarios

keeping in view the interactions with experts in the focus group discussions. The Forecast Results The sub-sectors for which total employment data were available are given in Table 2 and the sub-sectors for which employment data were estimated based on the number of units are shown in Table 3. The assessment results of the supply in 2010 and the demand by 2020 for human resources in various subsectors of agriculture are given in Table 4 (For more details see Rama Rao et al., 2011). In 2010, the existing education system produced about 24,000 graduates in the eight disciplines of agriculture with crop sciences contributing two-thirds. The projections indicate that by 2020 the annual outturn required would have to be about 54,000, indicating a demand-supply gap of 30,000.

In all the sectors of agriculture, forecasts have been made based on two scenarios one, considering the current growth of sector and sub-sectors, and the other, a relatively higher growth as envisaged by the Planning Commission, their schemes and flagship programmes, vision of various sectors, etc. After providing the forecasts on the basis of these two scenarios, the study has recommended the average of the two. These growth scenarios and recommendations have been made

Forecasting, in general, is an exercise subject to hazards posed by unforeseen changes in the course of development and emergence of phenomena not visualized at the time of forecasting. It is more so in the case of manpower forecasts where, apart from technological changes, uncertainties emerging from human behaviour are also involved.

Table 2. Sub-sectors for which total employment data are available Sub-sector Banks Processing industries (like dairy, fruit, meat, fish, etc.) and input / output industries like fertilizers, pesticides, agricultural equipment, animal feed, paper, pharmaceuticals, wood processing, etc Government departments dealing with the subsector Indian Council of Agricultural Research (ICAR) institutions Teaching staff Source Banking Statistics of Reserve Bank of India Annual Survey of Industries, Central Statistical Organisation Nature of data Number of officers and others yearwise, latest being 2008-09 Total employment, number of factories, year-wise, latest being 2005-06

Website of the respective departments PERMISNET of ICAR Institutional schedules from agricultural universities

Total employment classified by posts Data obtained from ICAR Data on teachers by qualifications and field 2009-10


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Table 3. Sub-sectors for which employment data were estimated based on number of units Sub-sector Seeds Nurseries Dairy plants Source Seed Producers Association XI Plan Working Group on Horticulture, National Horticultural Mission

Nature of data Number of units of different sizes, 2009-10 Number of nurseries in 2003-04 and year-wise new nurseries for subsequent years Number of plants and processing capacity in cooperative, private and publics sectors No. of units of different sizes in 2009-10 Vessels of different types

Animal Husbandry Statistics, Department of Animal Husbandry, (published in IASRI data books for various years) Coastal Aqua Culture Authority web-site IASRI data book for various years

Aqua-culture units Fishing equipment

Table 4. Sector-wise supply (in 2010) and demand (by 2020) of human resources in agriculture at different educational levels Discipline Undergraduates 2010 2020 supply demand 11852 1001 386 1761 285 255 1218 558 17316 18659 7295 1260 5332 2096 2605 2359 582 40188 Postgraduates 2010 2020 supply demand 3514 409 275 797 109 30 262 156 5553 5422 993 416 1854 418 503 709 323 10638 PhDs Undergraduates & above 2010 2020 2010 2020 supply demand supply demand 583 55 55 125 30 25 27 20 920 1203 330 156 486 100 207 189 134 2805 15949 1465 716 2683 424 310 1507 734 23788 25284 8618 1832 7672 2614 3315 3256 1039 53630

Crop science Horticulture Forestry Veterinary & AH Fisheries Dairy technology Agri-engineering Agri- biotechnology Total

The relevance and validity of manpower forecasts require both access to accurate information and use of appropriate conceptual and analytical techniques. The most common mix encountered in the literature associates the supply-based and the requirement-based parameters, which permits the performance of gap analysis for future years and taking action to make supply match requirements. However, responsive planning for the future workforce remains necessary, as rapid changes are taking place in the supply and the requirement. Maintaining this balance requires continuous monitoring, and careful choices given the realities of the country, and the use of research evidence to ensure that population needs are addressed effectively. The value of projections lies not in their ability to get the numbers exactly right but in their utility in identifying the current and emerging trends

to which policymakers need to respond (Dominique Roberfroid, 2009). The paper has presented yet one more way of projecting demand of human resource using modified Parnes approach. The crux of the Parnes method is the projection of future employment in different sectors of the economy and splitting it first among occupations and then across educational levels, starting with the existing patterns as the base and moving forward on the basis of trends, experts opinions, etc. Projecting total employment sector-wise is less complicated and is routinely done in the Indian development plans, at least for the major economic sectors. It is the other steps of splitting the total employment into occupational and educational forecasts that presents severe data problems. The conventional Parnes approach pre-supposes the availability of elaborate data

Agrawal et al. : Integrated Approach to Human Resource Forecasting


on the current employment in different sectors and its occupational distribution and a matrix of relationships between occupation and education, preferably as a time series. Such data would generally be available in the developed world. But in the developing countries like India, these data are not available to the degree of disaggregation required or are not of the desired quality. Therefore, it has to be built up using various methods. One of the objections in using Parnes model is the assumption that there is a fixed relationship between skill levels and education required. In the present study, this issue has been skirted round by translating the total employment to education directly without the intervening step of occupational profiles. To that extent the modified Parnes approach has enabled a pragmatic assessment of the future human resource requirements in agriculture.

Council of Agricultural Research, New Delhi. They are also thankful to the anonymous referees for giving suggestions for improvements in the paper.

AFF (2000) Study on Assessment of Manpower Needs and Development, A report prepared for CCS HAU, Hissar, Haryana by M/s A.F. Ferguson & Co., Delhi. Bartholomew, D.J. and Forbes A.F. (1979) Statistical Techniques for Manpower Planning, Wiley, Chichester (Eng.), New York. Deane, R.T. and Yett, D.E. (1979) Nurse market policy simulations using an econometric model. Research in Health Economics, 1: 255-300. Dominique, Roberfroid (2009) Christian Leonard and Sabine Stordeur, Physician supply forecast: Better than peering in a crystal ball?, Human Resources for Health, 7: 7-10. Drandell, Milton (1975) Composite forecasting methodology for manpower planning utilizing objective and subjective criteria, Academy of Management Journal, 18(3): 510-519. ESCAP (Economic and Social Commission for Asia and the Pacific) (1999) Human Resource Development of the Tourism Sector in India , New York. http:// www.unescap.org/ttdw/Publications/TPTS_pubs/ pub_2020_tor.pdf IAMR (Institute of Applied Manpower Research) (1979) Agricultural Manpower Planning, Training and Utilization, Country Profile Study - India. FAO, Rome. IAMR (Institute of Applied Manpower Research) (2001) Assessment of National Manpower Needs in Agriculture and Allied Sector. New Delhi. IASRI (Indian Agricultural Statistics Research Institute) (2010) Agricultural Research Data Book (various years) and PEMISNET II data (as on 23/4/2010), & Indian Council of Agricultural Research, New Delhi. Kerr, Norbert L. and Scott, Tindale R. (2011) Group- based forecasting?: A social psychological analysis. International Journal of Forecasting, 27: 1. Tau, Lee Hong and Sheu, Hua Chen (2001) Fuzzy regression model with fuzzy input and output data for manpower forecasting. Fuzzy Sets and Systems. 119: 205-213. Mohapatra, P.K.J., Mondal, P. and Saha, B.K. (1990) Modelling age and retirement in manpower planning. International Journal of Manpower, 11(6): 27-31.

The data problems encountered in the study on forecasting the agricultural manpower in India are common to most of the sectors of the economy for forecasting not only in India but other developing countries as well. Under these circumstances, application of one single method for forecasting may neither be feasible nor appropriate. Hence, a mixed methodology approach has been followed in this paper. A variety of pragmatic approaches have been adopted ranging from detailed trend analysis of data where time series data are available to assessments on the basis of qualitative information collected through experts opinions. In between, normative methods have been used for forecasting and on some occasions, to develop the base line employment data where the latter are not available. The future scenarios have been visualized on the basis of the planned growth, investments, desirable developments and vision documents besides taking into account the experts opinions from various stakeholders. The use of mixed methodology in the present study has helped in arriving at logical conclusions so far as the future requirements of human resource in various fields of agriculture are concerned.

The authors acknowledge the financial support of the National Agricultural Innovation Project of Indian


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Mondal, P., Mohapatra, P.K.J., Jain, A. and Sangh, V.K.C. (1992) Analysis of scientific manpower flow scenarios for an R&D organization. Journal of Scientific and Industrial Research, 51: 685-692. Nichakorn, Sirikanokwilai, Wibulpolprasert Suwit and Pengpaiboon Paichit (1998) Modified population-tophysician ratio method to project future physician requirement in Thailand, Human Resources for Health Development Journal, 2(3): 197-209. NSDC (National Skill Development Council) (2010) Report on the Human Resource and Skill Requirements in the Food Processing Sector in India, Skill Gap Analysis Reports , New Delhi. Available at http:// www.nsdcindia.org/knowledge-bank/index.aspx NSSO (National Sample Survey Office) (2011) Employment and Unemployment Situation in India, 2009-10, NSSO Report No. 537, Ministry of Statistics and Programme Implementation, Government of India, New Delhi. http://mospi.nic.in/Mospi_New/site/ inner.aspx?status=3&menu_id=31\ Ozay, Mehmet (1977) The role of manpower planner in developing countries, Industrial Relations Journal, 7(3): 66-74. Parnes, H.S. (1962) Forecasting Educational Needs for Economic and Social Development, OECD, Paris. Psacharopoulos, George (1973) An input-output model for the assessment of labor skill requirements. Higher Education, 2(4): 461-474. Psacharopoulos, George (1984) Assessing training priorities in developing countries: Current practices and possible alternatives, International Labour Review, 5: 569-583. Psacharopoulos, George (1991) From manpower planning to labour market analysis, International Labour Review, 130(4): 459-474. Raghavendra, B.G. (1991) A bivariate model for Markov manpower planning systems. The Journal of the Operational Research Society, 42(7): 565-570. Rama Rao, D., Nanda, S.K. and Sriram, C. (2005) Forecasting Trained Agricultural Manpower, NAIP Sponsored NAARM Publication, Hyderabad. Rama Rao, D., Agrawal, Rashmi, Nanda, S.K., Awasthi, I.C., Joshi, G.P., Bhattacharya, Sanchita, and Indra Kumar,

D. (2011) Assessment of Future Human Capital Requirements in Agriculture and Allied Sectors. NAIP Project Report, National Academy of Agricultural Research Management, Hyderabad, India. 411 p. Rowat, R. (1983) Trained Manpower for Agriculture and Rural Development, FAO Pub No. 10, FAO, Rome. Shivanagaraju, C., Manhanty, B., Vizayakumar, K. and Mohapatra, P.K.J. (1998) Beta-distributed age in manpower planning models, Applied Mathematical Modelling, 22: 23-37. kulj, Damjan, Vasja, Vehovar and Darko, tamfelj (2008) The modelling of manpower by Markov Chains A case study of the Slovenian armed forces. Informatica, 32: 289-291. Song, F. and Rathwell, T. (1994) Stochastic simulation and sensitivity analysis: Estimating future demand for health resources in China, World Health Statistics Quarterly, 47: 149-156. Susiganeshkumar, E. and Elangovan, R. (2010) Prediction of manpower wastage in Tamil Nadu software industry using Coxs regression approach. International Transactions in Mathematical Sciences and Computer, 3(1): 27-44. TCS (Tata Consultancy Services) (2000) Study of Manpower Needs of the Agriculture Sector in Tamil Nadu. Government of Tamil Nadu, Chennai. Timbergen, J. and Correa, I.H. (1962) Quantitative adaptation of education to acceleration of growth, Kyklos, XV. Trivedi, V., Moscovice, I., Brass, R. and Brooks, J. (1987) A semi-markov model for primary health care manpower supply prediction, Management Science, 33: 149-160. Willems (Ed) (1996) Manpower Forecasting and Modelling Replacement Demand: An Overview. Research Centre for Education and the Labour Market. ROA-W-1996/ 4E, Maastricht University, Maastricht. Available at http:/ /edocs.ub.unimaas.nl/loader/file.asp?id=528 . World Bank (2006) Skill Development in India: The Vocational Education and Training System, Human Development Unit, South Asian Region.
Revised received: April, 2013; Accepted June, 2013

Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013 pp 185-198

External Market Linkages and Instability in Indian Edible Oil Economy: Implications for Self-sufficiency Policy in Edible Oils
Lijo Thomasa*, Girish Kumar Jhab and Suresh Palb

Directorate of Rapeseed Mustard Research (DRMR), Bharatpur - 321 303, Rajasthan Division of Agricultural Economics, Indian Agricultural Research Institute, New Delhi - 110 012

The liberalization of the economy following WTO agreement paved the way for significant changes in the edible oil economy. The paper has shown that the impact of the trade liberalization has led to integration between domestic and international edible oil markets. The consequences of this integration on price stability, and production dynamics have been examined. It has been observed that India has tried to balance the interests of both producers and consumers while fixing the import tariffs. The impact of imposition of tariff analyzed in a partial equilibrium framework has revealed that the net impact will be negative, given the current demand-supply parameters of domestic edible oil economy. The implications of these finding include an increase in research investments in oilseed to reduce the need for protecting domestic sector and to create a buffer stock of edible oils to tide over the short-term international price volatilities Key words: Oilseeds, edible oils, co-integration, imports, tariff, edible oil policy, market linkage JEL Classification: Q11, Q13, Q18

Oilseeds and edible oils constitute an important segment of agricultural economy of India. India is the largest producer as well the consumer of vegetable oils in the world. For the triennium ending 2009-10, India accounted for 8.5 per cent of the global oilseed production, 11 per cent of the global edible oil imports and 10.3 per cent of the global edible oil consumption. Oilseed crops were cultivated in 14.2 per cent of the gross cropped area. The livelihood security of a multitude of stakeholders (oilseed cultivators, oilseed * Author for correspondence
Email: lijo.iari@gmail.com

processors, consumers and other intermediaries) depends on oilseed and edible oil value chain. The performance of oilseed crops has shown considerable fluctuations over the years. Indias oilseed and edible oil sector is being increasingly exposed to international markets and the policy interventions in production, trade and markets have not been able to provide self-sufficiency in edible oils. The growth of oilseed crops remained lack-luster for nearly two decades following the green revolution. The slow growth rate in oilseed production combined with the high expenditure elasticity for edible oils led to an increase in demand which was met through massive imports, causing a sizeable drain on foreign exchange (Gulati et al., 1996). The import substitution strategy for edible oils, which was adopted as a response met with early success, and the edible oil imports showed

Part of Ph D thesis entitled Oilseed Economy of India: The Role of Policy, Trade and Technology of the first author.


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a significant decline. But after the reform process initiated in the Indian economy, major changes were made in the trade policy with regard to edible oils. Beginning 1994, the edible oils were removed from the negative list of imports and tariff rates were liberalized in a phased manner. The import of Palmolein was placed under Open General License (OGL) in 1994, and subsequently, import of other edible oils was also brought under this system as a part of trade liberalization in edible oils. Edible oil import dependency increased from 15.2 per cent of the total edible oil consumption in 1995-96 to 52.6 per cent in 2009-10. This paper has highlighted some of the fundamental issues consequential to the opening up of domestic edible oil economy to the international markets. After establishing the nature of integration of domestic edible oil market with international markets, the paper has brought out the effects of the shift in degree of integration on different variables affecting the edible oil economy. The trends in oilseed and edible oil production in the country, parameters like price level, instability and import quantity as affected by the changing nature of edible oil market have been discussed. The impact of different tariff regimes on edible oil consumption and its implications for welfare of producers and consumers have been investigated. Finally, implications for edible oil policy have been outlined along with conclusions drawn from the study and specific suggestions for edible oil economy of the country.

Johansens Co-integration Method The estimation of price interdependence using time series data is subject to several considerations. One of them is the presence of non-stationarity in time series which may give misleading results regarding the degree to which the price signals are being transmitted between markets. This rules out the use of normal regression and correlation techniques. Therefore, co-integration between domestic and international markets was studied using Johansens maximum likelihood method. The presence/absence of co-integration is tested through trace test criteria and maximum eigen value test criteria. Johansens methodology takes its starting point in the vector auto regression (VAR) of the order p. In a co-integrated system, we have,

where, Matrix = is n n with rank r, 0 r n, which is the number of independent co-integration relations. The Johansens method of co-integrated system is the restricted maximum likelihood method with rank restriction on matrix = . The advantage of Johansens method is that it does not impose the number of co-integration relationships beforehand; the test and estimation of the number of co-integration relationships are carried out simultaneously. Evolution of Pre-reforms Edible Oil Policy in India Historically, India has been a net importer of edible oils (Reddy, 2009). The growth rates in oilseed production in the two decades immediately following the green revolution (1967-68 to 1986-87) were not only much lower than cereals like wheat and rice, but were also lower than their own performance during the pre-green revolution years (Gulati et al., 1996). The stagnation in growth and rise in edible oil demand due to high expenditure elasticity for edible oils resulted in heavy dependence on imported edible oils to meet domestic requirements. The imports of edible oils averaged about Rupees 1000 crore per annum during the mid-1980s which ranked the highest in import bill after petroleum and fertilizers (Ninan, 1995). This put a constant strain on foreign exchange resources. It was in response to the chronic shortage in foreign exchange under the administered exchange rate system that India

Data and Methodology

The data on area, production and productivity of the oilseed crops in India were obtained from various issues of Agricultural Statistics at a Glance, published by the Directorate of Economics and Statistics, Ministry of Agriculture, Government of India. The data on edible oil imports were collected from publications of Directorate General of Commercial Intelligence and Statistics (DGCI&S). The data on monthly prices of different edible oils in India were taken from the website of the office of the Economic Advisor, Ministry of Finance. The comparable international monthly prices of commodities, published by the World Bank, were used to study the market integration and relative movements of prices of edible oils in domestic and international markets.

Thomas et al. : External Market Linkages and Instability in Indian Edible Oil Economy


decided to adopt an import substitution strategy in edible oils. In response, the National Oilseeds Development Project (NODP) was launched in 1985-86 by integrating all the centrally sponsored schemes for oilseed development. However, a concerted effort with coordination of technology delivery for crops and oilseed processing, price support and support services was made under mission mode with the launch of Technology Mission on Oilseeds (TMO) in 1986 with the goal of achieving complete self- sufficiency in edible oils by 1990. A special time limited scheme for three years targeting four major oilseed crops was also launched in 1987-88, named as the Oilseed Production Thrust Programme (OPTP), which ran concurrently with TMO. The assurance of fair and stable prices for oilseeds was the key to achieving desirable shift in cropping area in favour of oilseed crops and for inducing private investments in oilseed crops. Price support operations in oilseeds were undertaken as a part of this strategy. The National Agricultural Cooperative Marketing Federation (NAFED) was designated as the nodal agency for undertaking price support operations in oilseeds during 1985-86. Subsequent to the announcement of the Government integrated policy on oilseeds in 1989, the OPTP and NODP were merged in 1990-91 into a single programme, Oilseed Production Programme (OPP) to avoid duplicity and bring in better coordination. The National Dairy Development Board (NDDB), which, along with TMO, was assigned an important role in restructuring of oilseeds and edible oil sector, was also involved in stabilization of supplies and prices of edible oils through its Market Intervention Operations (MIO). The market intervention operations by NDDB between 1989 and 1994 were the first major attempt by the government to stabilize oilseed/edible oil prices with a pre-determined price-band. The NDDB did this through buffer stocks and imports of both oilseeds and oil (Srinivasan, 2004 a,b). However, the NDDB met only with limited success in MIO (Ninan, 1995). All these developments happened in an environment where the imports of edible oils were kept under the negative list and only the State Trading Corporations (STCs) and designated public sector agencies like NAFED were allowed to import edible

oils. Beginning 1994, by placing palmolein imports under Open General Licence, the imports and tariff rates on imports of edible oils and oilseeds were liberalized in a phased manner. The import of all edible oils (except coconut oil, palm kernel oil, RBD palm oil, RBD palm stearin) was placed on OGL with 30 per cent import duty from March, 1995. The declining trend of import dependency in edible oils during the preceding years played a part in the decision to liberalize edible oil imports as much as the commitments under WTO agreement. External Market Linkages and Trends in Domestic Edible Oil Economy The impact of liberalization of the edible oils trade and the opening up and realignment of the domestic economy with international markets, as a part of WTO commitments, can be examined by knowing the nature of integration of domestic edible oil markets with international markets in two different periods. Johansens co-integration method was employed to test the presence of co-movement of prices in domestic and international markets for three major edible oils and oilseeds1. The two periods selected (Period 1: 1981-82 to 1994-95 and Period 2: 1995-96 to 2009-10) reflect the structural break in the nature of the economy effected through the trade liberalization of edible oils which was initiated in March 1994. The monthly price series of all the selected commodities were integrated of the order one which was tested through Augmented Dickey Fuller Test (ADF test). The results of Johansens co-integration test for the selected commodities between the domestic and international prices for the two periods have been presented in Table 1. The significant values for both trace test and maximum eigen value test statistic indicate the presence of co-integrating equation only during period 2. During period 1, none of the selected edible oils and oilseeds showed co-integration wih their corresponding international reference prices. But in period 2 after the liberalization of edible oil economy, evidence for cointegration was detected in all the selected commodities. The domestic prices which were determined independent of the international prices in the protected environment started moving together with the international reference price after liberalization. The parameters of the co-integrating equations for period 2 have been given in Table 2.


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Table 1. Johansen co- integration test results for major oilseeds and edible oil prices Price series Maximum Eigen value test H0: r=0 H0:r=1 Trace test H0: r=0 H0:r=1 0.64 1.62 0.11 0.24 0.03 0.03 0.63 3.19 0.20

Period 1: April 1982 to March 1994 Soybean oil Groundnut oil 6.16 0.64 6.81 Mustard oil 6.75 1.62 8.38 Groundnut 12.17 0.11 12.29 Soybeans 8.01 0.25 8.26 Period 2: April 1994 to March 2010 Soybean oil 15.66* 0.03 15.69* Groundnut oil 16.38* 0.03 16.40* Mustard oil 16.33* 0.63 16.97* Groundnut 15.95* 3.19 19.15* Soybeans 15.53* 0.20 15.73*

economy through trade liberalization. The concurrent changes that occurred in other determinants of edible oil availability in India should be viewed in this backdrop. The effects of this alignment with international markets hold significance for domestic oilseed producers directly and indirectly. The domestic prices and instability of edible oils could also be affected through the linkages with international markets. Domestic prices and instability are also influenced by other factors affecting domestic edible oil availability, growth and instability in area, production and productivity of oilseed crops, shift in domestic demand for edible oils and fluctuations in imports of edible oils. In the following section, the trends in these variables across the two periods have been analyzed. Trends in Area, Production and Yield in Oilseed Crops The technological impetus provided to oilseed crops through TMO and other oilseed development programmes along with the market support and favourable price policy for edible oils led to a strong performance of oilseeds, especially after 1986. The domestic producers of oilseeds were strongly protected against international competition by insulating the oilseed economy from international markets through protective structures. The import of edible oils could be done only through STCs and public agencies during this period and import of oilseeds was not allowed. The domestic price parity between oilseed crops and cereals were adjusted many times in favour of oilseed crops during 1980s. Between 1978-79 and 1985-86, while the price support for paddy was increased by 67 per cent, it was increased by 100 per cent for groundnut. Similarly, the price support for wheat during this period

Notes: * Significant at 5 per cent level of significance Critical values of Trace test statistic at 5 per cent level of significance are: Ho: r=0 is 15.49 and Ho r=1 is 3.84 Critical values of Maximum Eigen test at 5 per cent level of significance are: Ho: r=0 is 14.26 and Ho r=1 is 3.84

The normalized beta coefficients indicated the effect of a change in international prices on the domestic prices. It could be seen that the coefficients were significant for all the selected commodities based on standard-error values. The adjustment coefficients indicated the time taken for prices to return to longrun equilibrium in the case of price fluctuations. The results of co-integration test on domestic and international prices have concluded that the domestic prices started moving together with the international prices after the opening up of domestic edible oil

Table 2. Co-integration parameters during Period 2 (April 1994 to March 2010) Commodity Soybean oil Groundnut oil Mustard oil Groundnut Soybeans Oilseeds Normalized coefficient (International prices) 0.51 (0.06) 0.82 (0.12) 0.52 (0.08) 1.07 (0.14) 1.28 (0.18) 0.52 (0.06) Adjustment coefficients 1 (Domestic prices) 2 (International prices) -0.04 (0.01) 0.01 (0.01) -0.04 (0.01) -0.01 (0.01) -0.04 (0.02) -0.01 (0.01) 0.10 (0.04) 0.09 (0.02) 0.05 (0.03) 0.07 (0.02) 0.05 (0.02) 1.66 (0.22)

Note:* Figures within the parentheses indicate the standard-error of the coefficients

Thomas et al. : External Market Linkages and Instability in Indian Edible Oil Economy Table 3. Trends in growth rates of area , production and yield of major oilseeds in India Crop 1980-81 to 1994-95 Soybean Groundnut Rapeseed-mustard Total oilseeds 16.8 (785.1) 1.4 (13.7) 4.1 (66.0) 3.1 (48.2) Area 1995-96 to 2009-10 4.4 (125.5) -1.9 (-26.3) -0.2 (-4.1) 0.5 (3.6) Production 1980-81 to 1995-96 to 1994-95 2009-10 19.9 (1082.4) 2.9 (44.0) 7.9 (184.9) 6.0 (123.2) 4.8 (146.5) -1.2 (-10.9) 2.1 (23.6) 1.75 (30.8)


Yield 1980-81 to 1995-96 to 1994-95 2009-10 2.6 (27.3) 1.5 (27.0) 3.7 (72.5) 2.8 (50.8) 0.4 (14.1) 0.7 (19.7) 2.3 (28.8) 1.3 (26.3)

Note: The figures within the parentheses are percentage change in respective variables over the period calculated on triennium ending values

was increased by 41 per cent, whereas it was 63 per cent for rapeseed and mustard (Acharya, 1993). The high level of protection achieved through a managed edible oil and oilseed market and the favourable price policy which saw the price parity shifting in favour of oilseeds, resulted in robust growth rates in area, production and productivity of oilseed crops during 1980-81-1994-95 (Table 3). A decline in growth rates of area and production of oilseed crops after trade liberalization was predicted (Gulati et al., 1996) on the ground that these crops were over-protected prior to trade liberalization and the chief mechanism for maintaining higher prices for oilseed producers was by severely restricting import of cheaper edible oils. The nominal protection coefficients NPC for three major edible oils consumed in India showed that the level of protection has declined in the post-liberalization phase signalling a better alignment of domestic and international prices (Table 4). With trade liberalization adversely affecting the mechanism of protection, the distortionary shift in area in favour of oilseeds would be reduced or even reversed. With tapering-off of the thrust provided by the TMO and other similar programmes and the decision to allow edible oil imports with gradual and incremental reduction in import tariffs, the growth rates in area, production and productivity showed a considerable decline during 1995-96 to 2009-10. The groundnut and rapeseed-mustard showed an absolute decline in area during this period, the decline being 26.3 per cent and 4.1 per cent, respectively. For oilseeds as a whole, the decline in growth rate of area (from 3.13% to 0.45%) was much sharper than the decline in yield (from 2.78 per cent to 1.29 per cent).

Table 4. Decrease in protection of major edible oils after trade liberalization Commodity Nominal protection coefficients Average 1990-91 to 1980-81 to 2005-06 to 1994-95 1994-95 2009-10 1.51 2.35 2.32 1.91 2.95 2.68 1.14 1.09 1.37

Groundnut oil Mustard oil Soybean oil

Note: * The NPC values have been calculated under importable hypothesis

Instability in Area, Production and Yield of Oilseed Crops and Edible Oils The instability measured using the coefficient of variation of trend adjusted values of area, production and yield of oilseed crops in the two periods has shown a general decline in instability, except in groundnut where it has increased (Table 5). The technology and input delivery services initiated through the TMO and later continued under the ISOPOM were instrumental in bringing down the variability in these parameters. The spread of irrigation, distribution of certified seeds of oilseed crops and improvement in varietal technology have also contributed to the reduction in instability. A similar trend has been seen in the case of instability in edible oil production also. Except for groundnut oil, the instability in oil production declined during the second period of analysis (1995-96 to 200910). The decline in instability was found to be significant for soybean oil, rapeseed-mustard oil and for the total domestic edible oils production (Table 6). With the growth rates for area, production and


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Table 5. Instability in area, production and yield of major oilseed crops in India Crop Area 1980-81 to 1995-96 to 1994-95 2009-10 66.7 8.7 21.5 15.6 22.7 10.9 14.6 7.8 Production Yield 1980-81 to 1995-96 to 1980-81 to 1995-96 to 1994-95 2009-10 1994-95 2009-10 Coefficient of variation in percentage 80.9 18.9 36.1 28.9 29.1 21.3 20.0 16.4 18.6 13.1 17.7 15.0 12.5 18.5 13.4 12.0

Soybean Groundnut Rapeseed-mustard All oilseeds

Table 6. Growth rate and instability in edible oil production Commodity Growth rate 1980-81 to 1995-96 to 1994-95 2009-10 CAGR (%) 19.9 3.1 7.9 5.6 4.8 -1.2 2.1 1.7 Instability 1980-81 to 1995-96 to 1994-95 2009-10 CV (%) 79.6 19.9 35.5 26.1 26.7 21.9 20.6 14.4 Direction of instability Significance*

Soybean oil Groundnut oil Mustard oil Total edible oils

Decreasing Increasing Decreasing Decreasing

Significant Not significant Significant Significant

Note: * Significance based on F test on the ratio of variance between two periods

productivity remaining positive and the instability in production of both oilseeds and edible oils declining significantly, it was expected that the prices in the domestic market for oilseeds and edible oils would remain stable, with only a moderate rise in prices due to the effect of increasing demand. The instability in prices was expected to decline in line with the reduction in instability of domestic edible oil and oilseed production. Instability in Prices of Edible Oils The expected decline in price instability of edible oils in the domestic market failed to materialize after the trade liberalization (Table 7). The domestic instability in edible oil prices has shown an increase in the second period compared to the first period for all the three major edible oils consumed in the country. This increase reflects the instability in the international prices for these commodities. Before 1994, the domestic edible oil prices were not exposed to the international market price fluctuations, as they were highly protected from imports through tariff and nontariff barriers. The instability measurement has shown that the international markets exhibited a high degree

of price instability during both the periods. The instability in international markets was more than the instability in domestic markets in absolute terms in both the periods for all the major edible oils of domestic origin. The impact of market integration with respect to price instability was the transfer of a higher magnitude of price instability from the international markets to the domestic edible oil market in India. Apart from the integration of domestic and international markets, another factor contributing to the transfer of price instability from international markets to domestic markets was the rise in quantum of edible oil imports consequential to the rise in domestic demand for edible oils. Import of Edible Oils Edible oil imports declined after the launch of TMO and had become negligible at 0.19 million tonnes for the TE 1994-95, but started rising thereafter in line with the higher edible oil imports as the growth rate of domestic edible oil production was slower than of edible oil import growth. The need for increased imports of edible oils was necessitated by the increase in domestic demand for edible oils which increased

Thomas et al. : External Market Linkages and Instability in Indian Edible Oil Economy Table 7. Instability in edible oil prices Commodity Coefficient of variation adjusted for trend (%) 1980-81 to 1995-96 to 1994-95 2009-10 India 13.6 13.8 12.9 World 24.8 26.0 24.4 19.8 27.8 16.4 31.8 27.8 29.6


edible oils is projected to increase to 15.0 kg/annum and the demand for edible oils is expected to rise to 20.36 Million tonnes by 2020-212 (Jha et al., 2011). The increase in per capita income and imports to meet the rise in demand meant that the prices for edible oils hardened. Prior to the liberalization of edible oil trade, the quantum of edible oils import was more or less policy determined and the consumption was adjusted according to the supply conditions. Market instruments like price band operations and non-market instruments like rationing, stock control, etc. were used to regulate consumption and manage the upward pressure on prices. This meant that the prices prevailing in the international market played a major role in determining the quantum of imports. But, with the removal of trade restrictions in edible oils, it can be seen that the rise in prices of edible oils in the international markets have negligible effect on the quantum of imports. Demand is the dominant factor determining the requirement of edible oils and the supply required to meet this demand is being met through a combination of domestic production and imports. This could be seen from the correlation coefficients between the deviations in imports with that of the deviations in international prices of edible oils (Table 9). There was a significant correlation between these variable during the first period which turned insignificant during the second period. This shows the relative price insensitivity of imports during the liberalized phase due to persistent demand for edible oils arising from increasing incomes and high expenditure elasticity.

Soybean oil Groundnut oil Mustard oil Soybean oil Groundnut oil Mustard oil

rapidly with a sharp rise in per capita consumption of edible oils. The per capita edible oil consumption increased by 105 per cent during TE 1994-95 and TE 2009-10 compared to a rise of 60 per cent during the previous 15-year period (Table 8). This rise in percapita edible oil consumption came in the wake of significant increase in the growth rate of economy as a whole. The growth rates of both the GNP and per capita edible oil consumption followed similar trends. An expenditure elasticity of 0.55 has been estimated for edible oils by Kumar (1998), which is much higher than expenditure elasticity for foodgrains. The increasing trend in per capita consumption, the projected growth rate in population and the expected performance of the economy over the next decade indicate that the requirement for edible oils will further rise in the coming years. The per capita demand for

Table 8. Trends in production and import of edible oils in India Year Domestic production (Mt) 2.75 3.43 4.51 5.73 7.28 7.21 9.05 Imports (Mt) 1.63 1.22 1.12 0.19 2.61 4.74 6.55 Total availability (Mt) 4.38 4.65 5.63 5.92 9.89 11.95 15.60 Per capita edible oil consumption (kg) 3.8 5.3 5.5 6.1 7.9 9.4 12.5 GNP growth rate (%) 2.6 4.7 4.2 6.2 6.3 6.5 8.2 Import dependency (%) 30.8 26.3 19.9 3.2 26.4 39.7 42.0

TE 1980-81 TE 1984-85 TE 1989-90 TE 1994-95 TE 1999-00 TE 2004-05 TE 2009-10


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Table 9. Correlation between variations in import quantity and international edible oil prices Period Correlation coefficient t-value

Using current year international edible oil price variations 1980-81- 1994-95 0.70 17.74* 1995-96 - 2009-10 0.09 1.23NS Using one year lagged international edible oil price variations 1980-81- 1994-95 0.65 14.69* 1995-96 - 2009-10 0.09 1.24NS Note:* Significant at 1 per cent level of significance and NS = Non-significant [Table value for t (.01,13) = 3.01]

protection to the domestic edible oil industry by applying import duties on edible oils within the levels permissible under the agreement. In practice, the import tariffs are fixed at varying levels for different edible oils not exceeding the bound rate committed under the trade agreement. The final bound rates of tariffs under WTO agreement range from 34 per cent to 228 per cent (Table 10). But, India has seldom used the upper limits of admissible tariff rates since signing of the agreement. The concept of price wedge (the difference in domestic prices and international prices expressed as a percentage of international prices) is used to study the divergence between domestic and international prices and the adequacy of the bound and applied rates of tariffs. The calculations exclude the transportation cost to capture the maximum possible difference between the domestic and international prices. The price wedge has shown a significant decline after the trade liberalization in edible oils. On comparing the maximum observed price wedge values against the bound rates, it was observed that the bound rates were adequate for groundnut oil, and inadequate for soybean
(in per cent)

Tariffs, Price Wedge and Growth Rate of Prices for Edible Oils When the trade in edible oils was liberalized by the gradual removal of all non-tariff barriers, including import quotas and quantitative restrictions in line with WTO agreements, the government sought to accord

Table 10. Bound and applied tariff rates on import of edible oils Oil category Uruguay round bound duty Base Soybean oil Palm oil Groundnut oil Sunflower oil Coconut oil Rapeseed-mustard oil Castor oil Soybean RBD palmolein Palm oil Groundnut oil Sunflower oil Coconut oil Rapeseed-mustard oil Castor oil 45 300 300 300 300 75 100 45 300 300 300 300 300 75 100 Final 2004 Crude oil 34 228 228 228 228 57 76 Refined oil 34 228 228 228 228 228 57 76 2001 45 100 100 100 100 75 100 45 100 100 100 100 100 75 100 Applied basic duty 2005 45 80 85 75 85/100 75 85/100 45 90 90 85 85 85 75 100 2010 Free Free Free Free Free Free Free 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5

Source: Agricultural Statistics at a Glance , Ministry of Agriculture, Government of India, New Delhi

Thomas et al. : External Market Linkages and Instability in Indian Edible Oil Economy Table 11. Maximum observed price wedge for selected edible oils: 1990-2011


(in per cent) Edible oil Groundnut oil Soybean oil Palm oil 1990-1995 120 140 1996- 2000 40 100 2001-2005 50 73 84 2009 41 45 38 2010 42 22 33 2011 16 25 29

Source: Price wedge values for the first two periods are from Sekhar (2004)

oil, even after the decline in price wedge after liberalization (Table 11). The bound rates under WTO for soybean were only 45 per cent, whereas the price wedge, which gives the upper limit for a potentially import restricting tariff, was above that level till 2005. This led to the rise in imports of soybean oil after trade liberalization. The share of soybean oil in imports increased from less than 10 per cent of edible oil imports in 1995-96 to nearly 40 per cent in 2004-05, a period where the price wedge was much higher than the bound rates under WTO. But, the price wedge calculated for the recent years has shown a decline due to the rise in international prices of edible oils and the resultant increase in alignment of domestic prices with the international prices. A gradual alignment of the domestic prices and international prices has made the bound rates much higher than the potential requirement to counter dumping of edible oils and protection of domestic edible oil industry. It is true for the three major edible oils produced in India. India being a large country (small country assumption does not hold good), large imports by India raise edible oil prices in the world market, which over time, may reduce the benefits supposed to accrue to the domestic consumers. The price wedge had to be examined against the actual applied rates of basic duty to know the real restrictive nature of tariff rates. It was seen that the applied tariff values had progressively declined and the current applied basic duty was well below the maximum price wedge values. The fact that tariff values have been kept below the restrictive rates, has played a major role in the integration of domestic edible oil markets with international markets and the rise in imports of edible oils commensurate with the increase in domestic demand. The comparison of applied and bound tariff rates has shown that India has considerable flexibility to reduce imports by raising tariffs. Given

the current level of price wedges, raising tariff up to the bound rate would raise the cost of most of the imported edible oil above the domestic prices and would reduce imports to zero. The country has chosen to levy lesser than the bound tariff in the larger interests of the consumers and to maintain a balance between the interests of consumer and producer (Chand et al., 2004). The comparison of growth rate of prices between the two periods (Table 12), as expected, shows that integration with world markets, where the edible oil prices were lower than the domestic markets, had resulted in a decline in growth rate of edible oil prices in the domestic market after 1995. For edible oils as a whole, the growth rate in prices declined from 9.6 per cent during 1980-1994 to 3.7 per cent during 19952010. Without trade liberalization, the domestic prices would have risen much faster. Thus, the domestic consumers of edible oils were benefited from trade liberalization of edible oils and domestic producers of oilseeds and edible oils were adversely affected by reduced protection and competition from cheaper imports. Compared to the domestic market prices of edible oils, the world markets exhibited a reverse trend with the growth rate of price increase in the second period. The increased demand for edible oils and the opening up of export markets explain this rise in prices. This price rise also holds a significant message for countries like India, where the choice for edible oil policy is between import substitution and import dependence. The argument that India is better off by importing edible oils and oilseeds based on the current market price differentials between domestic and world markets and production efficiency, runs the risk of being proven wrong by rising edible oil prices in the world markets due to increased demand or supply disruptions. Also,


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Table 12. Growth rates of prices in edible oils (CAGR) Commodity Soybean oil Groundnut oil Mustard oil Total edible oils Soybean oil Groundnut oil Mustard oil Edible oils and fats 1980-1994 India 11.8 9.9 9.6 World 1.1 2.6 1.8 0.4 1995- 2010 3.7 4.8 3.9 3.7 4.7 4.0 5.7 3.8

for edible oil economy have been found to be significant for most of the key parameters affecting the edible oil economy. The elasticities of edible oil prices (tariff) for various parameters are given in Table 13. This indicates that the trade policy can have an impact on all the key parameters of edible oil economy. Given these elasticities, an increase in tariffs will reduce domestic consumption of edible oils and their imports and will have a positive effect on area , production and productivity of oilseed crops. The magnitude of impact of changes in international markets and tariffs on domestic edible oil production, imports of edible oils, benefits to producers and consumers, total economic benefits, etc. depend on the factors like share of imports, income, own price and expenditure elasticities. A simultaneous equation system developed by the International Food Policy Research Institute (IFPRI, 2012) was adopted for modelling these parameters to analyze the impact of change in tariffs on domestic producers and consumers3. The results are presented in Table 14. The results show that the economic gains through increase in producer surplus (higher producer prices for oilseeds) and increased tariff revenue are more than offset by the economic value of loss in consumer surplus due to increase in domestic prices of edible oils resulting from the increase in tariffs on edible oil imports. The net economic loss due to imposition of 10 per cent and 25 per cent of tariff was calculated to be INR 304 crore and INR 1805 crore, respectively. The impact of such a change in tariff will also affect the domestic consumption and production of edible oils. The domestic consumption will decrease from 16.76 Mt in the base scenario to 14.71 Mt if the effective tariff is set at 25 per cent. If the per capita income increases by 6 per cent and the tariff level and international prices of edible oils increase by 10 per cent, then the domestic production has been projected to increase by 15 per cent and the domestic edible oil consumption will fall by 8 per cent. A sharp decline in imports by 28 per cent is also expected in this scenario. India had reduced its tariff rates for crude and refined oils to zero and 7.5 per cent, respectively to address the sharp rise in international prices of edible oil. Although the net welfare impact will be negative for higher import tariffs, the income transfer effect of the import tariffs has also to be considered. A higher

as Ninan (1995) has pointed out, the gains from exports through concentration of production efforts on rice and cotton where India has comparative advantage may not be significant, as was the case for many African countries. The real international prices of oilseeds are expected to go up by 15.1 per cent following complete trade liberalization which is the second highest rise in prices after cotton (World Bank, 2008). Impact of Trade Liberalization on Domestic Edible Oil Economy With the alignment of domestic edible oil markets with international markets, the changes in trade policy or variables affecting international demand and supply of edible oils will be transmitted to the domestic economy. Using the data on price movements in the domestic and international prices for the past three years, the coefficient of elasticity of price transmission was estimated to be 0.56 for groundnut oil and 0.37 for soybean oil. The tariff price elasticity estimates
Table 13. Elasticities of edible oil prices (tariff) Variable Consumption of edible oils Production of edible oils Import of edible oils Oilseed prices Area under oilseeds Yield of oilseeds Production of oilseeds Source: Ghosh (2009) Tariff elasticity -0.51 0.39 -1.71 1.38 0.23 0.22 0.46

Thomas et al. : External Market Linkages and Instability in Indian Edible Oil Economy Table 14. Impact of alternative tariff levels on domestic edible oil economy Variable 0 Imports (million tonnes) Change in domestic prices (%) Domestic consumption (million tonnes) Change in consumer surplus (in crore INR) Change in producer surplus (in crore INR) Change in tariff revenue (in crore INR) Net impact (in crore INR) 8.82 16.76 Increase in tariff on import of edible oils (%) 10 7.34(-13.0)* 7.0 15.8 -6691.3 3377.7 3009.4 -304.2 25


5.31(-40.0) 18.0 14.71 -16132.0 8892.4 5434.7 -1804.9

Note: * The figures within parentheses denote per cent change in imports INR = Indian rupees

tariff means a higher income for oilseed producers and a lower income (consumer surplus) for consumers. The oilseed producers are generally dryland resource-poor farmers whereas major part of edible oils is consumed by high-income and medium-income consumers. Thus, the lower import tariffs transfer considerable income from the pockets of poor farmers to the pockets of better-off consumers. The higher tariffs certainly benefit the poor farmers. The modelled response of domestic edible oil economy assumes significance since the tariffs may be imposed on edible oil imports, both as a safety measure for domestic oilseed cultivators and a source of revenue.

with international markets and its impact was felt through the increased instability in domestic prices and the reduction in growth rate of edible oil prices in the domestic markets, reduction in growth rate of area under oilseed crops and increase in edible oil imports. The price of edible oilseeds produced domestically being higher than the international prices, the allocative efficiency will be reduced if more area is devoted for oilseed crops. Therefore, the decline in growth rates of area under oilseeds is on expected lines. It has been argued that the import of edible oils could be a viable option under these circumstances and India should concentrate more of its resources on production of cereals where it has a comparative advantage. This argument, however, fails to take into consideration the instability in international prices of edible oils and the possible disruptions in supply. The prices of edible oils have shown a significant increase during the recent past in response to the increased demand from the developing countries like India and diversion of edible oils for energy purpose. India being a large country (small country assumption does not hold good), large imports by India raise edible oil prices in the world market, which over time, may reduce the benefits supposed to accrue to the domestic consumers. Moreover, the landed cost of imported edible oils is comparable with the domestic cost of production of various edible oils (Acharya, 1997). These aspects have clearly brought out the dangers of undue dependence on edible oil imports to meet the edible oil requirements of the country.

Conclusions and Policy Implications

The edible oil and oilseed economy in India has undergone several changes, both by design and through economic compulsions. The availability of edible oils in the country is linked to a variety of factors like performance of edible oilseeds, trade policies and domestic edible oil availability and import scenario. The policy of import substitution of edible oils adopted in the mid-1980 led the way for operationalization of several developmental schemes for oilseed crops and this resulted in an impressive performance of oilseed crops and edible oil production till 1994-95. Thereafter, the opening up of the edible oil economy through trade liberalization reduced the protection available to oilseed cultivators by exposing the domestic economy to edible oil imports from abroad. The trade liberalization resulted in the integration of domestic edible oil prices


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The permissible limits of tariff protection that can be provided to the domestic producers of oilseeds and edible oils are sufficient in view of the difference in domestic and international prices, but the need for tariff protection arises only when imports are likely to reduce the share of domestic producers in a limited market. With the rising consumer incomes leading to a rapid growth in edible oil demand, there is no reason for discouraging imports so long as the equilibrium prices are high giving reasonable profits to the oilseed cultivators and oilseed processing units. The applied tariff levels reflect this thinking and have been kept low to make available imported edible oils at affordable prices to the domestic consumers. But an easing of international prices of edible oils could see India setting tariffs at rates higher than the current levels. The net cost of this imposition of tariffs and the welfare tradeoff between producers of oilseeds and consumers of edible oil, which has to be balanced, has been brought out by the partial equilibrium model. An option available to the domestic oilseed producers in the scenario of decreasing protection is to become more competitive to increase the efficiency in production. With the option for area expansion being ruled out, the domestic oilseed producers have to improve the productivity and thereby reduce the cost of production of oilseeds and edible oils. Technology delivery and input supply in oilseed cultivation should be strengthened so that the need for protecting domestic producers of oilseeds could be gradually brought down commensurate with the increase in efficiency in oilseed production. This will have the effect of equalizing domestic cost of production of edible oils with that of international prices. It will simultaneously increase the domestic edible oil availability and profitability of oilseed cultivation. Some of the specific policy measures to address the present edible oil scenario are: Increase allocation for oilseed research to improve efficiency of oilseed production and to reduce the need for protection to domestic primary producers and processors of oilseeds. In the medium-term, the farm income safety net for oilseed producers needs continuation. Incentives for increasing productivity could be provided by linking Minimum Support Prices to production efficiency measured through internationally competitive cost of production4.

In view of the heavy import dependency expected to continue in the medium-term, maintenance of an effective buffer stock of edible oils is required to manage international volatility in supply and prices of edible oils. Measures to expand edible oil base by promoting non-traditional sources of edible oils like palm oil (highest per hectare productivity across edible oils) and rice bran oil need to be implemented

Oilseed and edible oil economy in India supports the livelihood of a significant part of the population and is also crucial for achieving nutritional security. The concerted efforts through integration of technology, policy and trade could transform the oilseed economy into a vibrant sector and contribute significantly to the achievement of inclusive agricultural growth.

1. The data from domestic wholesale price indices with base 2004-05= 100 published by the Office of the Economic Advisor , Ministry of Finance, were used for co-integration analysis . The international reference prices for the selected commodities were : Groundnut oil (any origin), c.i.f. Rotterdam; Soybean oil (Any origin)- crude, f.o.b. ex-mill Netherlands; Rapeseed Oil- Crude, fob Rotterdam; Palm oil- (Malaysia), 5% bulk, c.i.f. N. W. Europe; Soybeans- c.i.f. Rotterdam; and Groundnuts (peanuts)- cif Argentina. In the same study, the optimistic scenario for supply projection of edible oils was constructed by taking into account the potential yield of oilseed crop with adequate level of technology and was calculated as 14.92 Mt in 2020-21. Given the projected demand of 20.36 Mt of edible oils, even under optimistic scenario of supply projection, there will be a gap of 5.44 Mt by the end of 13th Plan, which will have to be met through imports. For the purpose of the model it was assumed that the supply curve has a constant elasticity of supply and the demand curve has a constant price elasticity of demand. The model employed was a partial equilibrium model which ignores the interaction between edible oils and other substitutes. The value of elasticity of supply was



Thomas et al. : External Market Linkages and Instability in Indian Edible Oil Economy


assumed to be 1, which is a close approximation for oilseed crops which are commercially cultivated in India with limited purchased inputs. The demand elasticity for edible oil calculated by Mittal (2006) on an all India basis (-0.78) was used in the model. The expenditure elasticity of demand was used as a proxy for income elasticity for edible oils and an expenditure elasticity of 0.55 calculated by Kumar (1998) was used in the model. 4. Measurement of relative production efficiency and levels of protection based on international reference prices and domestic prices has some disadvantages. The producers of foreign countries also receive production support which is not usually reflected in the international reference prices ( e.g., export subsidies). Expressed as a percentage of gross value of farm receipts, the Producer Support Estimate was 30 per cent ,34 per cent and 16 per cent for OECD countries, USA and EU, respectively during 2003-05. This calls for a realistic re-assessment of production efficiency of oilseeds in India and efforts to reduce the producer support provided in the developed economies.

security, Economic and Political Weekly, 45(25&26): 174-182. Engle, R. F. and Granger, C. W. (1987) Co-integration and error correction: Representation, estimation, and testing, Econometrica, 55: 251- 76. Ghosh, N. (2009) Effects of Tariff Liberalization on Oilseed and Edible Oil Sector in India: Who Wins and Who Loses?, Working Paper No. 2. Takshashila Academia of Economic Research, Mumbai. 37p. Gulati, Ashok., Sharma, Anil and Kohli, Deepali S. (1996) Self-sufficiency and allocative efficiency : Case of edible oils, Economic and Political Weekly, 30 March: A15-A24. IFPRI (International Food policy Research Institute) (2012) Food security portal available at http:// www.foodsecurityportal.org/policy-analysis-tools/ policy-tools Jha, Girish Kumar, Pal, Suresh, Mathur, V. C., Bisaria, Geetha, Anbukkani, P., Burman, R.R. and Dubey, S.K. (2011) Project Report on Oilseeds and Edible Oils Scenario in India, Division of Agricultural Economics, Indian Agricultural Research Institute, New Delhi. 105 p. Johansen, S. (1988) Statistical analysis of cointegration vectors, Journal of Economic Dynamics and Control, 12: 231254. Kumar, P. (1998) Food Demand Projection for India, Agricultural Economics Policy Paper 98-01. Indian Agricultural Research Institute, New Delhi. Kumar, Praduman, Shinoj, P., Raju, S.S., Kumar, Anjani, Rich, Karl M. and Msangi, Siwa (2010) Factor demand, output supply elasticities and supply projections for major crops of India, Agricultural Economics Research Review, 23: 1-14. Mittal, Surabhi (2006) Structural Shift in Demand for Food: Projections for 2020, Working Paper No. 184. Indian Council for Research on International Economic Relations (ICRIER). 43p. Ninan, K. N. (1995) Oilseeds development and policy: A review, Economic and Political Weekly. 25 March,: A14-A20. Reddy, Amarender A. (2009) Policy options for Indias edible oil complex, Economic and Political Weekly, 44(41): 22-24. Sekhar, C. S. (2004) Agricultural price volatility in international and Indian markets, Economic and Political Weekly, 23: 4729-4736.

The authors thank the anonymous referee for helpful suggestions on improving the paper.

Acharya, S.S. (1993) Oilseeds and pulses Price policy and production performance, Indian Journal of Agricultural Economics, 48(3): 317-333. Acharya, S.S. (1997) Agricultural price policy and development: Some facts and emerging issues, Indian Journal of Agricultural Economics, 52(1): 1-47. Agricultural Statistics at a Glance (2010) Directorate of Economics and Statistics, Department of Agriculture and Cooperation, Ministry of Agriculture, Govt. of India. Chand, R., Jha, D. and Mittal, S. (2004) WTO and oilseeds sector: Challenges of trade liberalisation Indias oilseed sector and WTO, Economic and Political Weekly, 34(6): 533-537. Dev, Mahendra S. and Rao, Chandrasekhara (2010) Agricultural price policy, farm profitability and food


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Srinivasan, P. V. (2004a) Managing Price Volatility in an Open Economy Environment: The Case of Edible Oils and Oilseeds in India . International Food Policy Research Institute. MTID Discussion Paper No.69. Srinivasan, P.V. (2004b) Impact of Trade Liberalization on Indias Oilseed and Edible Oils Sector, Report prepared

for IGIDR-ERS/USDA Project: Indian Agricultural Markets and Policy. Indira Gandhi Institute of Development Research (IGIDR), Mumbai. World Bank (2008) World Development Report, Washington D.C. 390 p.
Revised received: April, 2013; Accepted June, 2013

Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013 pp 199-208

Does Decentralization Improve Agricultural Services Delivery? Evidence from Karnataka

Elumalai Kannan*
Institute for Social and Economic Change (ISEC), Dr. V.K.R.V. Rao Road, Nagarabhavi, Bangalore - 560 072, Karnataka

The study has analysed the impact of decentralization of governance structure on the delivery of agricultural public services in the state of Karnataka using survey data collected from 36 grama panchayats through focussed group discussions. The evidence shows that discussions on agricultural issues in grama sabhas influence the public service delivery positively. Similarly, the regular participation of the officials of state department of agriculture in grama sabha meetings has a significant effect on joint agricultural activities, especially demonstrations of new technology to farmers. The study has underlined the importance of the institution and how such institutional structures can enable effective service delivery to the farmers. Key words: Agricultural services, decentralization, services delivery, Karnataka JEL Classification: B52, Q16

It has been widely debated that democratic decentralisation of governance structure leads to better delivery of public services to the poor (Crook and Sverrisson, 2001; Manor, 2004; Besley et al., 2004; Besley et al., 2007). The proponents of decentralization contend that it brings the elected local government officials closer to the people; hence, makes them to understand their specific preferences and aspirations as to reasonably reflect these in the developmental planning. Decentralization is also defended on the grounds that devolution of power with adequate authority and financial resources brings greater transparency, accountability and efficiency in the delivery of services, particularly to the marginalized and vulnerable sections of the society. In fact, the direct participation of people in local planning, implementation and monitoring of developmental programmes tends to improve the quality of public * Author for correspondence
Email: elumalaik@isec.ac.in

goods and services. Under democratic decentralization, people hold elected officials accountable for nonperformance through elections, public meetings and campaigns (Manor, 2004). Some studies have shown mixed evidences on the impact of democratic decentralization on delivery of services to the poor. Most of the arguments put forth for lack of improvement in the quality of services with decentralization are centred on the absence of supportive conditions like political commitment to share power, mobilization of poor, accountability of elected officials, adequate resources and technical capacity in the local governments (Aziz, 2000; Bardhan, 2002; Oommen, 2004; Johnson et al., 2005; Robinson, 2007a). Notwithstanding, these evidences are not inimical to the decentralization of governance itself, but largely focus on the process of decentralization that aim to achieve better delivery of services to the socially-disadvantaged groups (Oommen, 2004; Robinson, 2007b). Therefore, efficiency of decentralization is contingent upon improvement of such supportive conditions as they will


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enable the local governments to provide quality delivery of drinking water, health care services, educational facilities and rural infrastructure. The agriculture and related areas are among the functions devolved to the local governments. Since agricultural functions are complex, technical and highly heterogeneous, only those activities that are related to delivery of services and supply of material inputs have been devolved. The developmental activities, particularly delivery of services related to agriculture have been transferred to locally elected bodies. In all the states of India, except Kerala, the line departments of agriculture, horticulture, animal husbandry and fisheries continue to do planning and implementation of these sector-specific programmes with little involvement of village level local governments (grama panchayats1). However, agriculture being an important livelihood activity to the majority of rural poor who mainly comprise marginal and small farmers and agricultural labours, elected members of selfgovernment at village level pay attention to improving conditions of agriculture either directly or indirectly (Babu, 2010). It has been increasingly realized that decentralization of administrative responsibilities for the supply of agricultural inputs and technical services (extension) will provide easy access to farmers for improving agricultural production (Deshpande and Rao, 2002; World Bank, 2007). This actually assumes importance in the Indian context in the light of degeneration of state governments extension services delivery system. There are evidences to show that decentralization of governance structures along with land reforms have led to improved agricultural growth

in the states like West Bengal (Rawal and Swaminathan, 1998; Chattopadhyay, 2005). However, no systematic empirical studies are available dealing with how decentralization has helped to improve agricultural services delivery for achieving high agricultural growth and through which mechanism decentralized governance could influence agricultural development in villages. Amongst Indian states, Karnataka is the pioneer in the introduction of decentralization reforms, the experience of which has been intensively studied (Aziz, 1993; Sivanna and Reddy, 2007; Besley et al., 2007; Babu, 2010; Kadekodi et al., 2007; Rajasekhar and Manjula, 2011). But, in all these studies the link between democratic decentralization and delivery of agricultural-related public services is missing. Therefore, the present study has attempted to fill this gap, which may motivate further research in this field to gather evidences from other Indian states. In the global context, Akramov (2009) and Ba (2011) have argued that there is a relative scarcity of empirical research that connects decentralization of power and resources with delivery of agricultural-related public goods. Therefore, the present study has specifically tried to understand the importance of grama panchayats in the delivery of crop production and related services, and has analysed the determinants of joint delivery of agricultural goods and services with the line department of agriculture in the state of Karnataka.

Data Source
The study has used the data collected through a field survey of 36 grama panchyats (GPs) in Karnataka during November 2011. Since the present study was to analyse the mechanisms through which GPs can influence the delivery of agricultural public services for improving the conditions of farmers, Focus Group Discussions (FGDs) were organised to solicit information from the elected members of GPs. Although most of the GP members were farmers, some farmers who were not GP members were also included in the discussions to control the bias in the responses provided by the elected members. In addition, women GP members also participated in the FGDs. In all the group discussions, the Secretary and Panchayat Development Officer were present. Besides qualitative information, village-specific quantitative information was also collected from the GP office.

Grama panchayat, also known as village council, is the lowest structure of local governance constituted at the village level for a population of 5,000 to 7,000 with four to five villages. Election is held at the ward level and they constitute the elected body of GP. The village president and vicepresident are elected by the council members. As per the Eleventh Schedule of the Panchayat Raj Act, 29 subjects/ functions have been devolved to local governments. Under each GP, a grama sabha, also known as village assembly, is constituted to approve all plans for economic and social development, review panchayat finances, programme implementation and monitoring, and selection of beneficiaries for welfare schemes. The main purpose of holding grama sabha is to facilitate the direct participation of people in planning and execution of developmental programmes.

Kannan : Does Decentralization Improve Agricultural Services Delivery?


For conducting FGDs, three districts, viz. Mandya, Raichur and Udupi, representing different geographical locations and different levels of socio-economic development, were selected. From each district, two taluks were selected based on the size of cultivators population and from each taluk six GPs were selected in such a way that three GPs are located close to the taluk headquarters. It was supposed that the GPs close to the taluk headquarters tend to exert more political influence and also extract more resources through securing development programmes from the taluk panchayat and line departments of the state government. The GPs selected from Mandya were characterized by high level of canal irrigated area, dominance of politically active smallholders and presence of vibrant farmers associations. The sample GPs from Raichur represented rainfed region, large landholders, low political activism and low literacy level. The district Udupi, located in the coastal region of the state, has high literacy rate with functioning farmers associations and non-governmental agencies. The cropping pattern varied across GPs with cultivation of mainly cash crops in Mandya, plantation crops in Udupi and coarse grains in Raichur. The average number of villages per GP ranged from four to seven and the number of elected members ranged from 16 to 20 (Annexure 1). The elected body was the true representative of socially-disadvantaged groups like scheduled castes and tribes (SC/ST), the reservation of seats for such groups was determined based on their population, and vulnerable sections like women whose representation was actually higher than the legally mandatory norm of one-third of total seats. Reservation to the marginalized section was made with a view to represent them in developmental programmes, but evidence shows that they continued to depend on local elites belonging to upper caste and landlords for their economic well-being (Oommen, 2004; Johnson, 2004; Johnson et al., 2005). Therefore, in each FGD, it was ensured that at least 50 per cent of the elected members, including SC and ST members and women, participated in the discussions. In the present study, the participants were asked whether problems related to village agricultural activities were ever discussed in grama sabhas during the past two years. If discussed, details of the problems and actions taken thereon were collected through the

focus group discussions. In this way, the effect of decentralisation on agricultural service delivery was captured through a dummy variable which was taken as one if agricultural problems were discussed, otherwise zero. It was hypothesized that the effective deliberations of agricultural production related problems in the grama sabha will have positive impact on agricultural public services delivery in the villages. The agricultural services2 included all non-tangible and non-storable functions used by the farmers to improve agricultural productivity (Albert, 2000; Akramov, 2009). These services facilitate the farmers to access and use improved inputs, infrastructure, information and technology for improving productivity and income. Analytical Framework The present study is specifically focused on crop production related services, which is measured as an index of agricultural service delivery and is used as dependent variable. The index value (Ii) is normalised to range from 0 to 1 by using the following widely used mini-max method: (1) To analyse the relationship between decentralisation and agricultural service delivery a Tobit regression was estimated. Due to the censored nature of dependent variable, the OLS estimates are likely to be biased (Wooldridge, 2005) and hence the Tobit model was considered appropriate for the estimation. The Tobit regression in terms of latent variable is expressed as: (2)

where, Yi* is unobserved latent variable, yi is the agricultural service delivery index (Ii), Xi is the vector of decentralisation variables and Zi is the vector of village specific characteristics and ui is the error-term with usual properties. There are certain agricultural activities that a GP undertakes in collaboration with the department of

Agricultural services are part of broader rural services, which basically include crop production, animal production, roads, drinking water, natural resources management and related aspects.


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Table 1. Variables used in the construction of agricultural service delivery index Variable Direct activities Custom hiring of machinery Lease-out common land for agricultural purpose Bulk purchase of inputs like seeds, fertilisers, etc. Identify plots for demonstration and trials Identify beneficiaries of agricultural developmental schemes Construction of check dams, water harvesting, etc. De-silting irrigation canal Construction of rural market facilities Manage/supervise rural/weekly markets Indirect activities Assist in assessing credit requirements Recovery of loans Distribution of inputs like seeds, fertilisers, machinery Create awareness about agricultural technology Crop yield estimation Soil testing Monitor visits of extension workers Organise training programme on agriculture Village roads laying and maintenance Mean value 0.0278 0.1389 0.0278 0.1667 0.4444 0.4722 0.5833 0.1944 0.1667 0.2222 0.0278 0.3056 0.3056 0.0833 0.3611 0.3611 0.3056 0.6111 Standard deviation 0.1667 0.3507 0.1667 0.3780 0.5040 0.5063 0.5000 0.4014 0.3780 0.4216 0.1667 0.4672 0.4672 0.2803 0.4871 0.4871 0.4672 0.4944

agriculture for the benefit of the farmers within the villages 3. To capture these joint activities, the participants were asked whether GP undertook any such collaboration with the department of agriculture during the past two years and the same was measured as a dummy variable. The probability of joint activities of GP was used as a dependent variable. Given the dichotomous nature of dependent variable, logit regression method was used to analyse its determinants. The maximum likelihood method was followed to estimate the parameters as the application of standard OLS procedure gives biased estimates due to the use of dummy dependent variable (Gujarati, 2004). The estimated logit regression is specified as per Equation (3): Li = ln (Pi| 1 Pi) = + Xi + ui (3) where, Pi is the probability of joint activities, Li is the log of the odds ratio, Xi is the vector of the explanatory variables and ui is the error-term with usual properties. The selection of explanatory variables and justification for using them in the above models has been discussed in the subsequent sections.

Results and Discussion

Relationship between Decentralization and Agricultural Services Delivery For regression analysis, agricultural services delivery index was used as the dependent variable, which was regressed against among others, discussions on crop farming issues in grama sabha employed to represent one of the measures of decentralization. The expected relationship between agricultural services delivery index and discussions in the grama sabha was positive. The information used to construct the agricultural services delivery index is provided in Table 1. The participants were asked whether GP undertook any of these activities4, either directly or indirectly within the villages of grama phanchyat during the past two years.

They include demonstration of new technology, training on use of new machineries and organising agricultural fairs/ exhibition

In the field survey, they were captured through both openended and close-ended questions, and then grouped under direct and indirect activities based on the nature of involvement of GPs. However, the grouping of activities is not watertight and it is mainly done for analytical purpose. For closeended questions, activity mapping prepared by the Rural Development and Panchayat Raj Department, Government of Karnataka was used.

Kannan : Does Decentralization Improve Agricultural Services Delivery? Table 2. Descriptive statistics of variables used in the regression analysis Variable Mean value Standard deviation 0.422 0.280 0.494 0.207 0.504 0.467 0.504 19.909 0.220 0.586 0.208 0.507 9.233 Minimum value 0.000 0.000 0.000 0.000 0.000 0.000 0.000 1.000 0.140 0.136 0.011 0.000 2.000


Maximum value 1.000 1.000 1.000 1.000 1.000 1.000 1.000 70.000 0.950 3.870 0.730 1.000 35.000

Decentralisation variables Held grama sabha meetings regularly as mandated 0.778 during the past two years Constitution of a Production Committee 0.917 Joint activities with Department of Agriculture 0.611 Agricultural service delivery index 0.344 Discussed issues on crop farming in grama sabha 0.556 Male Pradhan of GP 0.694 Agricultural officers attending grama sabha meetings 0.444 GP-specific characteristics Number of tractors 23.500 Proportion of cultivator households 0.684 Proportion of cultivated area 0.737 Proportion of MGNREGA spending 0.288 Existence of Farmers Association 0.500 Distance from taluk head quarters 15.333

Here, direct activities included those activities which were initiated by the GP or through developmental programmes entrusted by taluk panchayat or zilla panchayat for implementation and indirect activities included those activities that were carried out in collaboration with other agencies of line departments. Among all the activities, village roads laying and maintenance received the highest priority, followed by improving the provision of irrigation water through de-silting of irrigation canal, construction of irrigation facilities and water harvesting structures like check dams and farm ponds. Another important function that GP undertook through grama sabha was the selection of beneficiaries for various subsidy based agricultural schemes. It is compulsory that the names of the beneficiaries once approved should be displayed on the notice board for public information and also for tracking economic status of the beneficiaries. Some GPs also monitor visits of the agricultural extension officer who is supposed to interact with the farmers for providing technical advice. However, activities related to organization of trainings and demonstrations, which are crucial for motivating farmers to adopt new technology, jointly undertaken with line departments, seem to be limited. Table 2 provides descriptive statistics of the variables used in the regression analyses. It can be

observed that about 78 per cent of the sample GPs held grama sabhas5 regularly during the past two years and only 56 per cent of them discussed issues of crop farming. Further, the mean value of agricultural service delivery index was only 0.34. Since 2006-07 the delivery of certain public services, especially those related to management of natural resources encompassing soil and water conservation, flood control, renovation of water bodies and land levelling, which have implications for raising agricultural production, appeared to have improved with the introduction of Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) (Rajasekhar et al., 2012). The implementation of MGNREGS has certainly invigorated the GP machineries to plan and implement the developmental works at the village level. Therefore, to capture the importance of employment guarantee programme on agricultural services delivery, the share of MGNREGS spending was used as an explanatory variable in the regression analysis. But, the much hyped MGNREGS programmes average spending on agricultural works was only 29 per cent of the total expenditure and the share of expenditure ranged from 1.1 per cent to 73.0

The problems related to holding a gram sabha, participation and deliberation of issues can be found in Besley et al. (2005; 2007) and Babu (2010).


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Table 3. Effect of decentralization on agricultural services delivery Dependent variable: Agricultural service delivery index Independent variables Discussions on crop farming issues in grama sabhas Proportion of cultivator households Proportion of cultivated area Constitution of production committee Existence of farmers association Male pradhan Proportion of MGNREGS spending Mandya district dummy Raichur district dummy Constant Observations OLS R2 /Tobit log pseudolikelihood -0.195 (0.233) 36 0.331 OLS Model 1 0.247** (0.097) 0.402** (0.186) 0.006 (0.040) 0.119* (0.068) 0.102 (0.086) -0.093 (0.091) 0.090 (0.197) OLS Model 2 0.195** (0.088) 0.441** (0.210) 0.037 (0.031) 0.076 (0.083) Tobit Model 1 0.257*** (0.092) 0.406** (0.168) 0.003 (0.038) 0.112* (0.066) 0.096 (0.080) -0.100 (0.084) 0.099 (0.179) Tobit Model 2 0.201** (0.082) 0.456** (0.194) 0.037 (0.028) 0.077 (0.078)

-0.117 (0.151) -0.154 (0.120) -0.072 (0.150) 36 0.280

36 11.006

-0.126 (0.139) -0.156 (0.109) -0.085 (0.143) 36 9.803

Notes: ***significant at 1 per cent level, **significant at 5 per cent level and * significant at 10 per cent level; Heteroscedasticity corrected standard errors are given within the parentheses

per cent across the sample GPs. Therefore, it is expected that the impact of MGNREGS spending on improving agricultural public services delivery may or may not be empirically evident. The implications of political reservation of the president ( pradhan ) of GP on the provision of agricultural services were captured through a dummy variable, which was one if pradhan was a male. Further, the village-specific characteristics such as proportion of cultivator households, proportion of cultivated area and existence of farmers associations in a GP were also used as explanatory variables. The estimated regression results are given in Table 3. Different specifications were tried to analyse the relationship between decentralization and agricultural service delivery, with and without incorporating the GP specific characteristics. The Tobit model was estimated and its results are presented along with OLS

estimates for checking the robustness. The presence of a significant heteroscedasticity was detected by applying Breusch-Pagan test (Chi2=9.55, prob > Chi2=0.00) and hence, the White heteroscedasticity corrected estimates are presented. Due to small sample size, Ramsey regression specification error test (RESET) was conducted and the results [F (3,25) = 1.59, prob > F=0.217 without district dummy, and F(3,26)=0.20, prob > F = 0.892 with district dummy] showed no significant error in the specification of the models. For Tobit model, the heteroscedascity problem was corrected by using the STATA program. The estimated results from OLS and Tobit models were similar, except for the magnitude and level of significance of coefficients which appeared higher in the Tobit model in both the specifications. In the Tobit model 1, the estimated effect of discussions on crop farming issues in grama sabhas on agricultural service delivery index was positive and significant at one per

Kannan : Does Decentralization Improve Agricultural Services Delivery?


cent level. Interestingly, the proportion of cultivators households positively influenced the delivery of agricultural services in the villages. However, the coefficient of the constitution of production committee, which was captured through a dummy variable, was positive. It is for the reason that, except in Udupi, over 50 per cent of the GPs surveyed in other districts where production committees had been constituted, were not functional on the mandated lines of taking initiatives for improving village agricultural production and its related activities. It was learnt during the survey that the production committee members were not aware of their roles and they were mostly involved in the collection and recovery of local taxes. The positive effect of recovery of taxes was the increase in financial resources of GPs, which helped in undertaking village developmental works like construction of market complex and other facilities in the villages. The proportion of cultivated area, farmers association, proportion of MGNREGS spending on agriculture and pradhans gender did not significantly affect the agricultural services delivery. Since characteristics of the sample districts varied in terms of resource endowments, political activism and agricultural production, the district dummies were introduced in the model 2 by keeping Udupi as the reference category. As expected, the coefficients of discussions on agricultural issues in grama sabhas and proportion of cultivators households were positive and showed a significant influence on the agricultural services delivery. But, the GP level production committee and also farmers associations did not help to improve the agricultural public services delivery in the presence of district dummies. It was due to the reason that these committees and farmers association were not functioning so effectively in Mandya and Raichur as compared to in Udupi, which was actually reinforced by the results of negative and insignificant coefficients. Overall, these results imply that participation and effective deliberations on agricultural issues in grama sabhas influence their policy decisions positively on the delivery of agricultural public services. Determinants of Joint Activities of GP with State Agricultural Department It was observed during survey that the officials of the state department of agriculture tend to choose the

villages nearby the taluk headquarters or agricultural fields in proximity to highways to showcase new technologies through demonstrations and trainings. It was also observed that these demonstrations were usually being conducted in the fields of large land owners, who were willing to adopt new technology, take risk and happened to be either the past or present elected members of the GP. The interior villages were not likely to get such collaborative activities from the department. Therefore, the institution of grama sabha can play a pro-agricultural development role and the participation of agricultural officials in grama sabhas is considered an important variable influencing the probability of holding joint activities. The other explanatory variables were the presence of farmers association and the number of tractors. While farmers association can potentially influence the policy decisions of agricultural department through lobbying, farmers in the agriculturally-developed villages can pressurize the officials for holding joint activities with GP. In fact, the summary statistics given in Table 2 showed that only 61 per cent of the sample GPs had some joint activities with the department of agriculture and only 44 per cent of GPs reported regular participation of agricultural officers in the grama sabhas. The location distance of sample GPs from taluk headquarter ranged from 2 km to 35 km. The estimated logit regression results are provided in Table 4. As expected, the distance from taluk headquarters was negatively associated with holding joint activities but was statistically not significant. However, the regular participation of agricultural officials in grama sabhas significantly influenced the probability of a GP conducting joint agricultural programmes within villages. Similarly, a positive and significant effect of farmers association was observed. But, the level of agricultural development, which was captured through the number of tractors, did not significantly influence the joint activities. On the whole, it can be argued that the functioning institutional structures do matter with a greater degree of devolution for fostering agricultural development in the villages.

The present study has examined whether the democratic decentralization of governance has improved agricultural public services delivery in the


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Table 4. Results of the Logit regression model Dependent variable: Joint activities with Department of Agriculture Independent variables Distance from taluk headquarters Agricultural officers attended the grama sabhas Presence of farmers association Number of tractors Constant Number of observations Likelihood ratio (LR) statistics Prob > Chi2 Pseudo R2 Coefficient -0.029 1.624 1.524 -0.030 0.249 36 10.590 0.0316 0.2201 Z-value -0.690 1.900 1.790 -1.350 0.270 P >z 0.489 0.058 0.073 0.176 0.790

state of Karnataka. It has also analysed the determinants of joint agricultural activities of grama panchayats (GPs) with the department of agriculture for improving the farming condition in the villages. Various indicators of decentralization and the GP specific characteristics were collected through focus group discussions from the select grama panchayats. The regression results have shown that discussions on agricultural issues in grama sabhas positively influence the agricultural service delivery. Although it cannot be argued that discussions in grama sabhas have a causal effect on agricultural service delivery, it certainly underlines the importance of institution of grama sabha. Further, even with a little devolution of agricultural functions, GPs on their own play an important role in the delivery of agricultural services and therefore, a greater devolution of functions with adequate finance and administrative control especially over extension staff will significantly improve agricultural production. Among other explanatory variables, size of cultivators population has a positive impact on the agricultural service delivery index. The joint agricultural activities of GP with the department of agriculture are largely determined by the regular participation of department officials in grama sabha meetings, which tend to put pressure on the officials to organize the demonstrations and trainings on new technology to farmers in the villages. Interestingly, farmers association has been found to positively influence on such collaborative activities to take place through lobbying and political activism. The study has contributed to the discussions on impact of democratic decentralisation, especially on the delivery

of agricultural services. However, given the considerable period of time passed since the introduction of decentralization reforms, there is big scope for drawing more insights through an in-depth survey of large sample of village level elected selfgovernments across the states in India.

The author sincerely thanks the anonymous referee for providing useful comments and constructive suggestions to improve the paper. However, errors, if any, are mine.

Akramov, K. T. (2009) Decentralisation, Agricultural Services and Determinants of Input Use in Nigeria, IFPRI Discussion Paper 00941, International Food Policy Research Institute (IFPRI), Washington, D C, USA. Albert, H. (2000) Agricultural Service Systems: A Framework for Orientation, Services for Rural Development, GTZ, Eschborn, Germany. Aziz, A. (1993) Decentralised Planning: The Karnataka Experience, Sage Publications, New Delhi. Aziz, A. (2000) Democratic decentralisation: Experience of Karnataka, Economic and Political Weekly, 35(39): 3521-26. Ba, Y. M. (2011) Democratic Deepening and Provision of Public Goods: A Study on Decentralisation and Agricultural Development in 30 Countries in SubSaharan Africa, Political Science Theses Paper 44, Georgia State University, USA.

Kannan : Does Decentralization Improve Agricultural Services Delivery? Babu, D. M. (2010) Decentralised Planning in Karnataka: Realities and Prospects, ISEC Monograph 19, Institute for Social and Economic Change (ISEC), Bangalore. Bardhan, P. (2002) Decentralisation of governance and development, The Journal of Economic Perspectives, 16(4): 185-205. Besley, T., Pande, R. and Rao, V. (2005) Participatory democracy in action: Survey evidence from south India, Journal of the European Economic Association, 3(23): 648-57. Besley, T., Pande, R. and Rao, V. (2007) Political economy of panchayats in south India, Economic and Political Weekly, 42(8): 661-66. Besley, T., Pande, R., Rahman, L. and Rao, V. (2004) The politics of public good provision: Evidence from Indian local governments, Journal of the European Economic Association, 2(2-3): 416-26. Chattopadhyay, A.K. (2005) Distributive impact of agricultural growth in rural West Bengal, Economic and Political Weekly, 40(53): 5601-10. Crook, R. C. and Sverrisson, A.S. (2001) Decentralisation and Poverty Alleviation in Developing Countries: A Comparative Analysis or is West Bengal Unique, IDS Working Paper 130, Institute of Development Studies, England. Deshpande, R. S. and Rao, V. M. (2002) Food security in drought prone areas, Economic and Political Weekly, 37(35): 3677-81. Gujarati, D. (2004) Basic Econometrics, Fourth Edition, The McGraw Gill, New York. Johnson, C. (2004) Decentralisation in India: Poverty, Politics and Panchayati Raj, Working Paper 199, Overseas Development Institute, London. Johnson, C., Deshingkar, P. and Start, D. (2005) Grounding the state: Devolution and development in Indias panchayats, The Journal of Development Studies, 41(6): 937-70. Kadekodi, G., Kanbur, R. and Rao, V. (2007) Governance and Karnataka model of development, Economic and Political Weekly, 42(8): 649-52.


Manor, J. (2004) Democratisation with inclusion: Political reforms and peoples empowerment at the grossroots, Journal of Human Development, 5(1): 5-29. Oommen, M. A. (2004) Deepening Decentralised Governance in Rural India: Lessons from the Peoples Plan Initiative of Kerala, Working Paper No. 11, Centre for Socio-Economic and Environmental Studies, Kerala. Rajasekhar, D., Berg, E. and Manjula, R. (2012) NREGS, gram panchayats and inclusive climate-smart agriculture: Evidence from south India, paper presented at CAPRi/CCAFS Workshop on Institutions for Inclusive Climate-Smart Agriculture, 10-13 September, Nairobi, Kenya. Rajasekhar, D. and Manjula, R. (2011) Decentralised Governance and Service Delivery Affordability of Drinking Water Supply by Gram Panchayats in Karnataka, ISEC Monograph 23, Institute for Social and Economic Change (ISEC), Bangalore. Rawal, V. and Swaminathan, M. (1998) Changing trajectories: Agricultural growth in West Bengal, Economic and Political Weekly, 33(40): 2595-02. Robinson, M. (2007a) Does decentralisation improve equity and efficiency in public service delivery, IDS Bulletin, 38(1): 7-17. Robinson, M. (2007b) Introduction: Decentralising service delivery? Evidence and policy implications, IDS Bulletin, 38(1): 1-6. Sivanna, N. and Reddy, M.G. (2007) Panchayats and Watershed Development: An Assessment of Institutional Capacity, ISEC Monograph 12, Institute for Social and Economic Change, Bangalore. Wooldridge, J. F. (2005) Introductory Econometrics: A Modern Approach, South-Western College Publishers, USA. World Bank (2007) World Development Report 2008: Agriculture for Development, World Bank, Washington, D.C.
Received: March, 2013; Accepted August, 2013


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July-December 2013 Annexure I

Basic information on sample GPs in different districts of Karnataka Particulars Number of GPs surveyed Average number of villages per GP Average number of members per GP Percentage of SC members Percentage of ST members Percentage of other members Percentage of women members Average number of members participated per FGD Percentage of GPs jointly working with the State Agriculture Department Major crops grown Mandya 12 7 16 19.0 3.2 77.8 43.4 9 41.7 Paddy, Sugarcane, Ragi, Mulberry Raichur 12 5 20 20.3 24.2 55.5 38.6 9 58.3 Jowar, Cotton, Chilli, Red gram, Groundnut Udupi 12 4 17 6.2 10.8 83.0 42.8 7 83.3 Paddy, Areca nut, Coconut, Banana, Pepper

Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013 pp 209-219

Structural Transformation in Dairy Sector of India

Anjani Kumara*, Shinoj Parappurathua and P.K. Joshib

National Centre for Agricultural Economics and Policy Research, New Delhi - 110 012 International Food Policy Research Institute (IFPRI), Delhi Office, New Delhi - 110 012

The paper has looked into the process of structural transformation of Indias dairy sector. During the past two decades, the sector grew at the rate of 4 per cent per year, making milk as the single largest agricultural commodity in the country. The growth in dairying has primarily been driven by yield improvement. A conspicuous shift has been observed in the composition of dairy herd from traditional to crossbred cows and buffaloes, and this led to improvements in milk-yield. Genetic enhancement, better management of stock and farmers improved access to milk markets have driven the process of transformation. Nevertheless, the status of dairy infrastructure and the delivery of veterinary services in the country are still poor and concerted efforts are required to bring about further transformation. Key words: Milk production, dairy sector, sources of growth, structural transformation JEL Classification: Q13, Q18, O13

Dairying plays an important role in strengthening rural economy of India. It is perceived to be an effective instrument for bringing socio-economic transformation. It contributes more than one-fifth to the agricultural value of output and provides employment to about 21 million people, the majority of whom are resource-poor (Kumar et al., 2010). Dairying in India has come a long way, from being written off as a basket case to the largest milk producer in the world, with production crossing 121 million tonnes in 2010-11 (BAHS, 2012). Milk production has increased tremendously despite the fact that 70 per cent of its producers are small landholders and landless households. The dairy sector has undergone a significant structural change over time. Several interesting patterns
* Author for correspondence (on deputation to ICRISAT), Email: anjanincap@gmail.com The paper is derived from the International Food Policy Research Institute (IFPRI) sponsored study on Transformation of Indian Dairy Sector.

are unfolding along the milk value chain, the noteworthy being: changes in composition of dairy species in favour of crossbred cows, expanding network of dairy cooperatives and increased participation of private sector in milk collection and processing (Rajendran and Mohanty, 2004; Singh and Datta, 2010; Kumar et al., 2010; Birthal and Negi, 2012). These changes contributed significantly to the growth of Indias dairy sector, and the process is popularly known as White Revolution. Yet, there are several concerns that take away the shine from the glorious achievements. Milk yield is quite low, despite a shift in herd composition in favour of high-yielding crossbred cows. The low milk yield is due to poor genetic make-up, shortage of feed and fodder, inadequate animal health care, etc. (FAO, 2003; Chand and Raju, 2008). Nonetheless, there is lack of a cause and effect relationship to better understand the factors constraining improvements in milk yield. Identification of the specific factors will help in developing strategic interventions for raising milk yield and ensuring


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sustainable growth of the dairy sector. Under this background, this paper looks into the process of structural transformation of dairy sector in terms of trends in milk production and sources of growth therein.

Data and Methodology

Data The study is based on the data compiled from various published sources. Data on milk production, dairy animals and their yields, veterinary institutions, dairy cooperatives and milk processing were compiled from the Basic Animal Husbandry Statistics, published by the Department of Animal Husbandry, Dairying and Fisheries of the Ministry of Agriculture, Government of India. Data on the number of operational landholdings, irrigation and cultivated area under fodder crops were compiled from the Agricultural Statistics at a Glance, published by the Directorate of Economics and Statistics, Ministry of Agriculture. Data on the number of veterinarians in the country were extracted from the website (http://www.oie.int/animalhealth-in-the-world) of The World Organization for Animal Health (OIE). Methodology Besides descriptive statistics and trends, decomposition analysis was carried out to assess the relative contribution of animal population and yield to the growth of milk production. Q = P.Yo + Y.Po + P.Y where, Q = Qt Q0, P = Pt P0, and Y = Yt Y0 Here, P.Y0 represents the population effect, Y.P0 represents the yield effect, and P.Y represents the interaction effect. Q, Y and P represent milk production, milk yield and population, respectively; subscripts o and t represents the base year and terminal year, respectively. Irrespective of whether the past growth has been driven by animal numbers or yield, the enhancement in milk yield is critical to ensure a sustainable growth in milk production in the long-run. To identify the major determinants and their causal relationship with milk yield, regression analysis was carried out. A panel data of 23 states for the period 1992-93 to 2010-11 was used for this purpose. The average milk yield (YLD)

measured in litres/animal/day in the selected states was taken as dependent variable in the regression. The explanatory variables included in the analysis were: share of crossbred in milch animal stock (CRBRED %), share of buffalo in milch animal stock (BUF %), herd size in terms of number of bovine animals per rural household (HSIZE), area under irrigation (IRR %), number of dairy co-operative societies per thousand bovine units (COOP) and number of veterinary institutions per thousand bovine units (VET). Means and standard deviations of the explanatory variables are provided in Annexure I. Among the selected explanatory variables, the ratio of crossbreds in the total female milch bovines was taken to represent the technological change in the dairy sector. Breed improvement in cattle has been an important component of Indias dairy development policy, and share of crossbreds in total female cattle population serves as a proxy for technological change in the sector. In many parts of the country, buffalo population is growing faster than of cattle. Moreover, milk yield of buffalo is higher than of indigenous cattle. To assess whether such a shift in herd structure could help increase milk yield, the percentage of milch buffaloes in the total milch stock was also considered as one of the factors in raising the milk yield. The potential gains from technology and shifts in herd structure cannot be realized if inputs such as feed and fodder and animal health care services are in short supply. Area under irrigation is considered as a proxy for continuous supply of green fodder. The role of institutions and infrastructure in dairy development is crucial as well. Dairy cooperatives have witnessed a significant growth in India and could possibly have an impact on milk yield. Their contribution was captured by including the intensity of primary dairy cooperatives in the regression equation. The number of veterinary institutions was included to represent animal health care. The variables, COOP and VET were found to be highly correlated with each other and could not be accommodated together in a single regression. Therefore, two separate equations (Model 1 and Model 2) were estimated, the structural forms of which are given below: YLD = F (CRBRED, BUF, HSIZE, IRR, COOP) (1)

Anjani Kumar et al. : Structural Transformation in Dairy Sectorof India


YLD = F (CRBRED, BUF, HSIZE, IRR, VET) (2) Random Effects Model (REM) regression, a technique which is consistent with panel datasets, was used for the estimation. The REM follows the assumption that the variation across entities (states) is random and uncorrelated with the independent variables included in the model. In order to ascertain the suitability of REM over Fixed Effects Model (FEM), which is an alternative method under such circumstances, Hausman test was carried out. The results of this test favoured REM. Further, Breusch Pagan LM test was carried out for ascertaining the suitability of REM over simple OLS estimation. The data was checked for heteroscedasticity and serial correlation. The LR test was conducted to diagnose heteroscedasticity, whereas, Wooldridge test was used to ascertain the presence of serial correlation. The corresponding test statistics indicated that both heteroscedasticity as well as serial correlation were present in the regressions (Annexure 2). These problems were overcome by obtaining robust estimates of standard errors through a STATA procedure that ensured that the levels of significance of coefficients were not affected adversely.

and this momentum has continued though with slight deceleration. This heralded the country into an era of import substitution and self-sufficiency towards the late-1990s. The availability of milk increased from 110g / person / day in 1972-73 to 263 g / person / day in 2010-11.
Regional Trends

There are significant regional variations in the structure of dairying in the country. In 2010-11, Uttar Pradesh with production of 22.4 Mt was the largest milk-producing state (18.4% of total) in India. Rajasthan (10.8%), Andhra Pradesh (9.2%), Punjab (7.7%), Gujarat (7.6%) Maharashtra (6.6%), Bihar (6.6%), Haryana (5.1%) were other significant milkproducing states (Table 1). The share of Andhra Pradesh, Bihar, Gujarat, and Rajasthan in national milk production has increased in
Table 1. Trends in milk production across states of India State CAGR: 1992-93 to 2010-11 1992-93 2010-11 (% per annum) 5.35 1.14 5.51 6.55 6.41 1.05 1.62 4.47 3.26 8.42 7.08 0.94 9.63 7.91 5.98 18.37 5.22 100 (57.9) 9.19 0.65 6.62 7.65 5.14 0.90 1.32 4.20 2.17 7.01 6.60 1.37 7.73 10.86 5.61 18.40 3.67 100 (121.8) 6.68 0.52 6.11 4.89 2.68 2.38 3.94 2.79 0.73 3.16 3.47 7.27 2.93 4.86 3.32 4.38 1.93 3.95 Share in national milk production (%)

Results and Discussion

Key Trends and Patterns of Growth
Trends in Milk Production: All India

Increasing milk production has been a pre-eminent goal of Indias dairy development since independence. In pursuing this objective, the dairy development planning process in the country has devised several interventions. The recent initiative of Perspective National Dairy Development Plan is the latest example. The dairy industry has undergone significant changes with milk production increasing from 17 million tonnes (Mt) in 1950-51 to 121.8 Mt in 2010-11 (BAHS, 2012). However, between 1951 and 1973, the growth rate in milk production was barely 1 per cent per annum. A significant turnaround in the sector unfolded during the 1970s, when milk production grew at an annual rate of 4.5 per cent. During this period, a mega programme, Operation Flood for increasing milk production was launched. During the 1980s, the growth in milk production further accelerated to 5.4 per cent

Andhra Pradesh Assam Bihar Gujarat Haryana Himachal Pradesh Jammu & Kashmir Karnataka Kerala Madhya Pradesh Maharashtra Odisha Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal India

Source: Computed from BAHS (various issues) Note: The figures within the parentheses show total milk production in million tonnes.


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Table 2. Share of different milch species in milk production across different states of India (in per cent) 1993-94 State Cattle CrossNonbred descript 5.8 17.0 5.0 6.0 4.4 18.3 39.7 17.7 73.1 3.4 25.6 31.0 23.2 0.0 23.2 5.9 27.0 14.2 23.0 66.0 36.0 26.4 13.3 26.5 26.3 35.7 15.9 38.1 24.1 49.2 4.1 37.0 36.4 21.9 64.3 27.7 Buffalo Goat 2010-11 Cattle CrossNonbred descript 17.6 27.7 18.9 17.1 9.4 46.9 59.2 42.7 93.8 6.6 38.1 43.5 29.1 6.9 76.8 8.7 43.0 24.3 10.1 56.7 35.6 21.2 6.0 13.8 15.6 25.3 0.9 37.8 15.3 42.5 3.4 31.1 11.3 17.9 48.9 20.8 Buffalo Goat

Andhra Pradesh Assam Bihar Gujarat Haryana Himachal Pradesh Jammu & Kashmir Karnataka Kerala Madhya Pradesh Maharashtra Odisha Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal All India

71.2 13.5 47.2 63.1 80.3 51.2 29.4 46.1 5.5 51.1 45.5 19.5 71.9 52.2 40.4 66.4 8.4 53.7

0.0 3.6 11.9 4.5 2.0 4.0 4.6 0.5 5.5 7.5 4.8 0.4 0.7 10.8 0.0 5.9 0.3 4.4

72.3 12.8 42.7 59.2 83.6 34.8 19.3 31.0 0.8 50.1 43.2 13.7 66.9 50.0 11.9 68.1 5.0 51.2

0.0 2.9 2.8 2.5 1.0 4.4 5.8 1.1 4.5 5.5 3.4 0.2 0.6 12.0 0.0 5.3 3.1 3.8

Source: Computed by authors based on data from BAHS (various issues)

the past two decades while that of other states it has either remained stagnant or decreased. The growth in milk production across the states has depicted a diverse trend (Table 1). During 1992-93 to 2010-11, the growth in milk production was very impressive in the states of Odisha (7.3%), Andhra Pradesh (6.7%), and Bihar (6.1%). The states of Gujarat, Rajasthan, and Uttar Pradesh also recorded more than 4 per cent annual growth in milk production. This impressive growth trend in milk production suggests that dairying is becoming wide-spread across the country and its contribution in providing livelihood is increasing with time. The recent spurt in growth of milk production in Bihar and Odisha indicates the emergence of new centres of milk production in the country.
Sources of Milk Production

The relative shares of cattle, buffalo and goats in total milk production have not undergone any substantial change during the past two decades. However, significant changes have been noticed in some states like Bihar, Gujarat, Himachal Pradesh, Jammu & Kashmir, Karnataka, Kerala and Tamil Nadu (Table 2). The general trend in all these states was a shift from buffalo to cow milk, the primary reason being increasing replacement of the non-descript cows with crossbred cows. Milk production from crossbred cows has been found growing at a higher rate than that from buffalo and non-descript cattle. The changing composition of dairying population clearly indicated the growing contribution of crossbreed cows in milk production, from 14 per cent in 1993-94 to 24 per cent in 2010-11. Further, the share of crossbreeds in cattle milk production has been increasing consistently during the past two decades, with corresponding shares swelling from 31 per cent in 1993-94 to 53 per cent in 2010-11. As the process

Cows and buffaloes are the main milch species and together contribute about 96 per cent to the total milk production in the country. Goats account for the rest.

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of replacement of non-descriptive cows with improved crossbred cows is still progressing, the contribution of crossbreds to milk production is certainly expected to increase further in the times to come.
Milk Yield

animals is not strictly comparable due to diversity in the systems and management practices followed in different countries, their persistent lower yield cannot be overlooked. In India, milk yield grew by about 3 per cent per annum during the 1990s, but decelerated to 2 per cent during the 2000s. The regional differences in milk yield are also evident, which can be attributed to several factors. Firstly, the distribution of breedable bovine population differs significantly across the country and secondly, there are also wide differentials in resource base for feed, fodder, animal healthcare, artificial insemination facilities, etc. across states. Such factors are instrumental to a large extent in creating regional disparities in production and yield of milk across different states. In 2010-11, the yield of milch animals (cattle and buffalo) was highest in Punjab (9.1 kg/day), followed by Kerala (8.6 kg/day) and Haryana (6.8 kg/ day) and was lowest in Assam (1.3 kg/day) in 201011. Other states like Himachal Pradesh, Madhya Pradesh, Odisha and West Bengal also have low yield (3 kg/day). However, in general, the yield of milch animals has increased over time irrespective of states. Impressive growth in milk yield was put up by states like Odisha (6.6%), Andhra Pradesh (4.1%), Kerala (4.1%) and Tamil Nadu (3.2%) during the period 199293 to 2010-11.On the contrary, the growth in milk yield was almost stagnant in Assam and West Bengal and modest in Karnataka, Uttar Pradesh, Punjab, Rajasthan, etc.
Sources of Growth in Milk Production

India has the largest cattle and buffalo population in the world. The average yield of Indian cows is among the lowest, though the yield of Indian buffaloes is modest. The average milk yield of milch animals (cows and buffaloes taken together) is much less than the global average. The highest milk yield of over 25 kg/ day is in Israel, followed by the USA (19 kg/day), the UK (15 kg/day) and Australia (12kg/day). In India, the average milk yield of milch animals (cattle and buffalo) was 2.71 kg/day in 1992-93, which rose to 3.36 kg/day in 2000-01 and further to 3.94 kg/day in 2010-11 (Table 3). Although, the yield of Indian milch
Table 3.Yield of animals in-milk across states Milk yield (kg/day) 1992200993 10 1.87 1.16 2.58 3.47 5.06 2.39 2.81 2.11 3.89 1.70 2.50 0.73 5.83 3.34 3.07 3.00 2.24 2.71 3.80 1.27 3.42 4.63 6.54 2.99 4.51 3.22 7.59 2.69 3.62 2.06 8.88 4.99 5.13 3.93 2.76 3.94 Growth rate (%) 1992-93 to 2009-10 4.13 0.25 1.27 1.63 1.34 1.08 3.01 2.31 4.06 1.62 2.74 6.64 2.16 2.20 3.21 1.76 1.67 2.10


Andhra Pradesh Assam Bihar Gujarat Haryana Himachal Pradesh Jammu & Kashmir Karnataka Kerala Madhya Pradesh Maharashtra Odisha Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal All India

*includes cross-bred Source: Computed from BAHS (various issues)

The impressive growth in milk production has been a matter of satisfaction and focus in the policy discourse on dairy development in India. However, development of dairying has not been uniform across the country. Significant regional disparities exist (Jha, 2004; Saikia and Kakaty, 2007). In order to empirically verify these regional differentials, this section has presented the quantification of contribution of various states to total incremental growth of milk production. Accordingly, growth in milk production during the period 1992-93 to 2010-11 was disaggregated to derive the contribution of individual states. Further, the growth arising due to change in livestock population, and productivity of livestock at the national level, has been examined with the help of decomposition analysis.


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Contribution of Different States to Growth in Milk Production

The contribution of different states to incremental milk production between 1992-93 and 2010-11 has been listed in Figure 1. During this period, the milk production almost doubled, from about 58 Mt to 122 Mt. Uttar Pradesh alone accounted for more than 18 per cent of the incremental growth in national milk production. It was followed by Rajasthan with a contribution of over 13 per cent. The states of Andhra Pradesh (12.7%), Gujarat (8.7%), Bihar (7.6%) and Punjab (6.0%) have also contributed significantly to the additional milk production in the country during this two-decade period. These six states together contributed about 67 per cent to the additional milk production in the country. Madhya Pradesh and Maharashtra were the other states which contributed to the overall growth in milk production.
Contribution of Changes in Population and Yield of Livestock

production. The results have suggested that, between 1992 and 2010, about 57 per cent of the incremental production was contributed by increase in milk yield and 42 per cent by increase in population of milch animals. The crossbred cattle accounted for 35 per cent of the additional milk production and 12 per cent of this came from improvement in their milk yield (Table 4). On the other hand, indigenous cows contributed 15 per cent to the increment of which 74 per cent came
Table 4. Share of yield and population of livestock to milk production growth Animal type Share in growth of milk production (%) Milk yield Cross-bred cattle Non-descript cattle Total cattle Buffalo Goat Total milch animals 12.0 74.2 61.2 40.1 58.5 56.9 Population 87.3 25.4 37.8 59.0 40.9 42.2 Interaction 0.7 0.4 0.9 0.9 0.6 0.9

Another dimension of looking at the sources of growth is to assess the contribution of dairying population and breed quality to the incremental milk

Figure 1. Contribution of different states to the growth of milk production in India, 1992-2010 Source: Computed from BAHS (various issues).

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from enhanced milk yield. The buffaloes accounted for 50 per cent of the augmented milk production and their yield improvement contributed 40 per cent to it. These results indicate that the growth in milk production has come largely from replacement of lowyielding indigenous cows with crossbreds and highyielding buffaloes. The contribution of yield to output growth is the combined effect of technology and improvements in feed, healthcare and other management practices. In the case of crossbred/improved animals, milk yield is embodied as a general trait and therefore, the contribution of the crossbred/improved animals to incremental milk production may be attributed to the contribution of technological change. The potential of crossbred cattle and buffaloes is yet to be fully exploited and efforts should be made to bridge this gap. Better management of higher milk yielding breeds of indigenous cows such as Sahiwal, Gir, and Tharparkar can further increase the rate of growth in milk production. Demonstrably, these improved indigenous breeds have yield potential up to 2000 kg per annum. The effect of technological, institutional and socioeconomic advances on yield growth can be measured using the economic tool total factor productivity (TFP). Kumar and Pandey (1999) have estimated the TFP

growth in the livestock sector for the period 1951 to 1995-96 and have found that growth in TFP accelerated after 1970-71(1.4% per year) compared to the pre1970-71 period ( -0.4 % per year). During the post1970-71 period, the TFP growth accounted for nearly 40 per cent of the output growth in the livestock sector. Determinants of Milk Yield As explained in the section on methodology, the determinants of milk yield were identified based on regression analysis with milk yield (YLD) as the dependent variable. The estimated coefficients, their levels of significance and robust standard error along with other econometric test statistics of the models 1 and 2 are presented in Table 5. Both the equations were significant at 1 per cent level as was evident from the Wald chi2 statistics and had reasonably good explanatory power indicated by the corresponding R2 values. The coefficient for the variable CRBRED was found to be 0.159 in Equation (1) and 0.190 in Equation (2); both of them were significant at 1 per cent level. This corroborates the unflinching influence of crossbreds in improving milk yield in the country. Statistics show that the number of crossbred cows increased impressively at an annual rate of 6.7 per cent during the period 1993-94 to 2010-

Table 5. Estimated Random Effects Model (REM) regression to identify determinants of milk yield Dependent variable: Milk yield per animal per day Explanatory variable Constant Share of cross-bred (CRBRED) Share of buffalo (BUF) Herd size (HSIZE) Irrigated area (IRR) Dairy co-operatives (COOP) Veterinary institutions (VET) No. of observations Wald chi2 R2 within R2 between R2 overall Equation 1 Coefficient -0.198 0.159*** 0.007 -0.031** 0.310** 0.070** 248 109.6*** 0.58 0.60 0.60 Robust standard error 0.463 0.034 0.018 0.009 0.013 0.035 Coefficient -0.204 0.190*** 0.006 -0.025*** 0.277* 0.033 302 92.27*** 0.50 0.45 0.45 Equation 2 Robust standard error 0.383 0.027 0.017 0.009 0.105 0.051

Note:*,**and *** denote significance at 10 per cent, 5 per cent and 1 per cent levels, respectively. Source: BAHS (different years), Livestock Census, Agricultural Statistics at a Glance, GoI.


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11 at all-India level (Annexure 3). Consequently, there was a consistent improvement in the quality of milch animals with resultant gains in milk yield. This finding is consistent with other past studies, such as of Birthal et al. , (1999). In contrast, both the coefficients pertaining to the variable, BUF were found to be nonsignificant. Another notable finding was the negative and significant coefficient for HSIZE in both the equations. Though the herd size in most of the states decreased over time, evidences suggest that the quality of herd improved due to replacement of traditional breeds with better yielding breeds, with positive outcomes on milk yield. The better management of smaller herds might have also contributed towards improving yield levels. The milk yield was also found to improve significantly with increase in area under irrigation (IRR), which was a proxy variable for fodder availability. The level of irrigation has an important role in ensuring year-round availability of fodder, thereby augmenting milk yield. Cultivated fodder is an important source of green fodder, but area under fodder is very limited in the country. Presently, only 0.026 ha area per bovine animal is put under fodder crops to meet the fodder requirement. Therefore, the fodder cultivation should be accorded higher priority and state policies should be tuned to encourage more farmers to take up fodder farming. The coefficient pertaining to the variable dairy cooperatives (COOP) was found significant at 5 per cent level and indicated their influence in improving milk yield through providing better facilities for quality, storage, marketing, processing, and other related services for the dairy farmers. As evident from statistics, the number of dairy co-operatives increased substantially from 63,415 in 1990-91 to 1,44,200 in 2010-11 with the associated increase in farmermembers from 7.48 million to 14.46 million and milk procurement from 3.54 Mt to 9.6 Mt during this period. However, cooperatives have been found working effectively only in a few states like Gujarat, Maharashtra, Karnataka, Kerala, Tamil Nadu, etc. and in spite of their tremendous growth, only 10 per cent of the dairy farmers could be associated with them. Therefore, efforts are required to spread the success of dairy co-operatives to more states so that the advantages of collective action can be harnessed for better performance in the sector. While the influence of dairy

cooperatives on milk yield was apparent, the variable VET in Equation (2), denoting the veterinary infrastructure, turned out to be non-significant, suggesting inadequacy of the existing veterinary facilities in bringing about a perceivable dent in milk yield. Though yield enhancement in the sector is directly driven by the factors like share of crossbreds in animal stock, herd size, area under irrigation, dairy cooperatives, etc., as discussed above, the indirect influence of dairy infrastructure and other associated variables cannot be overlooked. Even though the variable VET per se had an insignificant contribution in raising the milk yield, its role in supporting the primary variables was worth examining. For instance, growth in the number of cross-bred cattle and highyielding buffaloes has depicted a close association with the number of AI centres, veterinary facilities available and personnel deployed for providing these services. However, the veterinary infrastructure in the country has been found in a poor state of affairs. There is only one veterinary institute for nearly 5800 animals (Table 6). Further, these institutes do not have adequate number of trained veterinary professionals. There is roughly one veterinarian for each veterinary institute and consequently, a large number of animals do not get veterinary care at appropriate time and place.
Table 6. Status of infrastructure and other variables related to performance of dairy sector (in No.) Particulars Bovine animals served per veterinary institute Bovine animals per veterinary person Total AI centres AIs performed per 1000 milch animals Adult female bovine per AI centre Bovine breeding farms Semen production centres Frozen semen banks Liquid nitrogen plants 1992-93 7632 9219 39600 155 2727 183 148 91 151 2010-11 5799 5627 55806 373 1807 199 172 184 91

Source: Basic data from BAHS (different years), Livestock Census, Land Use Statistics, Agricultural Statistics at a Glance, Population Census, GoI.

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However, facilities for artificial insemination (AI) are more abundant than veterinary facilities and there is one AI centre for about 1800 adult female bovines. Thus, about 33 per cent of the animals can be artificially inseminated each year. However, because of the low success rate of AIs, only about 20 per cent of the adult females are being inseminated artificially with the existing infrastructure. A little more than one-fourth of the cows-in-milk are presently crossbred and the demand for crossbred species is increasing rapidly. The infrastructure for developing high-yielding bovines and cross-breds has been found limited. There are only about 200 bovine breeding farms (cattle and buffalo) in the country. The number of semen production centres, frozen semen banks, liquid nitrogen plants, etc. is also grossly inadequate. All these facts point to the vast scope in improving the veterinary infrastructure in the country for realizing better performance. Higher investments and appropriate policy support are therefore required to bring about the perceivable results in the area of milk production.

shown that improved animal species have been critical to milk yield enhancement. The study has shown a negative relationship between herd size and milk yield, the underlying hypothesis being improvement in herd quality and better management lead to yield growth despite decrease in herd size. The study has also brought out the positive impact of dairy cooperatives on milk yield by facilitating integration between rural producers and urban consumers and through fostering new technology. However, the status of veterinary and animal healthcare infrastructure and the delivery of these services are still poor and concerted efforts are required to bring about further progress. The strengthening of market linkages through expansion of cooperatives, and facilitating new models of dairy farming would go a long way in further improving milk yield in the country.

The authors acknowledge the funding support of IFPRI. The study was conducted at National Centre for Agricultural Economics and Policy Research (NCAP), New Delhi. They are grateful to Prof. Ramesh Chand, Director, NCAP for providing institutional, infrastructural and intellectual support for conducting this study.

Conclusions and Policy Implications

The study has revealed that India has made significant strides in enhancing milk production and yield, particularly during the past two decades. The structural changes in production of milk have been quite visible and the composition of dairy animals has tilted in favour of improved crossbred cattle and betteryielding buffaloes. The role of some new states in augmenting milk production in India is also apparent. The growth in milk yield has been considerable and is reflected in its contribution to output growth. More than half of the growth in milk production during the past two decades has been contributed by the growth in milk yield. The major determinants of milk yield include technological change and quality of herd, irrigation development, expanding network of dairy cooperatives, etc. Achieving a higher growth in the dairy sector is essential to ensure long-term inclusive agricultural growth. Productivity-led growth is the only viable option for accelerated and sustainable growth of the sector. The study has pointed out several avenues and strategies for policy intervention to support dairy development for enhanced milk yield. The analysis has provided a strong case for continued investments in improved breeds of cattle and buffalo. It has been

Agricultural Statistics at a Glance (various years) Directorate of Economics and Statistics, Department of Agriculture and Cooperation, Ministry of Agriculture, Government of India. New Delhi BAHS (Basic Animal Husbandry and Statistics) (various years) Department of Animal Husbandry, Dairying, and Fisheries, Ministry of Agriculture, Government of India, New Delhi. Birthal, P.S. and Negi, D.S. (2012) Livestock for higher, sustainable and inclusive agricultural growth. Economic and Political Weekly, 47(26&27): 89-99. Chand, Ramesh and Raju, S.S. (2008) Livestock sector composition and factors affecting its growth, Indian Journal of Agricultural Economics , 63 (2): 198210. FAO (Food and Agriculture Organization) (2003) Milk Production in India: Opportunities and Risks for Small Scale Producers. PPLPI Policy Brief, Rome.


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Jha, Brajesh (2004) Indias Dairy Sector in the Emerging Trade Order. Working Paper No. 243, Institute of Economic Growth, New Delhi. Kumar, Anjani and Pandey, U.K. (1999) Growth performance of livestock sector in India. In: Sources of Growth in the Livestock Sector, Eds: P.S. Birthal, Anjani Kumar, A. Ravishankar and U.K. Pandey Policy Paper 9, National Centre for Agricultural Economics and Policy Research, New Delhi. Kumar, Anjani, Staal, Steven J., Lapar, Lucy and Baltenweck, Isabelle (2010) Traditional milk market in Assam: Potential for income and employment generation. Indian Journal of Agricultural Economics, 65 (4): 747-59. DES (Directorate of Economics and Statistics) (various years) Land Use Statistics, Department of Agriculture and Cooperation, Ministry of Agriculture, Government of India, New Delhi (http://eands.dacnet.nic.in).

DAHD (Department of Animal Husbandry Dairying and Fisheries) (various years) Livestock Census, Ministry of Agriculture, Government of India, New Delhi. Rajendran, K. and Mohanty, S. (2004) Dairy co-operatives and milk marketing in India: Constraints and opportunities. Journal of Food Distribution Research, 35 (2): 34-41. Saikia, T.N. and Kakaty, Gautam (2007) Evaluation of IDDP Project in Operation Flood, Hilly and Backward Areas of North-Eastern Region, Report submitted by AgroEconomic Research Centre for North-East India, Assam Agricultural University, Jorhat, Assam. Singh, Shiv Raj and Datta, K.K. (2010) Understanding value addition in Indian milk sector: Some perspectives. Agricultural Economics Research Review , 23 (Conference Number): 487-493.
Revised received: March, 2013; Accepted May, 2013

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Annexure 1
Mean and standard deviation of explanatory variables (year) Explanatory variable Share of cross-bred in milch animal (%) Share of buffalo in milch animal (%) Herd size (No.) Irrigated area (%) Dairy co-operative societies (No. per 000 bovine units) Veterinary institutes& hospitals (No. per 000 bovine units) Mean 19.83 33.03 2.97 40.33 0.74 0.69 Standard deviation 21.48 26.73 3.51 26.43 0.72 1.09

Annexure 2
Econometric tests associated with regression and their results Test Hausman test Breuch Pagan LM test LR test for heteroscedasticity Wooldridge test for autocorrelation Statistic Chi2 statistic Chibar2 statistic LR Chi2 statistic F statistic Null hypothesis REM preferred over FEM OLS preferred over REM Homoscedasticity No first order autocorrelation Model 1 3.61ns 1233*** 275.6*** 5.27** Model 2 2.28ns 1499*** 388.2*** 11.52***

Note: ns denotes non-significant ** and *** denote significance at 5 per cent and 1 per cent levels, respectively

Annexure 3
Annual growth rate in factors associated with milk yield: 1993-2010 Particulars Cross-bred cows Buffaloes Herd size (No./household) Irrigated area (%) Membership of dairy co-operative societies Number of veterinary institutes Trend growth rate (%) 6.74 1.97 -0.49 1.32 2.97 0.90

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Investment in Wheat Research in Nepal An Empirical Analysis

Hari Krishna Shresthaa*, Hira Kaji Manandharb and Punya Prasad Regmic

Planning Division, Nepal Agricultural Research Council, Singhadurbar Plaza, Kathmandu, Nepal b Plant Pathology Division, Nepal Agricultural Research Council, Khumaltar, Lalitpur, Nepal c Department of Agricultural Economics, Institute of Agriculture and Animal Science, Tribhuvan University, Rampur, Chitwan, Nepal

Investment in wheat research in Nepal has been examined through estimation of full time equivalent of researchers on the basis of their time spent on wheat crop research. The information about full time equivalent was collected through questionnaire survey of the researchers involved in various disciplines of wheat research. The research investment has been compared with production share in value-terms using congruency model in the major production domains, such as development regions, eco-zones and environments. The model comparing actual production share with full time equivalent of researchers has revealed a moderately low congruency percentage indicating discrepancies in research investment across production domains. On adjusting the production share with both research progress and equity factors at the same time, the congruency percentage increased in production environments and decreased in ecozones and geographic regions, highlighting the mismatch in research investments. Some policy measures have been suggested to mitigate the mismatch in resource allocations to wheat research in Nepal. Key words: Congruency, equity, full time equivalent, production environment, research investment, wheat research, Nepal JEL Classification: Q16, Q18

Wheat is Nepals one of the major crops grown in different agro-ecological zones and environments endowed with varied production potentials. It is cultivated on 730 thousand hectares of land and has the production of 1.61 million tonnes with productivity of 2229 kg/ha in Nepal (MoAC, 2010). Investment on the crop research has been a driving force behind * Author for correspondence
Email: hkshrestha_1@yahoo.com

The paper has been drawn from PhD thesis entitled, Resource Allocation in Agricultural Research and Development in Nepal submitted by the first author to Institute of Agriculture and Animal Science, Tribhuvan University

increasing its productivity through varietal development and improved management practices. Studies in different countries have revealed that investments in agricultural research and development (R&D) have yielded handsome dividends for society, more than enough to justify past investments and to support increased funding in the future. The past studies on returns to investment in agriculture have revealed that the average rate of return per year to be 100 per cent for research, 85 per cent for extension, and 48 per cent for research and extension taken together (Alston et al., 2000). The rate of return for investments in varietal development of wheat ranged between 75 per cent and 84 per cent during 1960 to 1990 in Nepal (Morris et al., 1994).


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In order to allocate research resources efficiently, possibilities of advancing knowledge or technology need to be explored in a particular commodity, problem or discipline and while the research effort is successful, the likely level of adoption that would occur over a given time need to be studied (Fuglie, 2007). Type of resources, partnerships and extension strategies need to be formulated to increase the adoption. In Nepal, research on wheat is mainly carried out by the Nepal Agricultural Research Council (NARC), but the R&D activities on this crop are also carried out by some nongovernmental organizations (NGOs), including the Local Initiative for Biodiversity, Research and Development (LIBIRD) and Forum for Rural Welfare and Agricultural Reform for Development (FORWARD). Other public organizations such as Nepal Academy of Science and Technology (NAST) and Institute of Agriculture and Animal Science (IAAS) of Tribhuvan University also carry out R&D activities in addition to their core programs. This study has analyzed the investment in wheat research across geographic regions, major agro-ecozones and production environments of Nepal. For the study, we considered three geographic regions, viz. eastern, central and western and each geographic region constituted three major agro-ecozones, viz. terai plains (sub-tropical), hills (warm temperate and sub-tropical), and mountains (temperate), and three major production environments, viz. irrigated, rainfed lowland and rainfed upland. The public investment in agricultural sector has been about three per cent of the national budget during the past three years (2009-2011), although agriculture has contributed about 32 per cent to the countrys gross

domestic production (GDP). The investment in Nepals agricultural research was about 0.26 per cent of agricultural GDP during the period. This was much lower than the average expenditure in the developing countries which was 0.60 per cent of their agricultural GDP (Pardey and Beintema, 2001). A significant increase in investment in agricultural research is needed to generate new technologies for future growth in productivity. The country employed 33 full time equivalent (FTE) agricultural researchers for every one million farmers and invested 520 million Nepalese Rupees or 23 million purchasing power parity (ppp) US dollars in agricultural research at 2005 prices in 2009 (Rahija et al., 2011). Of the total human resources, 44 per cent of the agricultural researchers were focused on crops, 22 per cent on livestock, 16 per cent on fisheries and 5 per cent on forestry (Rahija et al., 2011). There is a complex relationship across investment in agriculture, increase in production and productivity, and levels of rural poverty. Thirtle et al. (2001) have observed that an increase in agricultural output could lead to a reduction in poverty by evidencing 1 per cent increase in total factor productivity (TFP) and lowering the poverty ratio by 1.3 per cent in Asia. Fan et al. (1999) have found that improvement in TFP and reduction in poverty in India were driven by investments in agricultural R&D and infrastructural development, particularly roads. During the past ten years, resource allocation to wheat research has shown an erratic pattern of growth in Nepal, although there has been a substantial increase from 2010 onwards (Figure 1). The resource allocation

Figure 1. Investment in wheat research: 2000-2012

Shrestha et al. : Investment in Wheat Research in Nepal


to wheat research has depicted a trend more or less similar to the overall agricultural research. This study has investigated whether the research resources allocated to wheat research matched with the economic contribution of this crop in each of the geographical regions, agro-ecozones and production environments of Nepal.

Data and Methodology

A questionnaire survey was carried out among wheat researchers associated with different governmental and non-governmental organizations to identify the full time equivalent (FTE) for their time spent on crop research. The information was collected from 120 researchers of various disciplines who were spending their part or full time on wheat research. A measure of FTE in wheat research was used as a proxy for measurement of investment since the required information according to production domains such as geographical regions, ecological zones and environments was not available. The FTE is used as a common measure of research investment based on the time spent by a researcher on a commodity or discipline (Gauchan and Pandey, 2011; Pandey and Pal, 2007; Stads and Shrestha, 2006). The various methods used for estimating the allocation of research resources are mostly based on economic surplus approach but vary in complexities and data requirements. A simple and commonly used procedure is based on the congruency approach which rules that resources should be allocated in proportion to the economic significance that is mostly measured by the value of production. This rule specifies that the share of a specific region or environment or commodity in the total research budget should be equal to its share in the total value of production (Anderson and Parton, 1983; Byerlee, 2000). Following Byerlee and Morris (1993) and Pandey and Pal (2007), the congruency was measured as per Equation (1): C = 1 (Ri Vi)2 (1) where, 0 C 1, with C = 0 indicating no congruency between the allocation of research resources and value of output of a particular commodity. Congruency increases as the value of C approaches unity. Ri is the share of research resources allocated to the commodity i, and Vi is the share of the output value of the same commodity.

The above congruency approach can be modified to incorporate the elements of scoring approach (Alston et al., 1995; Gyrseels et al., 1992; Barker, 1988). In the present study, the index of output value in each domain was adjusted by weighting the value of production based on two factors, viz. research progress and poverty ratio. The first factor consisted of efficiency criterion relating the expected returns from commodity research expenditures which was termed as expected research progress. The second factor consisted of an equity criterion relating to the expected distributional effects of technical change which was termed as poverty incidence. Some more explanation on these factors is given below. Rate of Expected Research Progress The progress in wheat research in favourable environment differs from that in unfavourable environment. The expected rate of research progress needs to be adjusted in actual production share in order to modify the future research allocation. The past researches have been successful in increasing productivity in the irrigated areas, but the success was less in the rainfed areas, as witnessed in the impact of green revolution. A modest productivity growth in the past reflected a low level of resource allocation in agriculture. The likelihood of future progress is significant in guiding the ex-ante allocation of resources. To estimate productivity growth and future research progress, experienced agronomists and breeders of Nepal were consulted. Their estimation was based on high-yielding pipeline technologies in wheat for different environments or eco-zones. Incidence of Poverty To compare resource allocation to wheat research across different environments, poverty ratio was used. One of the major justifications for investing in research targeted at crops in marginal environments is the higher incidence of poverty in these environments. Data on poverty ratio were available only for politically-defined areas such as districts and development regions. Mountainous districts comprise mostly marginal land with low productivity resulting in high poverty ratio and high vulnerability to food security. Hilly districts have relatively more productive


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Table 1. Full time equivalent (FTE) in wheat research across different eco-zones and environments in Nepal Environment Full time equivalent (FTE) Terai Irrigated Rainfed lowland Rainfed upland Total 8.00 4.24 1.50 13.74(49%) Hills 7.00 5.00 1.15 13.15(47%) Mountains 0.50 0.50 0.15 1.15(4%) Terai 46.15 12.01 0.09 58.25 Eco-zones Area (% share) Hills 14.74 18.58 1.66 34.98 Mountains 2.50 3.85 0.42 6.77

land and show less vulnerability to food security. The terai districts have most favourable and productive land and depict low poverty ratio. Since the data on poverty ratio were not available according to environments, these were estimated based on their agricultural productivity.

Congruency Analysis across Eco-zones The congruency between actual production share and FTE share was 92 per cent indicating a moderate level of under-investment in wheat research across different ecological zones (Table 2). The actual production share was 20 points higher than the FTE share in the terai plains, whereas it was lower than the FTE share by a similar magnitude in the hills. In the mountains, the actual production share was least but exactly equalled to FTE share, indicating a perfect balanced investment. The results revealed that wheat research in the hills was over-invested on the basis of contribution of hill eco-zone to the total production value. The terai plains had a relatively larger share in total production but this eco-zone had been underinvested for wheat research. One of the important reasons behind the overinvestment in the hills is that the divisions of these disciplines are located in the Kathmandu valley, which is in the hill eco-zone. However, the issue of overinvestment could be overlooked because these divisions carry out research work not only for hills but for mountains and terai plains also. Based on the experience and knowledge of wheat researchers, the expected increase in wheat productivity in the next ten years was estimated as 20 per cent in the terai and 10 per cent each in the hills and the mountains. The terai belt of Nepal has higher potential of productivity increase due to relatively good soil fertility and availability of abundant water for irrigation. In another study, the expected yield gains in rice relative to the current values were estimated as 30 per cent for the terai, 20 per cent for the hills, and 10 per cent for the mountains (Gauchan and Pandey, 2011). The poverty ratios for the mountains and the hills were estimated to be 10 per cent and 15 per cent

Results and Discussion

Resource Allocation to Wheat Research The total number of researchers involved in wheat was 28 full time equivalents (FTE) in 2011 (Table 1). The operational cost in wheat research was US$ 278 thousand at current price which is equivalent to US$ 9942 per FTE researcher. In the case of rice, Gauchan and Pandey (2011) have found US$ 5,930 per FTE of rice researcher in 2009 in Nepal. The investment per FTE researcher in rice in India was estimated to be US$ 15780 for eastern India and US$ 21,110 for the rest of India in 2000 (Pandey and Pal, 2007). Of the total wheat area (730 thousand ha), 63 per cent was irrigated with average yield of 2471 kg/ha, and the remaining area was rainfed with average yield of 1074 kg/ha (MoAC, 2010). Across the eco-zones, terai plains comprised 58 per cent of the total wheat area with 49 per cent of FTE share, indicating a substantial proportion of underinvestment. Hill ecozone comprised 35 per cent of the total wheat area with 47 per cent of FTE share that indicated a substantial level of overinvestment. Mountain eco-zone comprised about 7 per cent of the total wheat area with a share of 4 per cent in FTE, indicating underinvestment (Table 1). The mismatch of investment in wheat research might have resulted from the irrational resource allocation and inefficiency of research management.

Shrestha et al. : Investment in Wheat Research in Nepal Table 2. Full time equivalent (FTE) of researchers and share of wheat production across eco-zones in Nepal Parameters FTE FTE share Actual production share Adjusted production share (research progress) Adjusted production share (equity) Fully adjusted production share (research progress and equity) Terai 13.74 49.00 69.37 71.19 66.45 77.57 Hills 13.15 47.00 26.63 25.05 29.34 20.93 Eco-zones Mountains 1.15 4.00 4 3.76 4.21 1.50 All 28.04 100.0 100.0 100 100.0 100.0



0.92 0.90 0.94 0.85

higher, respectively than for the terai plains. We used the poverty weight 1 for the terai, 1.15 for the hills and 1.10 for the mountains. The Nepal Living Standard Survey (NLSS) of 2003-04 has shown that the poverty rate is lowest in the terai region than in the mountains and the hills (CBS, 2005). While we have adjusted the actual production share with the rate of expected research progress alone, the congruency percentage declined by 2 points. In contrast, the congruency percentage increased by the same magnitude when the production share was adjusted with equity factor for poverty consideration. When the production share was fully adjusted with both the factors, the congruency had declined by 7 points, amplifying the mismatch of investment across different eco-zones. Congruency Analysis across the Environments When FTE share and actual production share were analyzed for three production environments, viz. irrigated, rainfed lowland and rainfed upland, the congruency was found to be 91 per cent (Table 3). This indicated a moderate level of underinvestment in wheat research across different environments in Nepal. The actual production share was 25 points higher than the FTE share of irrigated environments, whereas it was 12 points lower than the FTE share of rainfed lowland and 13 points lower than the FTE share of rainfed upland. It indicated a discrepancy in investment in these production environments with empirical evidence of underinvestment in the irrigated environment and overinvestment in the rainfed environment. The actual pattern of wheat research across the production environments has shown an overall congruency of 92 per cent in India and 96 per cent in CIMMYT member countries (Byerlee and Morris, 1993). The congruency

in rice research in India was as high as 99 per cent across different environments of the country (Pandey and Pal, 2007). The research emphasis on rainfed wheat might be due to the present scenario of climate change that compelled to invest in resource conservation technologies to cope-up with unfavourable environment. Although the production share of rainfed environment is low at present, push-up in investment is required for the long-run production growth and poverty reduction in such a marginal area. However, the importance of according highest weight to favoured environments is supported by the evidence that there are significant positive spillover effects from technological change in these environments which ultimately benefit the poor in marginal environments through lower food prices, increased employment and higher wages (David and Otsuka, 1992). These spillover effects may actually exceed the positive benefits generated through research targeted specifically at marginal environments (Renkow, 1991). The future progress in wheat research has been estimated to be 15 per cent in the irrigated environment, 30 per cent in the rainfed lowland, and 20 per cent in the rainfed upland environments. The reason behind the modest future productivity growth in irrigated environment is the current higher yield due to relatively high use of inputs in these environments. The potential of yield increase in the rainfed lowland is more because of the upcoming water-saving technology which is highly suitable in this environment. The irrigated environment received high priority during the green revolution period primarily because of its high growth potential. This paid rich dividends in terms of quantum jump in crop yields, but in the process, rainfed and


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Table 3. Full time equivalent (FTE) and share of wheat production across different production environments in Nepal Parameters FTE FTE share Actual production share Adjusted production share (research progress) Adjusted production share (equity) Fully adjusted production share (research progress and equity) Irrigated 15.55 55.00 80.00 78.23 74.91 47.25 Rainfed lowland 7.74 28.00 16.00 17.69 19.48 41.66 Environment Rainfed upland 4.75 17.00 4.00 4.08 5.62 11.09 All 28.04 100.0 100.0 100.0 100.0 100.0 Congruency

0.91 0.92 0.94 0.97

marginal regions were neglected (Pal and Singh, 1997). The poverty ratio was estimated to be 30 per cent higher in the rainfed lowland and 50 per cent higher in the rainfed upland as compared to in irrigated environment. The estimated poverty ratio was based on the wheat productivity which varied widely across different environments. The average wheat yield with improved variety was 2471 kg/ha in the irrigated condition, and 1074 kg/ha in the rainfed lowland. The average wheat yield of local variety in rainfed upland was 752 kg/ha (MoAC, 2010). When the actual production share was adjusted with the expected research progress, the congruency index had increased by only one per cent. When the actual production share was adjusted with equity factor, the congruency index inclined to 94 per cent. The congruency index increased up to 97 per cent when the actual production share was adjusted with both the factors (Table 3).

Congruency Analysis across the Geographic Regions The western region of Nepal had the highest production share (51%) in the total wheat production despite its lower FTE share of 36.5 per cent (Table 4). Since the western region comprised the largest wheat area and had potential of a significant increase in yield, the resource allocation to wheat research need to be increased substantially in this region. Also, an incentive mechanism should be developed for motivation of researchers to work consistently in the region. The gap between potential yield and on-farm yield of wheat was higher in the western than in the eastern and central regions. Based on the potentiality of pipeline technologies, the wheat productivity was anticipated to increase by 10 per cent each in the eastern and central regions and by 20 per cent in the western region in the next ten years. It was because the soil of

Table 4. Full time equivalent (FTE) and share of wheat production across different geographical regions of Nepal Parameters Eastern region 2.40 8.50 16.00 15.29 15.05 11.07 Central region 15.39 55.00 33.00 31.54 28.23 20.74 Western region 10.25 36.50 51.00 53.17 56.72 68.19 All regions 28.04 100.0 100.0 100.0 100.0 100.0 Congruency

FTE FTE share Actual production share Adjusted production share (research progress) Adjusted production share (equity) Fully adjusted production share (research progress and equity)

0.92 0.91 0.88 0.78

Shrestha et al. : Investment in Wheat Research in Nepal


western region has not been exploited with higher inputs as compared to in the eastern and central regions. Poverty ratio was estimated to be higher in the eastern and western regions by 10 per cent and 30 per cent, respectively as compared to that in the central region. It was because the central region had a better access to inputs and market, thereby increasing income generation activities of the farmers. The average farm yield was 2122 kg/ha in the eastern region, 1608 kg/ ha in the far western region and 2322 kg/ha in the central region (MoAC, 2010).

Alston, J.M., Norton, G.W. and Pardey, P.G. (1995) Science under Scarcity: Principles and Practice for Agricultural Research Evaluation and Priority Setting. Cornell University Press, Ithaca, New York. Alston, J.M., Chan-Kang, C., Marra, M.C., Pardey P.G. and Wyatt, T.J. (2000) A Meta-Analysis of Rates of Return to Agricultural R&D ex pede herculem? International Food Policy Research Institute, Washington DC. Anderson, J.R. and Parton, K.A. (1983) Techniques for guiding the allocation of resource among rural research projects: State-of-the-art. Prometheus, 1: 180-201. Barker, R. (1988) Methods for setting agricultural research priorities in Report of a Bellagio Conference. Working paper No. 88-3. Department of Agricultural Economics, Cornell University, Ithaca, New York. Byerlee, D. and Morris, M. (1993) Research for marginal environments: Are we under-invested? Food Policy, 18: 381-393. Byerlee, D. (2000) Targeting poverty alleviation in priority setting for agricultural research. Food Policy, 25: 429445. CBS (Central Bureau of Statistics) (2005) Nepal Living Standard Survey (NLSS) 2003-04. National Planning Commission, Kathmandu. David, C. and Otsuka, K. (1992) The green revolution and income distribution across production environments in Asia. Paper presented at the Rice Research Seminar, IRRI, Los Banos, Philippines. Fan, S., Hazell, P. and Thorat, S. (1999) Linkages between Government Spending, Growth and Poverty in Rural India. IFPRI research report 110. International Food Policy Research Institute. Washington, DC. Fuglie, K. (2007) Research Priority Assessment for the CIP 2005-2015 Strategic Plan: Projecting Impacts on Poverty, Employment, Health and Environment . International Potato Center (CIP), Lima, Peru. Gauchan D. and Pandey, S. (2011) Is investment in rice research in Nepal adequate and balanced across production environments? Some empirical evidence. Quarterly Journal of International Agriculture, 50(4): 305-324. Gyrseels, G., De Wit, C.T., McCalla, A., Monyo, J., Kassam, A.H., Craswell, E. and Collinson, M. (1992) Setting agricultural research priorities for the CGIAR. Agricultural System, 40: 59-103.

The congruency index with actual production share has indicated moderate discrepancies in research investment in wheat in all the production domains of Nepal. The wheat research has been found overinvested in the hills, and rainfed environments and under-invested in the terai plains and irrigated conditions. Across geographic regions, the central region has been observed to be over-invested whereas eastern and western regions are under-invested. When the production share was adjusted with research progress and equity factors, the congruency percentage increased in some cases and declined in other cases. A higher investment is required for wheat research in the irrigated environment as well as in terai plains. The western region also needs substantial increment in research investment since it has the largest contribution to the total value of wheat production. Although the issue of mismatch in the allocation of research resources across the production domains is important, it is even more important to raise the investment in the agricultural research system in Nepal.

The authors are grateful to International Rice Research Institute (IRRI), Manila, for providing financial support to conduct this study as a partial fulfillment of PhD thesis on Resource Allocation in Agriculture Research in Nepal. They thank Dr Sushil Pandey of IRRI for his generous support and technical guidance. They are also thankful to Dr Devendra Gauchan, Nepal Agricultural Research Council and Dr Bhaba Tripathi, IRRI-Nepal office, for their support during the study. They thank the anonymous referee for the critical comments which helped on this paper.


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MoAC (Ministry of Agriculture and Cooperatives) (2010) Statistical Information on Nepalese Agriculture . Kathmandu, Nepal. Morris, M.L, Dubin, H.J. and Pokhrel, T. (1994) Returns to wheat breeding research in Nepal. Agricultural Economics, 10: 269-282. Pal, S. and Singh, A. (1997) Agricultural Research and Extension in India: Institutional Structure and Investments. Policy Paper 7. National Centre for Agricultural Economics and Policy Research, New Delhi. Pandey, S. and Pal, S. (2007) Are less-favored environments over-invested? The case of rice research in India. Food Policy, 32: 606-623. Pardey, P.G. and Beintema, N.M. (2001) Slow Magic: Agricultural Research a Century after Mendel. International Food Policy Research Institute, Washington DC. Rahija, M., Shrestha, H.K., Stads, G.J. and Bhujel, R.B. (2011) Recent Development in Public Agricultural

Research. Agricultural Science and Technology Indicators: Nepal. International Food Policy Research Institute, Washington DC. Renkow, M. (1991) Modeling the Aggregate Effects of Technological Change on Income Distribution in Pakistans Favored and Marginal Production Environments. Economics Paper No. 4. CIMMYT, Mexico. Stads, G.J. and Shrestha, H.K. (2006) Agricultural Science and Technology Indicators: Nepal. ASTI country brief No. 37. International Food Policy Research Institute, Washington DC. Thirtle, C., Xavier, I., Lin, L., McKenzie-Hill, V. and Wiggins, S. (2001) Relationships between changes in Agricultural Poverty in Developing Countries. DFID report 7946. Department for International Development, London.
Received: January, 2013; Accepted June, 2013

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Agricultural Price Forecasting Using Neural Network Model: An Innovative Information Delivery System
Girish K. Jha*a and Kanchan Sinhab

Indian Agricultural Research Institute, New Delhi 110 012 Indian Agricultural Statistics Research Institute, New Delhi 110 012

Forecasts of food prices are intended to be useful for farmers, policymakers and agribusiness industries. In the present era of globalization, management of food security in the agriculture-dominated developing countries like India needs efficient and reliable food price forecasting models more than ever. Sparse and time lag in the data availability in developing economies, however, generally necessitate reliance on time series forecasting models. The recent innovation in Artificial Neural Network (ANN) modelling methodology provides a potential price forecasting technique that is feasible given the availability of data in developing economies. In this study, the superiority of ANN over linear model methodology has been demonstrated using monthly wholesale price series of soybean and rapeseed-mustard. The empirical analysis has indicated that ANN models are able to capture a significant number of directions of monthly price change as compared to the linear models. It has also been observed that combining linear and nonlinear models leads to more accurate forecasts than the performances of these models independently, where the data show a nonlinear pattern. The present study has aimed at developing a user-friendly ANN based decision support system by integrating linear and nonlinear forecasting methodologies. Key words: Hybrid model, neural networks, price forecasting, agriculture JEL Classification: Q16, Q15

Price forecasting is an integral part of commodity trading and price analysis. Quantitative accuracy with small errors, along with turning point forecasting power is important for evaluating forecasting models. Agricultural commodity production and prices are often random as they are largely influenced by eventualities and are highly unpredictable in case of natural calamities like droughts, floods, and attacks by pests and diseases. This leads to a considerable risk and uncertainty in the process of price modelling and forecasting. Agricultural commodity prices play an important role in consumers access to food as they * Author for correspondence
Email: girish.stat@gmail.com

directly influence their real income, especially among the poor who spend a large proportion of their income on food. Since food price is an important component to fight hunger, policymakers need reliable forecasts of expected food prices in order to manage food security. Before the onset of liberalization and globalization, the government was controlling food prices, thus rendering food price forecasting a low value-added activity. Presently, the food prices are determined by the domestic and international market forces. This leads to increased price variability, and accords importance to reliable price forecasting techniques. The price forecasts are important for farmers also as they base their production and marketing decisions on the expected prices that may have financial repercussions many months later.


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Agricultural Price and Time Series Modelling

Agricultural price modelling is different from modelling of non-farm goods and services due to certain special features of agricultural product markets. The characteristic features of agricultural crops include seasonality of production, derived nature of their demand, and price-inelastic demand and supply functions. The biological nature of crop production plays an important role in agricultural product price behaviour. There are two basic approaches of forecasting, namely structural and time series models. The structural models proceed from the first principles of consumer and producer theory to identify the demand and supply schedules and the equilibrium prices resulting from their intersection. The structural modelling techniques provide valuable insights into the determinants of commodity price movements. The computational and data demands of structural price forecasting generally far exceed than what are routinely available in the developing countries. Consequently, researchers often rely on parsimonious representations of price processes for their forecasting needs. Contemporary parsimonious form of price forecasting relies heavily on time series modelling. The time series modelling requires less onerous data input for regular and up-todate price forecasting. In time series modelling, past observations of the same variable are collected and analyzed to develop a model describing the underlying relationship. During the past few decades, much effort has been devoted to the development and improvement of time series forecasting models. One of the most important and widely used time series models is the Auto Regressive Integrated Moving Average (ARIMA) model. The popularity of ARIMA model is due to its statistical properties as well as use of well-known Box-Jenkins methodology in the model building process. Recently, Artificial Neural Network (ANN) modelling has attracted much attention as an alternative technique for estimation and forecasting in economics and finance (Zhang et al., 1998; Jha et al., 2009). ANN is a multivariate non-linear non-parametric data driven self-adaptive statistical method. The main advantage of neural network is its flexible functional form and universal functional approximator. With ANN, there is no need to specify a particular model form for a given

data set. ANN has found applications in fields like biology, engineering, economics, etc. and its use in economics has been surveyed by Kuan and White (1994).

Rationale of Research Issue

Very few studies have been undertaken on agriculture price forecasting using ANN models. Moreover, the value of neural network models in forecasting economic time series, has been established for developed countries like USA, Canada, Germany, etc., but little work has been undertaken for developing countries in general and India in particular. Literature suggests that the performance of a non-linear model should be evaluated on the basis of percentage of forecasts that correctly predict the direction of change instead of measures based on error-terms. The prediction of turning point is more crucial for any commodity price forecasting. Lastly, as agricultural price data often contain both linear and nonlinear patterns, no single model is capable to identify all the characteristics of time series data on agricultural prices. Obviously, there is a need to examine the price forecasting performance of hybrid model which takes advantage of the unique strength of both linear ARIMA method and nonlinear ANN model. The above facts motivated us to assess the forecasting accuracy of neural network model and traditional statistical models for agricultural price forecasting using real price data by taking into account the major limitations of previous studies. This paper has summarized the experience of forecasting price and direction of change using ANN model with two monthly wholesale oilseeds price series compared to other approaches, where one series was linear and the other was nonlinear in nature. An attempt has also been made to discuss opportunities and advantages of soft computing based decision support system in agricultural price forecasting.

Neural Network Model The time series data can be modelled using ANN by providing the implicit functional representation of time, whereby a static neural network like multilayer perceptron is bestowed with dynamic properties

Jha and Sinha : Agricultural Price Forecasting Using Neural Network Model


Figure 1. Time-Delay Neural Network (TDNN) with one hidden layer

(Haykin, 1999). A neural network can be made dynamic by embedding either long-term or short-term memory, depending on the retention time, into the structure of a static network. One simple way of building shortterm memory into the structure of a neural network is through the use of time delay, which can be implemented at the input layer of the neural network. An example of such an architecture is a Time-Delay Neural Network (TDNN) (Figure 1), which has been employed in the present study. The ANN structure for a particular problem in time series prediction includes the determination of number of layers and total number of nodes in each layer. It is usually determined through experimentation as there is no theoretical basis for determining these parameters. It has been proved that neural networks with one hidden layer can approximate any non-linear function given a sufficient number of nodes at the hidden layer and adequate data points for training. In this study, we have used neural network with one hidden layer. In time series analysis, the determination of number of input nodes which are lagged observations of the same variable plays a crucial role as it helps in modelling the autocorrelation structure of the data. The determination of number of output nodes is relatively easy. In this study, one output node has been used. Multi-step ahead forecasting is performed using iterative procedure following Box-Jenkins ARIMA

Time Series modelling methodology. This involves use of forecast value as an input for forecasting the future value. It is always better to select the model with a smaller number of nodes in the hidden layer as it improves the out-of-sample forecasting performance and also avoids the problem of over-fitting. The general expression for the final output value yt+1 in a multilayer feed forward time delay neural network is given by Equation (1): ...(1) where, f and g denote the activation function at the hidden and output layers, respectively; p is the number of input nodes (tapped delay); q is the number of hidden nodes; ij is the weight attached to the connection between ith input node to the jth node of hidden layer; j is the weight attached to the connection from the jth hidden node to the output node; and yt-i is the ith input (lag) of the model. Each node of the hidden layer receives the weighted sum of all the inputs, including a bias term for which the value of input variable will always be one. This weighted sum of input variables is then transformed by each hidden node using the activation function f which is usually a non-linear sigmoid function. In a similar manner, the output node also receives the weighted sum of the output of all the hidden nodes and produces an output by transforming the weighted sum using its activation function g. In


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the time series analysis, f is often chosen as the Logistic Sigmoid function and g, as an identity function. The logistic function is expressed as Equation (2): ...(2) For p tapped delay nodes, q hidden nodes, one output node and biases at both hidden and output layers, the total number of parameters (weights) in a three layer feed forward neural network is q(p + 2) + 1. For a univariate time series forecasting problem, the past observations of a given variable serve as input variables. The TDNN model attempts to map the following function: ...(3) where, yt+1 pertains to the observation at time t+1, p is the number of lagged observation, w is the vector of network weights, and t+1 is the error-term at time t+1. Hence, TDNN acts like a non-linear autoregressive model. The neural network toolbox of MATLAB 7.10 software was used to carry out computation relating to TDNN model. The ARIMA Model In an Auto-Regressive Integrated Moving Average (ARIMA) model, time series variable is assumed to be a linear function of the previous actual values and random shocks. In general, an ARIMA model is characterized by the notation ARIMA (p, d, q), where p, d and q denote orders of Auto-Regression (AR), Integration (differencing) and Moving Average (MA), respectively. ARIMA is a parsimonious approach which can represent both stationary and non-stationary processes. An ARMA (p, q) process is defined by Equation (4): ... (4)

The first step in the process of ARIMA modelling is to check for the stationarity of the series as the estimation procedure is available only for a stationary series. A series is regarded stationary if its statistical characteristics such as the mean and the autocorrelation structures are constant over time. The stochastic trend of the series is removed by differencing, while logarithmic transformation is employed to stabilize the variance. After appropriate transformation and differencing, multiple ARMA models are chosen on the basis of Auto-Correlation Function (ACF) and Partial Auto- Correlation Function (PACF) that closely fit the data. Then, the parameters of the tentative models are estimated through any non-linear optimization procedure such that the overall measure of errors is minimized or the likelihood function is maximized. Lastly, diagnostic checking for model adequacy is performed for all the estimated models through the plot of residual ACF and using Portmonteau test. The most suitable ARIMA model is selected using the smallest Akaike Information Criterion (AIC) or SchwarzBayesian Criterion (SBC) value and the lowest root mean square error (RMSE). In this study, all estimations and forecasting of ARIMA model have been done using SAS/ETS 9.2. The Hybrid ARIMA - TDNN Methodology In this section, the time series decomposition is proposed in which ARIMA and TDNN models are combined in order to obtain a robust and efficient methodology for time series forecasting. Accordingly, we postulate that our time series data can be decomposed into a linear and a nonlinear component (Rojas et al., 2008), viz. (5) where, yt is the observed time series data, Lt is the linear auto-regressive component, and Nt is the non-linear component. In this approach, we apply an ARIMA model to the data series to fit the linear part and the residuals are modelled using neural network model only if there is an evidence of non-linearity for the series. Figure 2 shows a schematic diagram of this method. Let rt be the residual at time t of the linear component, then (6)

where, yt and t are the actual value and random error at time period t, respectively, i (i=1, 2,,p) and i (j=1, 2,, q) are the model parameters. The random errors, t are assumed to be independently and identically distributed with a mean of zero and a constant variance of 2.

Jha and Sinha : Agricultural Price Forecasting Using Neural Network Model


where, Lt is the estimate of the linear auto-regressive component. For non-linear components, we apply neural network model, i.e. (7) where, p is the number of input delays and f is the nonlinear function. So the combined forecast is given by Equation (8): (8) where, t is the error-term of the combined model at time t. Here, it is assumed that since ARIMA model cannot capture the nonlinear structure of the data, the residual of linear model will contain information about nonlinearity. Hence, the hybrid architecture is expected to exploit the feature and strength of both the models in order to improve the overall forecasting performance. In this study, the McLeod and Li test (1983) has been applied to detect non-linearity in the data. This test is based on the autocorrelations of the squared residuals. In this test, the residuals which are obtained from fitted ARIMA model are utilized to test non-

linearity. The test statistic is given by Equation (9): (9) where, r(i) is the autocorrelation of the squared residuals, and h is the number of autocorrelations. Forecast Evaluation Methods The forecasting ability of different models is assessed with respect to two common performance measures, viz. the root mean squared error (RMSE) and the mean absolute deviation (MAD). The RMSE measures the overall performance of a model and is given by Equation (10): (10)
^ where, yt is the actual value for time t, y t is the predicted value for time t, and n is the number of predictions. The second criterion, the mean absolute deviation is a measure of average error for each point forecast and is given by Equation (11):

(11) where the symbols have the same meaning as above.

This paper has used the monthly average wholesale (nominal) price (rupees per quintal) of two major crops of oilseeds in India, viz. soybean and rapeseed-mustard, traded in the Indore (Madhya Pradesh) and Delhi markets, respectively, to evaluate the prediction ability of different models. The data on soybean were obtained from the website of the Soybean Processors Association of India (SOPA), Indore, and on rapeseed-mustard were collected from various issues of Agricultural Prices in India, published by the Directorate of Economics and Statistics, Government of India, New Delhi. The price series on soybean covered a period of 228 months (October, 1991 to September, 2010) and on rapeseedmustard covered a period of 372 months (January, 1980 to December, 2010). These series illustrate the complexity and variation of typical agricultural price data (Figure 3). These prices were deflated using the wholesale price index data (2004-05=100) of oilseeds

Figure 2. Hybrid method that combines both ARIMA and TDNN models


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estimated by the Office of Economic Advisor, Ministry of Commerce & Industry, Government of India. The basic characteristics of the price series used in the study are presented in Table 1.

Empirical Results and Discussion

Data Preprocessing The data preprocessing refers to analyzing and transforming the input and output variables to minimize noise, highlight important relationships, detect trends, and flatten the distribution of variables to assist both traditional and neural network models in the relevant pattern. The first step in time series analysis is to plot the data. Figure 3 shows the time series plot of average monthly price of rapeseed-mustard from January 1980 to December 2010. A perusal of Figure 3 reveals a positive trend over time which indicates the nonstationary nature of series. A similar trend was observed in the case of soybean also.

In this study, we have applied the natural choice of logarithmic transformation to the data to stabilize the variance. The logarithmic transformation is used for the data which can take both small and large values and is characterized by an extended right hand tail distribution. The logarithmic transformation is one of the data processing techniques which also converts multiplicative or ratio relationship to additive which is believed to simplify and improve neural network training. We have applied the Augmented Dickey Fuller (ADF) test for each level and transformed series to test for the unit root and the results have been presented in Table 2. The values in Table 2 clearly show the nonstationarity of level and transformed series. Therefore, we have used first differencing for both the price series. The first differenced series were found to be stationary in both cases as indicated in Table 2 and hence further differencing was not required. The ACF and PACF of different series have not shown a strong and consistent seasonal pattern.

Table 1. Descriptive statistics of price series used in the study Crop Soybean Rapeseed-mustard Minimum (`/q) 646 370 Maximum (`/q) 2680 3175 Mean (`/q) 1256 1288 Standard deviation (`/q) 472 741 Skewness 1.21 0.85 Kurtosis 3.74 3.02

Figure 3. Rapeseed-mustard monthly price data from January 1980 to December 2010 (`/q)

Jha and Sinha : Agricultural Price Forecasting Using Neural Network Model Table 2. Augmented Dickey-Fuller stationarity test for different series Null hypothesis Level series t-statistic Soybean series has a unit root Rapeseed-mustard series has a unit root -1.951 -0.737 Prob. 0.308 0.830 Logarithmic transformed series t-statistic Prob. -1.557 -1.321 0.502 0.621


1st difference of transformed series t-statistic Prob. -11.666 -17.428 < 0.0001 < 0.0001

Nonlinearity Test For choosing the technique for modelling and prediction of data, it is important to find whether a given time series is non-linear or not. If there is an evidence of nonlinearity in the dynamics underlying the data generating process, then nonlinear models should be tried in addition to linear models for forecasting the data. This also enables us to examine whether nonlinearity tests provide any reliable guide for post sample forecast accuracy of neural network model. In this study, we have applied McLeod and Li nonlinearity test to the data set. It tests the null hypothesis of linearity against different types of possible nonlinearity and is based on the autocorrelations of squared residuals. In this study, autocorrelations up to 24 lags have been used for computing the test. The results of McLeod and Li nonlinearity test presented in Table 3, reveal strong rejection of linearity in the case of rapeseed-mustard only. In other words, the analysis has indicated the existence of some hidden structure left unaccounted in the residuals of linear model in the case of rapeseedmustard. Based on this evidence, we have suggested suitability of nonlinear model for price forecasting of rapeseed-mustard. Neural Network and ARIMA Model For developing a model, we have divided the data into two sets, viz. training set and testing set. The last twelve months price data were retained for testing. The
Table 3. McLeod and Li non-linearity test for different series Series Soybean Rapeseed-mustard Value 9.73 87.82 Prob. value 0.99 less than 0.001

training set was used for modelling procedure and insample prediction and testing set was kept for postsample forecasting. The training set for the soybean and rapeseed-mustard series contained 216 and 360 observations, respectively. After logarithmic transformation, each series was differenced to make it stationary as price data are trended and nonstationary in nature. Then, we modelled the relative change in the price series which also had a meaningful economic interpretation. We have found the ARMA structure of differenced series, based on the autocorrelation function (ACF), partial autocorrelation function (PACF) and AIC information criterion. We obtained the best ARIMA model for each series based on the lowest AIC and BIC information criteria as well as the lowest RMSE and MAD values. We selected the ARIMA (1, 1, 0) for soybean and ARIMA (2, 1, 0) for rapeseed-mustard series. Due importance was given to the well-behaved residuals while selecting the best model. We have found the best time delay neural network with single hidden layer for this study. Following the previous studies, the logistic and identity functions were used as activation function for the hidden nodes and output node, respectively. We have focused primarily on the one-step-ahead forecasting and the multi-stepahead forecasting was done using the iterative procedure; so only one output node was employed. Hence, the model uncertainty was associated only with the number of tapped delays (p) which was the number of lagged observations in this case and the number of hidden layer nodes (q). The number of tapped delay and hidden nodes were determined through experimentation. We have used multiple starts, with different random starting points, in order to avoid local minima and find the global minimum. In particular, based on the training sample, we have trained each


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neural network model twenty times using twenty different sets of initial random weights. The overall performance of each configuration of TDNN model was evaluated on the basis of mean performance of 20 randomly initialized TDNN. We varied the number of input nodes from 1 to 6 and the number of hidden nodes from 2 to 10 with an increment of 2 with basic cross validation method. Thus, different numbers of neural network models were tried for each series before arriving at the final structure of the model. There are many variations of the backpropagation algorithm used for training feed-forward networks. In this study, the Levenberg-Marquardt algorithm (Hagan and Menhaj, 1994), which has been designed to approach second-order training speed without computing the Hessian matrix, has been employed. It has been shown (Demuth and Beale, 2002) that this algorithm provides the fastest convergence for moderately sized feed-forward neural network used on function approximation problems. A typical TDNN structure with one hidden layer is denoted by I:Hs:Ol, where I is the number of nodes in the input layer, H is the number of nodes in the hidden layer, O is the number of nodes in the output layer, s denotes the logistic sigmoid transfer function, and l indicates the linear transfer function. The forecasting ability of both models is assessed with respect to two common performance measures, viz. root mean squared error (RMSE) and mean absolute deviation (MAD). In this study, our interest was centred on short-term forecasting and hence we have considered forecast horizon up to one year. In terms of the forecast horizon, we have included the results for one month, three months, six months and twelve months ahead forecast. The best time lagged neural network with single hidden layer was found for each series by conducting experiments with the basic cross validation method. Table 4 summarizes the forecasting performance of various TDNN models for rapeseed-mustard in terms of training and testing root mean square error (RMSE), respectively. A similar exercise was carried out for soybean also and the results have not been presented in the manuscript. Out of a total of 24 neural network structures, a neural network model with two input nodes and three hidden nodes (2:3s:1l) performed better than other competing models in respect of out-of sample forecasting for soybean series. Similarly, a TDNN with two lagged observations as input node and eight hidden

Table 4. Forecasting performance of TDNN models for rapeseed-mustard price series Model 1:2s:1l 1:4s:1l 1:6s:1l 1:8s:1l 1:10s:1l 2:2s:1l 2:4s:1l 2:6s:1l 2:8s:1l 2:10s:1l 3:2s:1l 3:4s:1l 3:6s:1l 3:8s:1l 3:10s:1l 4:2s:1l 4:4s:1l 4:6s:1l 4:8s:1l 4:10s:1l 5:2s:1l 5:4s:1l 5:6s:1l 5:8s:1l 5:10s:1l 6:2s:1l 6:4s:1l 6:6s:1l 6:8s:1l 6:10s:1l No. of parameters 7 13 19 25 31 9 17 25 33 41 11 21 31 41 51 13 25 37 49 61 15 29 43 57 71 17 33 49 65 81 RMSE training 0.0301 0.0301 0.0298 0.0298 0.0285 0.0293 0.0288 0.0280 0.0278 0.0266 0.0293 0.0279 0.0269 0.0266 0.0258 0.0294 0.0275 0.0269 0.0243 0.0244 0.0292 0.0275 0.0250 0.0237 0.0213 0.0278 0.0255 0.0242 0.0213 0.0206 RMSE testing 0.0163 0.0177 0.0172 0.0171 0.0172 0.0156 0.0160 0.0158 0.0124 0.0138 0.0159 0.0159 0.0186 0.0128 0.0149 0.0162 0.0165 0.0214 0.0163 0.0204 0.0160 0.0169 0.0113 0.0135 0.0168 0.0161 0.0178 0.0137 0.0192 0.01214 MAD testing 0.0082 0.0092 0.0090 0.0088 0.0098 0.0105 0.0106 0.0092 0.0087 0.0085 0.0106 0.0098 0.0126 0.0091 0.0089 0.0106 0.0107 0.0138 0.0125 0.0145 0.0106 0.0118 0.0096 0.0098 0.0116 0.0105 0.0091 0.0096 0.0141 0.0158

nodes (2:8s:1l) showed the minimum training and testing RMSE for a forecasting horizon of 12 months in Table 4. This means that most accurate price forecast for the given series is obtained when the price of two preceding months is used as inputs. The comparative results for the best ARIMA and TDNN models with respect to RMSE and MAD for various horizons are given in Table 5. We can see that for both the price series, RMSE and MAD values are

Jha and Sinha : Agricultural Price Forecasting Using Neural Network Model Table 5. Forecasting performance of different models for various horizons MODEL 1 month ahead RMSE ARIMA TDNN Hybrid ARIMA TDNN Hybrid 5.43 33.90 43.00 3.35 4.79 3.46 MAD 1.56 22.90 23.30 0.97 1.00 1.01 3 months ahead RMSE 29.13 30.00 52.80 25.01 9.20 7.68 MAD Soybean 13.22 22.90 22.70 6 months ahead RMSE 37.70 32.07 40.60 MAD 35.00 18.36 23.90 30.76 4.60 2.46


12 months ahead RMSE 35.35 19.70 31.50 72.59 12.40 10.38 MAD 27.94 17.80 25.60 69.81 8.70 5.60

Rapeseed-mustard 10.89 47.08 1.30 9.40 3.53 7.80

Note: All RMSE and MAD values should be multiplied by 10-3.

in general less in neural network model than in ARIMA model, suggesting a better performance of TDNN model. At this juncture, it is worth mentioning that a specific neural network model is selected for each forecast horizon which implies that p and q may vary over forecast horizon. However, we have observed that ARIMA model performs better than TDNN model for a forecast horizon of one month. In general, TDNN model performs better in 6 and 12 months ahead forecasting, while ARIMA models dominate in one month and 3 months forecast horizons. Moreover, for rapeseed-mustard series, the RMSE value pertaining to neural network model is smaller as compared to ARIMA model for all horizons, except one month, suggesting better performance of TDNN which is truly a nonlinear time series data set. Hence, nonlinearity test provides a fairly good indication to post-sample forecast accuracy for neural network models. Turning Point Evaluation Several researchers have suggested that RMSE type measures may not be appropriate for nonlinear models as these measures can imply that a nonlinear model is less accurate than a linear one even when former is the true data generating process. In effect, a nonlinear model may generate more variation in forecast values than a linear model, and hence could be unduly penalized for errors that are large in magnitude. Clements and Smith (1997) have argued that the value of nonlinear model forecast may be better reflected by the direction of change. Hence in this study, we have also computed the percentage of forecasts that

could correctly predict the direction of monthly price change as part of post-sample forecast accuracy. The direction of change or turning point evaluation is a measure of accuracy related to price forecasts interpreted only in terms of whether agricultural commodity prices will increase or decrease. With one year of post-sample data, we have 12 one-step ahead forecast errors. The number of forecast errors decreases as the forecast horizon increases, so we have calculated the direction of change only for the forecast horizon of 1 month, 3 months and 6 months with 12, 10 and 7 forecast errors, respectively, as given in Table 6. The implications of the direction of change results of Table 6 are, however, very different from the results based on RMSE. At horizon of 1 month, 3 months and 6 months, the neural network model always had a larger percentage of correct sign than the linear model for all series. The results of Table 6 imply that the relative forecasting performance of both models crucially depends on the manner performance is measured. Hybrid Model Turning to the issue of whether the combination of ARIMA and TDNN models performs better than a single model. As mentioned earlier, the combined models are constructed in a sequential manner, with the application of ARIMA model first to the original time series and then its residuals are modelled using neural networks. We have found the optimal structure of neural network for the residual series following the procedure employed for the original series. Table 5


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Table 6. Post-sample percentage of forecasts of correct sign Series 1 month-ahead ARIMA Soybean Rapeseed-mustard 42 50 TDNN 55 67 3 months-ahead ARIMA 46 44 TDNN 54 68 6 months-ahead ARIMA 57 49 TDNN 60 71

provides the forecasting performance of possible hybrid models in terms of RMSE and MAD values for soybean and rapeseed-mustard for forecasting horizons of 1 month, 3 months, 6 months and 12 months. The RMSE and MAD values of Table 5 reveal mixed results in post-sample forecast accuracy of hybrid model for the experimental data. We can see from Table 5 that for soybean series, hybrid model in general provides a poor forecast as compared to ARIMA and TDNN models in terms of RMSE and MAD values. The principle underlying the hybrid model is that at the first stage ARIMA will pick up the linear component in the data, while at the second stage, the neural network will model the nonlinear component. In the case of soybean series, after ARIMA was fit at the first stage, the residual was close to random because of its linear nature. In the case of rapeseed-mustard, the hybrid model outperformed both ARIMA and TDNN models consistently across four different time horizons and with both error measures. In nutshell, the empirical results with two real price data sets suggest that the hybrid model performed better than each component model in the case of nonlinear pattern.

Concluding Remarks
The main advantage of univariate time-series forecasting is that it requires data only of the time series in question. First, this feature is advantageous if we are to forecast a large number of price series. Second, this avoids the problem that occurs sometimes with multivariate models; for example, consider a model including import, prices and domestic production. It is possible that a consistent data on import series is available only for a shorter period of time than the other two series, restricting the time period over which the model can be estimated. Third, timeliness of data can be a problem with multivariate models.

This paper has compared the ARIMA and TDNN models in terms of both modelling and forecasting using monthly wholesale price data of two oilseed crops, namely soybean and rapeseed-mustard traded in Indore and Delhi markets of India. The TDNN model in general has provided a better forecast accuracy in terms of conventional RMSE and MAD values as compared to the ARIMA model. It has been found that the evidence of nonlinearity in a series plays a fairly good role in providing a reliable guide to post-sample forecast accuracy of ARIMA and TDNN models in terms of RMSE for these price series. The study has suggested that before adopting any nonlinear model one needs to check whether the series is indeed nonlinear. Moreover, TDNN has performed substantially better than linear models in predicting the direction of change for these series, and hence may be preferred than linear models in the context of predicting turning point, which is more relevant in the case of price forecasting. Such direction of change forecasts are particularly important in economics for capturing the business cycle movements relating to the turning points. Finally, the empirical results with rapeseedmustard data, which is a true nonlinear pattern, have indicated that the combined model can be an effective way to improve forecasting accuracy achieved by either of the models used independently. Agricultural price information needs for decisionmaking at all levels are increasing due to globalization and market integration. This necessitates an effort towards designing a market intelligence system by integrating traditional statistical methods with soft computing techniques like neural network, fuzzy logic, etc. to provide accurate and timely price forecast by taking into account the local information to the farmers, traders and policymakers so that they may make production, marketing and policy decisions well in advance. The decision support system should provide customized advice to individual farmers in view of their local conditions.

Jha and Sinha : Agricultural Price Forecasting Using Neural Network Model


The authors are grateful to the referee for valuable comments and suggestions in improving the paper.

Proceedings of the International Joint Conference on Neural Networks. Atlanta, USA. pp. 1422-1427. Kuan, C. M. and White, H. (1994) Artificial neural networks: An econometric perspective. Econometric Reviews, 13: 1-91. McLeod, A.I. and Li, W.K. (1983) Diagonostic checking ARMA time series models using squared residual autocorrelations. Journal of Time Series Analysis, 4: 269-273. Rojas, I., Valenzuela, O., Rojas, F., Guillen, A., Herrera, L. J., Pomares, H., Marquez, L. and Pasadas, M. (2008) Soft-computing techniques and ARMA model for time series prediction. Neurocomputing, 71: 519-537. Zhang, G., Patuwo, B. E. and Hu, M. Y. (1998) Forecasting with artificial neural networks: The state of the art. International Journal of Forecasting, 14: 35-62.
Received: February, 2013; Accepted May, 2013

Clements, M.P. and Smith, J. (1997) The performance of alternative methods for SETAR models. International Journal of Forecasting, 13: 463 475. Demuth, H. and Beale, M. (2002) Neural Network Toolbox: Users Guide. Mathworks, Natic, MA. Hagan, M. T. and Menhaj, M. (1994) Training feed-forward networks with the Marquardt algorithm. IEEE Transactions on Neural Networks, 5: 989-993. Haykin, S. (1999) Neural Networks: A Comprehensive Foundation, Prentice Hall, New Delhi. Jha, G.K., Thulasiraman, P. and Thulasiram, R. K. (2009) PSO based neural network for time series forecasting.

Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013 pp 241-248

Farmers Willingness to Pay for Index Based Crop Insurance in Pakistan: A Case Study on Food and Cash Crops of Rain-fed Areas
Akhter Ali
International Center for Maize and Wheat Improvement (CIMMYT), Park Road, Islamabad, Pakistan

In Pakistan, agriculture is vulnerable to multiple risks, especially in the rain-fed areas. The crop insurance can serve as a useful tool to manage risks in the rain-fed areas of Pakistan. This study has assessed farmers willingness to pay for insurance in the rain-fed areas of Pakistan by conducting a survey of 531 farmers in the Soon valley and Talagang areas of Pakistan. The farmers willingness to pay for the index based crop insurance has been studied by employing the different econometric models. It has been found that these rain-fed areas consider indexed based insurance to be an important risk management strategy. The empirical results have indicated that farmers economic status, household assets and membership of community organization are the important determinants of their willingness to pay a higher insurance premium. The propensity score matching results have revealed that farmers were satisfied with index based insurance and were also willing to increase the area under food as well as cash crops. This study has suggested that to make agricultural insurance scheme more successful, the government should provide subsidy which will help in increasing the area under food and cash crops and shall ensure food security in the region. Key words: Cash crops, food crops, willingness to pay, index based insurance, rain-fed, Pakistan JEL Classification: Q22, P32

Agriculture continues to be an important sector of Pakistans economy despite its falling share in the national income. In 2010-11, the sector contributed 21 per cent to the gross domestic product (GDP) of Pakistan. The importance of agriculture goes beyond its income contribution. The sector engaged 43 per cent of the workforce in 2010-11, and is dominated by smallscale producers who have less than 2 ha landholding (80% of the total farmers) and largely depend on agriculture for their livelihood. However, livelihood in agriculture is threatened by frequent crop failures and price volatility (Boehlije and Eidman, 1994; Yesuf and Randy, 2008). * Author for correspondence
Email: akhter.ali@cgiar.org

The agriculture in the rain-fed areas is of subsistence nature characterized by low land- as well as labour-productivity, and higher yield gap (GoP, 2009). The vulnerability of rain-fed agriculture to extreme weather conditions results in substantial income loss to farm households. The farm households have little support from the government in the form of insurance cover or subsidy to face the disaster (Khan et al., 2004). In the rain-fed areas of Pakistan, there is an urgent need for the effective risk management measures. In Pakistan, the insurance penetration accounts for only 0.7 per cent of the GDP, one of the lowest in the world, and there has been no growth in it during the past 10 years. The initiatives taken by various governments to promote agricultural insurance in the country have had limited success. This paper has analysed the factors that influence a households willingness to participate in and pay


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premium for insurance of food and cash crops. It is probably one of the first studies that have been focused on the farmers willingness to pay for index based crop insurance in Pakistan. However, the index based insurance is not a panacea for all weather-related hazards. It manages only a limited number of risks. The index based insurance pilot project in Pakistan intends to complement the governments initiative by providing another option suitable to the countrys diverse climatic, topographic and cropping systems. Index insurance and traditional insurance are not by definition mutually exclusive. These can co-exist and complement each other since these are really designed to target different layers of risks and different levels of administrative capabilities. However, advances in technology that lower delivery costs and loss adjustment surveys in the case of traditional crop insurance schemes will be needed to make this type of insurance financially feasible. There are significant advantages of index based insurance. It avoids the problems of moral hazard and adverse selection. Because the payment of indemnity is based on the deviations from the index and not on individual losses, no assessment of losses at the individual level is needed. The indemnity process is quick and inexpensive to administer. Additionally, the design of the product lessens the administrative and operational expenses. Despite these major advantages, acceptance of this product by both insurers and insured parties is still low. This can be explained by considering some of the constraints. From the point of view of the insurer, it can be a costly and time-consuming task to assemble the data and construct the appropriate indexes. Once the indexes are created, operational costs are low and this translates into lower premiums for insured parties. The lower premiums attract small producers who otherwise would not be able to afford insurance. The index based weather insurance products that are properly designed can become a first step to facilitate the broader development of robust rural financial markets that serve the needs of the poor in low-income countries. Only a limited number of studies have been focused on the farmers willingness to pay for crop insurance products such as of Bardsley et al. (1984); Patrick (1988); McCarthy (2003) and Sarris et al. (2006). The main objective of the current paper is to estimate the farmers perceptions regarding index based

insurance and their willingness to pay for the insurance of food and cash crops in Pakistan.

Data and Methodology

Data and Description of Variables The data were collected from two different locations, Soon Valley and Talagang, which are predominantly rain-fed areas situated in the Punjab province of Pakistan and were piloted for the index based crops insurance schemes. A comprehensive survey was carried out by employing a well-structured questionnaire schedule. Information on a number of socioeconomic variables, household assets, income and production of cash and food crops was collected from randomly selected 531 farm households, the majority of them were small farmers. Table 1 presents the difference in key characteristics of the households willing to participate and not willing to participate in the index based insurance. Farmers willing to participate in the index based insurance were relatively younger, and had better education. However, size of their landholdings, and family was small. Those willing to participate had less access to non-farm income generating activities, but their agricultural production portfolio was more diversified. The farmers willing to participate in the index based insurance had higher household income and they had also availed the credit facility. The non-participants had better access to extension services. The participants had higher tractor ownership. However the nonparticipants had higher tube-well and dug-well ownerships. Similarly, the participants had higher livestock ownership. Methodology The willingness to pay for the index based insurance product is the amount of money an individual or a household is willing to pay for purchasing the insurance product given its expenditure levels, risk perception, risk aversion and other background characteristics. The Gustafsson-Wright (2009) model of willingness to pay (WTP) for the micro insurance is: (1)

Ali : Farmers Willingness to Pay for Index Based Crop Insurance in Pakistan


Table 1. Difference in key characteristics of farmers willing to participate and not willing to participate in index based crops insurance in Pakistan Variable Farmers willing to participate in index based insurance 43.27 10.32 1.8 0.37 6.52 0.36 0.78 15478 0.31 0.17 0.41 0.07 0.31 0.71 0.74 0.45 6.25 281 Farmers not willing to participate in index based Insurance 47.41 6.45 3.2 0.62 9.48 0.58 0.55 20164 0.16 0.29 0.28 0.13 0.53 0.58 0.57 0.37 3.79 260 Difference t-values

Age Education Landholding Family type Household size Nonfarm Crop diversity Household income Credit Extension Tractor Tube-well Dug-well Road access Food crops Cash crops Livestock Number of farmers

-4.14 3.87** -1.40* -0.25* -2.96 -0.22* 0.23** -4686* 0.15*** -0.12* 0.13** -0.06* -0.22** 0.13 0.17 0.08 2.46***

-1.25 2.01 -1.78 1.66 -1.48 -1.73 2.25 -1.79 3.03 -1.94 2.16 -1.71 -1.99 1.45 1.55 0.82 3.29

Note: ***, **, * denote significance at 1 per cent , 5 per cent and 10 per cent levels, respectively.

where, Q1 and Q0 are the levels of utility associated with and without insurance, respectively; L denotes assets of the household; Z represents the vector of household and farm level characteristics (age, education, farm size, etc.); is the probability of facing the risk; is the risk aversion; and represents other unobserved factors. (.) is the maximum value an individual is willing to forgo to avoid or lessen his exposure to a particular risk. Thus, a farmer will buy the insurance policy only under conditions represented by relation (2); (2) and where, are indirect utility functions with and without insurance cover, respectively for an individual. 1 and 0 are assumed to be normally distributed with zero mean and constant variance. It is important to note that willingness to pay is different from willingness to join the index based insurance as the willingness to join may be higher. In

the present study, the farmers willingness to join has been estimated by employing the Probit model and the acreage farmers are interested to ensure is estimated by employing the Poison regression estimates. The likely impact of insurance has been estimated using propensity score matching that corrects the sample selection bias which may arise due to systematic differences between the two groups of farmers. A brief description of the propensity score matching method is presented below. Propensity Score Matching The expected treatment effect for the treated population is of primary significance1 and is given by Equation (3): (3) where, is the average treatment effect for the treated (ATT) population, and R1 denotes the value of outcome for participants of new technology and R0 is the value


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of outcome for non-participants. A major problem is that we do not observe . Although the can difference be estimated, it is potentially a biased estimation. In the absence of experimental data, the propensity score-matching model (PSM) can be employed to account for this sample selection bias (Dehejia and Wahba, 2002). The PSM is the conditional probability that a farmer adopts the new product, given the preadoption characteristics (Rosenbaum and Rubin, 1983). To create the condition of a randomized experiment, the PSM employs the unconfoundedness assumption, also known as conditional independence assumption (CIA), which implies that once Z is controlled for, product adoption is random and uncorrelated with the outcome variables. The PSM can be expressed as per Equation (4): (4) where, I = {0, 1} is the indicator for adoption and Z is the vector of pre-adoption characteristics. The conditional distribution of Z, given by p(Z) is similar in both the groups of adopters and non-adopters. Unlike the parametric methods mentioned above, propensity score matching requires no assumption about the functional form in specifying the relationship between outcomes and predictors of outcome. The drawback of the approach is the strong assumption of unconfoundness. As argued by Smith and Todd (2005), there may be systematic differences between outcomes of adopters and non-adopters even after conditioning because selection is based on unmeasured characteristics. However, Jalan and Ravallion (2003) have pointed out that the assumption is no more restrictive that those of the IV approach employed in cross-sectional data analysis. Michalopoulos et al. (2004) have indicated that non-experimental method provides the most accurate estimates in the absence of random assignment. On the other hand, the fixed effects model did not consistently improve the results. After estimating the propensity scores, the average treatment effect for the treated (ATT) can then be estimated as per Equation (5):

The farmers perceptions regarding food and cash crops insurance have been presented in Table 22. The dependent variable was binary, i.e. 1 for farmers willing to participate in the index based crop insurance and 0 otherwise. A number of explanatory variables were included in the model. The coefficients for age and education were positive and significant. The results are in line with the previous studies such as of McCarthy (2003) and Sarris et al. (2006) regarding willingness to pay for crop insurance in developing countries. The coefficient for landholding had a positive and significant effect suggesting that farmers having larger landholdings were more willing to participate in the food and cash crops insurance. The coefficients for family type, crop diversity and non-farm participation were negative and significant. Household income too
Table 2. Farmers perceptions about indexed based crop insurance in Pakistan (Probit estimates) Variable Age (years) Education (years) Landholding (acres) Family type (dummy) Household size (No.) Nonfarm (dummy) Crop diversity (dummy) Household income (Pakistani rupees) Credit (dummy) Extension (dummy) Tractor (dummy) Gender (dummy) Tube-well (dummy) Soon Valley (dummy) Road access (dummy) Food crops (dummy) Cash crops (dummy) Livestock number R2 LR 2 Prob>2 Number of Observations Coefficient 0.013* 0.027*** 0.045*** -0.012 0.029 -0.036* -0.028** 0.044*** 0.011*** 0.016*** 0.009* 0.032 0.017*** 0.028* 0.057* 0.027** 0.031* 0.049*** 0.26 135.54 0.000 256 t-values 1.79 2.84 3.16 01.13 0.55 -1.77 2.02 3.16 2.55 3.90 1.88 1.22 2.55 1.77 1.88 2.02 1.83 2.67


Note: ***, **, * denote significance at 1 per cent, 5 per cent and 10 per cent levels, respectively.

Ali : Farmers Willingness to Pay for Index Based Crop Insurance in Pakistan


had a positive sign. The credit availability and access to extension services were positive and significant. The tractor ownership was also positive and significant at 10 per cent level of significance. The tube-well ownership was negative and non-significant. The food crop was positive and significant at 5 per cent level of significance. Similarly, the cash crop was positive and significant at 10 per cent level of significance. The livestock ownership was positive and highly significant at 1 per cent level of significance. The regional dummies were also included in the model although the results were not significantly different from zero. The R2 value was 0.26, indicating that 26 per cent variation in the dependent variable was due to variables included in the model and vice versa. The LR 2 was significant at 1 per cent level of significance, indicating the robustness of the variables included in the model. The Poisson regression was estimated for the number of acres for which the farmers were interested to get insurance and the results have been presented in Table 3 3 . The coefficients for age, education,
Table 3. Farmers willingness to insure number of acres (Poisson estimates) Variable Age (years) Education (years) Landholding (acres) Family type (dummy) Household size (No.) Nonfarm (dummy) Crop diversity (dummy) Household income (Pak rupees) Credit (dummy) Extension (dummy) Tractor (dummy) Tube-well (dummy) Gender (dummy) Road access (dummy) Livestock number Soon Valley (dummy) LR 2 Prob >2 Number of observations Coefficient 0.017* 0.023** 0.019*** 0.016* -0.010*** -0.014 0.011 0.016*** 0.014*** 0.018* 0.021* 0.0215*** 0.031 0.019** 0.031*** 0.015** 0.225 207.41 0.000 256 t-values 1.85 2.02 2.76 1.66 2.48 -1.36 0.55 2.47 2.61 1.90 1.85 3.23 1.49 2.19 2.54 2.34

landholding, family type and household income were positive and significant, indicating their positive role in farmers willingness to insure the number of acres under food and cash crops. The coefficients for household-size and nonfarm participation were negative and significant. Regarding institutional support and household assets, the credit and extension services, tractor, livestock number and tube-well ownership were positive and significant. The effect of gender was studied by including a dummy variable, i.e. 1 for male and 0 for female and the results were positive, although not significantly different from zero. The road access was also included as dummy variable and the coefficient was positive and significant at 5 per cent level of significance. The R2 value was 0.23, indicating that 23 per cent variation in the dependent variable was due to independent variables included in the model. The LR 2 was significant at 1 per cent level of significance, indicating the robustness of the variables included in the model. The impact of participation in index based insurance was estimated by employing the propensity score matching and the results have been presented in Table 4. The ATT results indicate the difference in outcomes of the farmers willing to participate and not willing to participate in the index based insurance. The ATT results for farmers satisfaction level were positive and significant at 1 per cent, indicating that farmers willing to participate in index based insurance were more satisfied as compared to farmers not willing to participate in index based insurance. The ATT results regarding the farmers willingness to increase area under food crops were positive and significant at 5 per cent level of significance, indicating that the index based insurance can help in increasing the area under food crops which in turn can help in increasing the rural household food security in Pakistan5. There also existed a huge yield gap between the irrigated and rainfed areas of Pakistan6. So the increase in acreage under food crops can help in ensuring the household food security levels in the rain-fed areas of Pakistan. The results for cash crops were also positive and significant at 5 per cent level of significance, indicating that farmers willing to participate in index based insurance were also willing to increase the area under cash crops7. The increase in the area under cash crops can help in increasing the household income levels. The farmers were of the view that the premium rates were a bit

Note: ***, **, * denote significance at 1 per cent, 5 per cent and 10 per cent levels, respectively.


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Table 4. Impact of insurance on farmers satisfaction level and numbers of acres under food and cash crops Variable Satisfied (dummy) Willing to increase food crops acreage (dummy) Willing to increase cash crops acreage (dummy) Subsidy needed (dummy) ATT 0.63*** 0.55** 0.47** 0.81*** t-values 2.84 2.16 2.33 3.41 Critical level of hidden bias 1.25-1.30 1.55-1.60 1.60-1.65 2.10-2.15 Number of treated control 210 203 155 210 180 172 197 195

Note: ***, **, * denote significance at 1 per cent, 5 per cent and 10 per cent levels, respectively.

high and there was the need about 50 per cent subsidy. The ATT results regarding the subsidy requirement were positive and significant at 1 per cent level of significance, indicating that the premium rates for the food and cash crops insurances were higher and the farmers were looking for the subsidy8. In the study area the Pakistan Poverty Alleviation Fund (PPAF) was willing to provide 50 per cent subsidy to the farmers during the initial stages of the implementation of index based Insurance. The results are in line with the previous studies that higher premium rates resulted in substantially lower levels of participation in crop insurance programs (Gardner and Kramer, 1986; Goodwin, 1992; Barnett et al., 1990; Niewoudt et al., 1985; Smith and Baquet, 1996; Just et al., 1999). From the empirical results it was concluded that the farmers in the rain-fed areas of Pakistan were willing to pay for the index based insurance to cover weather-related risks. The farmers were also willing to increase the area under food and cash crops. The findings of the current study are in line with the previous studies that agricultural insurance programs are likely to be more successful in environments where yields are more volatile, farmers are better educated, debt is a concern and premium rates are subsidized.

introduction of the index based insurance, the farmers choice for the cash crops should change as the cash crops which used to be profitable, but risky, will now be safer. By reducing the degree of riskiness in agricultural production, farmers will resort less to exante risk coping mechanisms. One should therefore expect increased specialization and high profits, as farmers focus on maximizing the output of the insured crop, rather than on diversifying the weather risk through the cropping system. The weather index based insurance will thus not only introduce a more efficient and low-cost insurance but it will also provide a more transparent and actuary fair insurance products to the farmer. The provision of direct risk relief to farmers will enable them to alter their production strategies towards maximizing output, rather than diversifying risk, and to shift their demand for credit from consumption loans to investment loans. This is likely to result in increased specialization and investment, and thus contribute to increased profits and the wellbeing of the farmers in rain-fed areas of Pakistan.

The author is extremely thankful to the learned referee for his critical comments and his suggestions on improving the presentation of the paper. The errors, if any, are mine.

In the rain-fed areas of Pakistan the agricultural sector is vulnerable to multiple risks, especially due to changing climatic conditions. The landholdings are small in these areas, and the farmers are unable to copeup with the multiple risks, hence the index based insurance can serve as a risk management strategy. The farmers willingness to participate in the food and cash crops insurance schemes are influenced by a number of factors, especially the social capital. With the

1. The propensity score matching rests on two strong assumptions; first, the CIA (conditional independence assumption) states that once the observable factors are controlled for technology, the adoption is random and uncorrelated with the outcome variables and second, the common

Ali : Farmers Willingness to Pay for Index Based Crop Insurance in Pakistan


support condition that matching can only be carried out over the common support conditions. 2. 3. The Probit model was estimated. The Poisson regression was based on the assumption that mean of the dependent variable was equal to its variance otherwise negatively binomial logit model could have been estimated. The most important food crop in rain-fed areas of Pakistan is mainly the wheat crop. The wheat yields in the irrigated areas are almost double as compared to rain-fed areas. The most important cash crop in rain-fed area is the groundnut crop. The premium rate for the wheat crop was approximately Pakistani rupees 1000/acre and for the groundnut was Pakistani rupees 1275/ acre.

analysis of the potential market for new low-cost health insurance products in Namibia. Social Science and Medicine, 69(9): 1351-1359. Hardaker, J.B., Huirne, R.B.M. and Anderson, J.R. (1997) Coping with Risk in Agriculture. CAB International, New York. Jalan, J. and Ravallion, M. (2003) Does piped water reduce diarrhea for children in rural India? Journal of Econometrics, 112: 153-173. Just, R., Calvin, E.L. and Quiggin, J. (1999). Adverse selection in crop insurance: Actuarial and Asymmetric Information Incentives. American Journal of Agricultural Economics, 81(4): 834-849. Kay, R.D. and Edwards, W.M. (1994) Farm Management. McGraw-Hill International Editions, Agricultural Series, New York. Khan, N.Z., Ahmad, M. and Asia, Rasheed (2004) Wheat Production in Pakistan: Saga of Policy D i s i n c e n t i v e s . h t t p : / / w w w. p i d e . o rg . p k / p d f / psde%2019AGM/Naheed%20.Zia20Khan, %20Munir%20Ahmed%20and%20Asia%20Rasheed. Madai, H. (2008) Risk Sources and Risk Management Strategies Applied by the Hungarian Sheep Producers. University of Debrecen, Centre for Agricultural Sciences and Engineering. Faculty of Agricultural Economics and Rural Development, Department of Farm Business Management and Marketing. Martin, S. (1996) Risk management strategies in New Zealand agriculture and horticulture, Review of Marketing and Agricultural Economics, 64(1). McCarter, N. (2003) Demand for Rainfall Index Based Insurance: A Case Study from Morocco . IFPRI Environmental and Production Technology Division Working Paper No. 106, Washington D. C. Michalopoulos, C., Bloom, H.S. and Hill, C.J. (2004) Can propensity score methods match the findings from a random assignment evaluation of mandatory welfareto-work Programs? Review of Economics and Statistics, 86: 156-179. Musser, W.N. (1998) Risk management overview. Paper presented at Mid-Atlantic Risk Management Regional Conference, Williamsburg, VA, 6-7 August. Nieuwoudt, W.L., Johnson, S.R., Womack, A.W. and Bullock, J.B. (1985) The Demand for Crop Insurance. Agricultural Economics Report No. 1985-16, Department of Agricultural Economics, University of Missouri.

4. 5. 6. 7.

Bardsley, Peter, Abey, Arun and Davenport, Scott (1984) The economics of insuring crops against drought. Australian Journal of Agricultural Economics, 28(1): 1-14. Barnett, B.J., Skees, J.R. and Hourigan, J.D. (1990) Examining Participation in Federal Crop Insurance. Staff Paper No. 275, Department of Agricultural Economics, University of Kentucky. Boehlije, M.D. and Eidman, V.R. (1994) Farm Management. Wiley, New York. Gardner, B.L. and Kramer, R.A. (1986) Experience with crop insurance programs in the United States. In: Crop Insurance for Agricultural Development: Issues and Experience, John Hopkins University Press, Baltimore. Goodwin, B.K. and Terry, L.K. (1993) Adverse Selection, Disaster Relief and the Demand for Multiple Peril Crop Insureance. Research Report to the Federal Crop Insurance Corporation, Kansas State University. GoP (Government of Pakistan) (2012) Economic Survey of Pakistan 2010-2012. Ministry of Finance, Economic Affairs Division, Islamabad. GoP (Government of Punjab) (2009) Punjab Development Statistics. Bureau of StatisticsGovernment of Punjab Lahore. Gustafsson-Wright, E., Asfaw, A. and van der Gaag, J. (2009) Willingness to pay for health insurance: An


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Patrick, G.F. (1998) Managing Risk in Agriculture. North Central Region Extension Publication No. 406. Patrick, George E. (1988) Mallee wheat farmers demand for crop insurance. Australian Journal of Agricultural Economics, 32(1): 37-49. Rosenbaum, P. R. and Rubin, D.B. (1983) The central role of propensity score in observational studies for causal effects. Biometrika, 70: 41-50. Sarris, A., Krfakis, P. and Christiaensen, L. (2006) Producer Demand and Welfare Benefits of Rainfall Insurance in Tanzania. FAO Commodity and Trade Policy Working Paper No. 18, Rome.

Smith, J. and Todd, P. (2005) Does matching overcome LaLondes critique of nonexperimental estimators? Journal of Econometrics, 125(1-2): 305-353. Smith, V. and Baquet, A. (1996) The demand for multiple peril crop insurance: evidence from Montana. American Journal of Agricultural Economics, 78(1): 75-83. Yesuf, M. and Bluffstone, Randy (2008) Risk Aversion in Low-Income Countries: Experimental Evidence from Ethiopia. International Food Policy Research Institute. Washington, DC. Yousaf, M. (2007) Crop management in rainfed areas. Dawn, 17 October.
Received: June, 2013; Accepted September, 2013

Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013 pp 249-255

Modelling and Forecasting of Meat Exports from India

Ranjit Kumar Paul*, Sanjeev Panwar, Susheel Kumar Sarkar, Anil Kumar, K.N. Singh, Samir Farooqi and Vipin Kumar Choudhary
Indian Agricultural Statistics Research Institute, New Delhi - 110 012

In the present study, seasonal autoregressive integrated moving average (SARIMA) methodology has been applied for modelling and forecasting of monthly export of meat and meat products from India. Augmented Dickey-Fuller test has been used for testing the stationarity of the series. Autocorrelation (ACF) and partial autocorrelation (PACF) functions have been estimated, which have led to the identification and construction of SARIMA models, suitable in explaining the time series and forecasting the future export. The evaluation of forecasting of export of meat and meat preparations has been carried out with root mean squares prediction error (RMSPE), mean absolute prediction error (MAPE) and relative mean absolute prediction error (RMAPE). The residuals of the fitted models were used for the diagnostic checking. The best identified model for the data under consideration was used for out-ofsample forecasting along with the upper and lower 95 per cent confidence interval up to the year 2013. Key words: Forecasting, meat export, SARIMA model, seasonality, stationarity JEL Classification: Q13, Q17, Q22

Fluctuations in export price of different commodities are a matter of concern for consumers, farmers and policymakers. The unforeseen variations in export prices can complicate budgetary planning. Therefore, its accurate forecast is extremely important for efficient monitoring and planning. Forecasting of meat production or meat export price for that matter is a formidable challenge. With the onset of globalization, it has become imperative to study the trends in prices of different commodities by employing sound statistical modelling techniques which in turn, will help the planners in formulating suitable policies to face the challenges ahead. India is at the top position in animal and cattle population, but meat processing industry has yet to come up. Poultry meat is the fastest growing animal protein in India. Only 21 per cent of the total meat produced is exported. Further, only 6 per cent of * Author for correspondence
Email: ranjitstat@gmail.com

the poultry meat is marketed in the processed form. In recent years, the demand for Indian buffalo meat is increasing rapidly due to its lean character and nearorganic nature. Also, frozen bovine meat from India is very popular in the international markets. Thus, India has the potential to become a key player in the global meat market. Taking in view the huge scope of expanding meat exports, there is an urgent need to develop strategies for enhancing meat production in India. Since fluctuations in price for different commodities are a matter of concern for producers, consumers and policymakers, accurate forecast is extremely important for efficient monitoring and planning. Many attempts have been made in the past to develop forecast models for various commodities. Paul et al. (2009) have studied the fluctuations in export price of spice; Chandran and Pandey (2007) have studied the seasonal fluctuation in potato price in Delhi; Paul and Das (2010) have attempted forecasting of


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inland fish production in India by using ARIMA approach. Paul (2010) has also studied the application of stochastic modelling for forecasting of wholesale price of Rohu in West Bengal, India. Saz (2011) has used seasonal autoregressive moving average (SARIMA) model to forecast inflation rates. In this paper time-series approach has been followed to develop an ideal model which will adequately represent the set of realizations and also their statistical relationships in a satisfactory manner. Time-series analysis is an important tool for management and decision-making as it reveals the hidden trends and seasonality patterns. Box-Jenkins autoregressive integrated moving average (ARIMA) methodology is the most widely used technique for time series analysis. The ARIMA methodology has been successful in describing and forecasting of a wide variety of species in the past. In the ARIMA approach, the forecasts are based on linear functions of the sample observations and the aim is to find the simplest models that provide an adequate description of the observed data. There are also ARIMA processes designed to handle seasonal time series; these are called SARIMA models. There are two types of forecasting models: deterministic and stochastic. The deterministic models do not have a random variable and each prediction is made under a specific set of conditions that are always the same (William, 1986). The stochastic models, in contrast, have a random variable that represents error-

terms of random factor (Box et al., 2007; Liu and Hanssens, 1982). In our study, we have used a stochastic model. On plotting our data we noticed the presence of seasonality, therefore, we have opted for the Seasonal Autoregressive Integrated Moving Average (SARIMA) method. SARIMA models deal with seasonality in a more implicit manner, while ARIMA models are deficient in dealing with seasonal data. Also, SARIMA models are better if the seasonal pattern is both strong and stable over time. For the estimation of parameters, iterative least squares method is used. In the present study, SARIMA stochastic modelling has been used on the monthly total export of meat and meat preparations from India.

Materials and Methods

Data Description The month-wise data on total exports of meat and meat preparations from India were collected from the website www.indiastat.com for the period November 1992 to December 2011 and the same are given in Figure 1. A perusal of Figure 1 reveals an increasing trend in the total export of meat and meat preparations from India over the years. At the same time, the figure also indicates that the export is highest during OctoberDecember and lowest during April-May every year. This clearly shows seasonality in the data set. Accordingly, SARIMA model was explored for modelling and forecasting of this data set.

Export (in crore `)


Figure 1. Monthly export of meat and meat preparations from India: Nov. 1992 to Nov. 2011

Paul et al. : Modelling and Forecasting of Meat Exports from India


Descriptions of Models
Autoregressive Integrated Moving Average (ARIMA) Model

detailed discussion on various aspects of this approach is given in Box et al. (2007). Most of the standard software packages, like SAS, SPSS and EViews, contain programs for fitting of ARIMA models. Seasonal Autoregressive Integrated Moving Average (SARIMA) Model The fundamental fact about seasonal time-series with period S is that observations, which are S intervals apart, are similar. Therefore, the operation L (yt) = yt-1 plays an important role in the analysis of seasonal timeseries. In general, the order of SARIMA model is denoted by (p, d, q) (P, D, Q)S , and the model is represented as per Equation (5): ...(5) where, p(L) and q(L) are the polynomials in L of degrees p and q, respectively and P(LS) and Q(LS) are the polynomials in L S of degrees P and Q , respectively; p stands for the non-seasonal autoregressive order, d standing for the non-seasonal integration order, and q for the non-seasonal moving average order. In the seasonal part, P, D and Q stand for seasonal autoregressive order, seasonal integration order, and seasonal moving average order, respectively and s denotes the period or length of the season (in the monthly case 12, in the quarterly case 4). For the estimation of parameters, iterative least squares method is used. The forecasting strategy of SARIMA is given as: Data collection and examination, determination of the stationarity of the time-series, model identification and estimation, diagnostic checking, forecasting and forecast evaluation.
Testing for Stationarity

A generalization of ARMA models which incorporate a wide range of non-stationary time-series is obtained by introducing differencing into the model. The simplest example of a non-stationary process which reduces to a stationary one after differencing is Random Walk. A process {yt} is said to follow an Integrated ARMA model, denoted by ARIMA (p, d, q), if d yt = (1 B)d t is ARMA (p, q). The model is written as: ...(1) where, t ~ WN (0, 2), WN indicates white Noise, (B) = 1 1B 2B2 pBp and

(B) = 1 1B 2B qB . The integration parameter d is a non-negative integer.

2 q

Some special cases of ARIMA (p, d, q) model are: (i) When d = 0, ARIMA (p, d, q) ARMA (p, q). Therefore, ARIMA ( p , q ) model may be represented by Equation (2): ...(2) (ii) When d=0 and q=0, Equation (1) becomes AR (p) model which is represented as: ...(3) (iii) When d=0 and p=0, Equation (1) becomes AR (q) model which is represented as: ...(4) In practice, it is frequently true that adequate representation of actually occurring stationary timeseries can be obtained with autoregressive, moving average, or mixed models, in which p and q are not greater than 2 and are often less than 2. The ARIMA methodology is carried out in three stages, viz. identification, estimation and diagnostic checking. The parameters of tentatively selected ARIMA model at the identification stage are estimated at the estimation stage and adequacy of tentatively selected model is tested at the diagnostic checking stage. If the model is found to be inadequate, the three stages are repeated until satisfactory ARIMA model is selected for the time-series under consideration. A

Stationarity is required for fitting a time-series into a SARIMA framework. Stationarity means that the stochastic properties, the moments (mean, variance, covariance) of the underlying time-series need to be time invariant. Time plot, Autocorrelation function (ACF), and Partial autocorrelation function (PACF) are used as a first attempt in determining the stationarity. For further conformation, augmented Dickey-Fuller test is used.
Augmented Dickey Fuller Test

The standard Dickey Fuller unit-root test performs a simple regression in the form of Equation (6):


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yt = (a 1) yt-1 + t


This test is used if the underlying data-generating process is expected to have no high order lags. If higher lags are present then the Dickey Fuller test is misspecified and the standard errors are unreliable. To correct this, the standard test is the augmented DickeyFuller test which takes the form of Equation (7): yt = 0 + ( 1) yt-1 + i yt-1 + t (7) A unit root in this context refers to the modulus of the roots of the AR polynomial to be smaller than unity and for the MA polynomial to lie inside the unit circle, which renders the MA part non-invertible. A series is said to be stationary if it does not have a unit root. The method of differencing can be used to achieve stationarity. If there is exactly one unit root, first order difference of the series should be used and in case of two unit roots, second order difference of the series should be used.
Model Identification

2 that after one differencing (for both seasonal and nonseasonal) the fate of ACF becomes more realistic, easing the identification of order of SARIMA model.
Model Estimation

The estimation of parameters for SARIMA model is generally done through non-linear least squares method. Several software packages are available for fitting of SARIMA models. In this paper, SAS 9.2 software package was used. The two statistics used were the Akaike information criterion (AIC) and Bayesian information criterion (BIC) for choosing the best fitted model for the present data under consideration. These are based on Bayesian Inference methods and require prior knowledge of parameter values and probability density functions. The values of AIC and BIC were calculated from following expressions: AIC= n log 2 + 2 (p+q+P+Q+1) BIC= n log 2 + 2 (p+q+P+Q+1) log n where, n is the number of observations, is the mean square error and p, q, P, Q have been defined earlier. On the basis of AIC and BIC values, the best model was found out as SARIMA (2,1,0; 1,1,0). The parameter estimates along with standard-error (SE) of estimates and their significance are given in Table 1.

On testing the presence of unit root by augmented Dickey-Fuller test, it was found that there was presence of one unit root. Accordingly, one non-seasonal and one-seasonal differencing were applied to the original time-series observations and the resulted ACF and PACF are given in Figure 2. It is observed from Figure

Table 1. Parameter estimates of the fitted SARIMA(2,1,0; 1,1,0) model Variable Constant AR1 AR2 Seasonal AR Estimate 1.976 -0.412 -0.155 -0.388 Standard-error 1.963 0.068 0.070 0.073 t-value 1.007 -6.023 -2.215 -5.350 Significance 0.315 < 0.000 0.028 < 0.000

Figure 2. ACF and PACF of seasonal and non-seasonal differenced time-series

Paul et al. : Modelling and Forecasting of Meat Exports from India


Export (in crore `)


Figure 3. The fitted model along with the data points

The fitted model along with the data points have been displayed in Figure 3. A perusal of Figure 3 indicates that the fitted model is a good fit for the data under consideration. Performance Evaluation of Fitted Model Out of total 230 data points (November, 1992 to December, 2011), first 218 data points i.e. data from November, 1992 to December, 2010 were used for model building and the remaining 12 data points, i.e. data from January, 2011 to December, 2011, were used for model validation. The root mean square prediction error (RMSPE) value and mean absolute prediction error (MAPE) value for fitted SARIMA model were respectively computed as 109.18 and 95.11. Further, the relative mean absolute prediction error (RMAPE) value was also computed for validation of the forecast. The RMAPE was defined as per Equation (8):

Table 2. One-step-ahead forecast of export of meat and meat preparations from India (in crore `) Month Jan-2011 Feb-2011 Mar-2011 Apr-2011 May-2011 Jun-2011 Jul-2011 Aug-2011 Sep-2011 Oct-2011 Nov-2011 Dec-2011 Actual 850.62 800.87 840.70 671.22 846.87 793.87 1029.10 1071.35 964.52 1448.80 1206.59 1455.78 Forecast 928.07 861.44 958.34 852.15 758.69 751.97 929.01 919.30 991.94 1290.01 1208.03 1320.92

(8) The RMAPE value for fitted SARIMA model was computed as 10 per cent. One-step-ahead forecast of export of meat and meat preparations from India has been given in Table 2. The fitted SARIMA (2,1,0; 1,1,0) model was used for out-of-sample forecast of monthly export of meat

and meat preparations from India during the period, January, 2012 to December, 2013. The forecast values along with their corresponding lower and upper 95 per cent confidence limit are given in Table 3. Diagnostic Checking The model verification is concerned with the checking residuals of the model to see if they contained any systematic pattern which still could be removed to improve the chosen SARIMA, which was done through examining the autocorrelations and partial


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Figure 4: ACF and PACF of residual series Table 3. Out-of-sample forecasts of monthly export of meat and meat preparations from India (in crore `) Month Forecast Lower confidence interval 1242.08 1138.16 1205.54 1014.72 1071.54 1022.22 1267.92 1260.85 1224.61 1580.38 1401.42 1588.51 Upper confidence interval 1485.49 1420.54 1523.80 1371.30 1460.14 1440.56 1714.30 1733.48 1722.12 2101.59 1945.30 2154.15 Month Forecast Lower confidence interval 1459.19 1368.75 1417.92 1228.40 1324.17 1266.42 1501.27 1506.75 1436.73 1836.20 1626.71 1832.12 Upper confidence interval 2101.49 2055.47 2147.11 2000.49 2135.69 2115.62 2386.70 2426.90 2390.36 2822.17 2644.00 2879.78

Jan-2012 Feb-2012 Mar-2012 Apr-2012 May-2012 Jun-2012 Jul-2012 Aug-2012 Sep-2012 Oct-2012 Nov-2012 Dec-2012

1363.79 1279.35 1364.67 1193.01 1265.84 1231.39 1491.11 1497.16 1473.37 1840.98 1673.36 1871.33

Jan-2013 Feb-2013 Mar-2013 Apr-2013 May-2013 Jun-2013 Jul-2013 Aug-2013 Sep-2013 Oct-2013 Nov-2013 Dec-2013

1780.34 1712.11 1782.52 1614.45 1729.93 1691.02 1943.98 1966.83 1913.55 2329.19 2135.36 2355.95

autocorrelations of the residuals of various orders. For this purpose, ACF and PACF up to 16 lags were computed and are given in Figure 4. It was also found that none of these autocorrelations was significantly different from zero at any reasonable level. This proved that the selected SARIMA model was an appropriate model for forecasting the meat export which also indicated the good fit of the model.

The study has revealed that the SARIMA model being stochastic in nature, could be used successfully for modelling as well as forecasting of monthly export of meat and meat preparations from India. It has been found that there is a significant increasing trend in the meat export from India. The model has demonstrated a good performance in terms of explained variability

and predicting power. The forecast values of meat export during January, 2011 to December, 2011 are close to the actual values. The relevant forecast interval for the out-of-sample export of meat and meat preparations can help farmers as well as policymakers for future planning. The study may help Indian meat exporters in forecasting future exports to other countries conducting long-term meat investment decisions, or identifying trends in the consumption of meats. In view of the growing meat exports the results of the study can be useful for planning expansion of meat exports to the existing destinations and to capture new markets.

The authors are thankful to the anonymous referee for his critical comments.

Paul et al. : Modelling and Forecasting of Meat Exports from India


Box, G.E.P., Jenkins, G.M. and Reinsel, G.C. (2007) TimeSeries Analysis: Forecasting and Control. Pearson Education, India. Chandran, K.P. and Pandey, N.K. (2007) Potato price forecasting using seasonal ARIMA approach. Potato Journal, 34: 137-138. Liu, L.M. and Hanssens, D.M. (1982) Identification of multiple-input transfer function models. Communications in Statistics - Theory and Methods, 11: 297-314. Paul, R.K., Prajneshu and Ghosh, H. (2009) GARCH nonlinear time series analysis for modelling and forecasting of Indias volatile spices export data. Journal of the Indian Society of Agricultural Statistics, 63: 123-131.

Paul, R.K. (2010 ) Stochastic modeling of wholesale price of rohu in West Bengal, India. Interstat, 11: 1-9. Paul, R.K. and Das, M.K. (2010) Statistical modelling of inland fish production in India. Journal of the Inland Fisheries Society of India, 42: 1-7. Saz, G. (2011) The efficacy of SARIMA models for forecasting inflation rates in developing countries: The case for Turkey. International Research Journal of Finance and Economics, 62: 111-142. William, E.G. (1986) Systems Analysis and Simulation in Wildlife and Fisheries Sciences. John Wiley and Sons, New York, 338 p.
Received: March, 2013; Accepted July, 2013

Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013 pp 257-265

Role of Non-Farm Sector in Sustaining Rural Livelihoods in Punjab

Pavithra S.a* and Kamal Vattab

National Centre for Agricultural Economics and Policy Research (NCAP), New Delhi - 110 012 Department of Economics & Sociology, Punjab Agricultural University, Ludhiana - 141 004, Punjab

The role of non-farm sector has been examined in promoting rural livelihoods in the state of Punjab, especially of the landless and marginal farm households who are often poor and derive a sizeable proportion of their income from non-farm activities. The non-farm income sources have been found to contribute towards reduction in income inequality. Owing to their lower level of education, lack of skills and capital, these households are engaged in relatively less-remunerative activities. The determinants of participation in non-farm activities have been identified and it has been found that larger family size, higher dependency ratio, small landholdings and social backwardness motivate farm households to participate more in the non-farm sector. Improvement in education and skills and creation of productive assets are crucial for enhancing their participation in more remunerative income-generating non-farm activities. Key words: Non-farm sector, poor farmers, income inequality, rural livelihoods, Punjab JEL Classification: D31, D63, I32, J40

The rural livelihoods in Punjab are under a continuous process of structural transformation in response to the dynamic changes taking place in the state economy. It has been a common tendency of households to diversify their income, assets and activities to enhance income and reduce risk; yet, hardly few households trace their total income to a single source. Hence, diversification is a norm (Barrett et al., 2001). However, there is a considerable difference in the nature and extent of livelihood diversification. Diversification in employment and income is pronounced among those rural households which have * Author for correspondence
Email: vgpavithra@ncap.res.in

lower income levels and inadequate resource-base for engaging themselves in more productive incomegenerating activities, whereas the rich households diversify their economic base to further boost their already higher income levels (Vatta and Sidhu, 2007). The pattern of diversification depends on asset endowments, education, gender and proximity to the urban area (Little 2001). Income diversification is largely driven by two sets of factors, namely push factors such as increasing risks in agriculture, declining profitability, increasing land fragmentations and mounting pressure on land which leads to a continuous fall in land-man ratio, and pull factors which are driven by the complementarities between farm and non-farm activities that create strong forward and backward linkages (Barrett et al., 2001; Bhaumik, 2007). Basant and Joshi (1994) have identified that the diversification in agriculturallydeveloped villages of Gujarat was driven by economic growth and market demand. A similar pattern was

The paper is a part of the M.Sc thesis entitled Diversity and Distribution of Rural Household Income in Punjab of the fist author, submitted to the Department of Economics & Sociology, PAU, Ludhiana-141004, in 2009.


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explored by Ghosal (2007) based on the NSSO data. Unni (1991) has recorded a positive relation between agricultural productivity and non-agricultural employment. On the other hand, Verma and Verma (1995) have highlighted the distress-driven diversification from the farm to non-farm sector. Vatta and Sidhu (2007) have found that rural households in Punjab are engaged in last resort activities in the nonfarm sector, thus indicating distress diversification in the state (see also, Eapen, 2001; Ghuman, 2005). The agrarian economy of Punjab which witnessed a high agricultural growth trajectory during the green revolution era, has now reached a plateau with agricultural growth experiencing a stagnation (Joshi, 2004). Agrarian crisis, backed by the soaring energy prices and inflationary pressure at the macroeconomic level, has further aggravated the vulnerability of rural livelihoods. Today, rural households have all the more strong reasons to be multi-active in income and employment generating activities. While the importance of non-farm income has been increasing for all rural households, it is more pronounced for the landless, marginal and small farmers (Saleth, 1997; Vatta et al., 2008). The non-farm sector has been an important alternative source to farm income, providing an opportunity for the sustenance of rural livelihoods. This paper discusses the nature of income diversification across different categories of rural households in Punjab, and its impact on income distribution.

landholding sizes: non-cultivating or landless, marginal (< 1 ha), small (1-2 ha), medium (2-6 ha) and large (> 6 ha). In each village, 14-18 households representing different land classes were selected in probability proportional to their size.

Analytical Procedure
The proportion of workers employed in different activities and the extent of income accruing from these were estimated. The extent of income diversification was measured using Herfindahls diversification index (DI). The value of the index ranges between 0 and 1; a larger value shows higher level of income diversification. The index was computed as per Equation (1): (1) where, Si is the proportion of income from the ith income source in the total household income. The household income was classified into four broad categories, viz. agricultural income, non-farm income, transfer income and other income. Agricultural income included income from crops, livestock, farm labour and the related activities. Transfer income consisted of the income from external as well as internal remittances and social security provisions such as old age/widow pension schemes and pensions after retirement. The other income comprised rental income from agricultural and non-agricultural assets. Non-farm income sources were classified according to the National Industrial Classification, 2004. The impact of an income source on overall inequality, either positive or negative, was examined using Gini decomposition procedure developed by Lerman and Yitzhaki (1985). The Gini coefficient in income is calculated as per Equation (2): (2)
are the total and average income of the where, y and y individuals, respectively, and F(y)is the cumulative distribution of income.

The study is based on the primary data collected from 94 rural households in Punjab, selected by applying multistage random sampling procedure. At the first stage, the state was stratified into low, medium and high non-farm employment intensity districts based on the proportion of total workers engaged in the nonfarm activities and this information was obtained from the Statistical Abstracts of Punjab. One district from each of these three categories of non-farm employment was selected for the study, viz. Ferozepur from low intensity, Kapurthala from medium intensity and Ludhiana from high intensity districts. At the next stage, one block from each district and then two villages from each block were selected for the survey. A list of all the households in each village was prepared and the households were classified based on their operational

Gini decomposition analysis was carried out using Lerman and Yitzhakis method (1985) as follows: (3)

Pavithra and Vatta : Role of Non-Farm Sector in Sustaining Rural Livelihoods in Punjab


where, K is the number of income sources of the ith household and cov(yk, F) gives the covariance of an income source with cumulative distribution of total household income. The inequality estimate for a source is obtained by Equation (4):

and Y is a dichotomous dependent variable taking a value of 1 for those having access to a particular income source; 0 otherwise. Characteristics of Rural Households in Punjab Some key characteristics of the sample rural households have been presented in Table 1. The average size of a rural household was of 6 persons. The average schooling was of 5 years; the large farm households had the higher level of schooling, while the landless had the lower level of schooling. The landholding is a proxy of wealth, and it is evident from Table 1 that land distribution was highly disproportionate; the average landholding size being 19.82 acres for large farm households and 1.3 acres for marginal farm households. Most of the landless households belonged to the scheduled and backward castes, indicating their deprivation. Caste is an important social factor affecting distribution of assets and skill levels of rural labour force. Across different caste categories, the average household size was higher for scheduled castes (SC) (Table 2), while the average landholding size was higher for the upper castes. The education level of other backward castes (OBC) and SC households was also lower at 4.6 and 3.0 years, respectively as compared to 6.2 years for the upper caste households. Agriculture was the major income source for rural households. It accounted for about 75 per cent of the total income of upper caste households and more than 70 per cent of backward and scheduled caste households. Non-farm income was the next important source.

(4) This can be summarized as: (5) where, Rk = cov(yk, F) / cov(yk, Fk) is the Gini correlation between total income and source income (k),
Gk = 2 cov(yk, Fk) / y k is the Gini coefficient of income source, and Sk = y k / y gives the share of an income source in the total income,

The determinants of households participation in a particular income-generating source were identified using probit analysis (Gujrati and Sangeetha, 2007). The estimated probit model is: Pi = (Y = 1 / X) = F (1 + 2 Xi) (6) where, F is the standard normal cumulative distribution function given by,

Table 1. Key socio-economic characteristics of sample rural households in Punjab Household category Landless Marginal Small Medium Large Overall Average household size (No.) 5.7 4.6 6.1 6.4 6.1 5.8 Average years of schooling (No.) 3.6 5.2 6.2 5.8 7.3 4.8 Average landholding size (acre) 1.3 3.62 6.12 19.82 3.84 Proportion of lower caste households (per cent) 93.61 0.00 4.25 2.13 0.00 47.00


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Table 2. Key Socio-economic indicators across different caste groups in Punjab Particulars General caste Family size (No.) Average landholding size (acre) Years of schooling (No.) Farm income (`/annum) Non-farm income (`/annum) Transfer income (`/annum) Other income (`/annum) Total household income (`/annum) 5.8 7.6 6.2 225681 (74.94) 19928 (6.62) 39957 (13.27) 15553 (5.16) 301119 Household type Backward castes 5.2 0.3 4.6 70467 (73.18) 17386 (18.52) 8433 (8.75) 96286 Scheduled castes 6.2 0.03 3.0 68722 (71.22) 18936 (19.62) 8828 (9.15) 96486

Note: Figures within the parentheses indicate per cent to the total income for a given caste category.

Diversity in Household Income Sources This section gives a detailed account of the distribution of total income across different income sources for different categories of households (Table 3). The non-farm income contributed around 64 per cent to the total income of landless households and its share declined with the increase in size of operational holding. The share of non-farm income in the total household income was 26.7 per cent, 7.0 per cent and 8.5 per cent for marginal, small and medium farmhouseholds, respectively. The disparity in the non-farm income across the households was due to the nature of non-farm activities that the households relied on. While the households with productive assets diversified into more productive non-farm activities, landless, marginal and small households could have access to only relatively lessremunerative sources of non-farm income. Almost 19 per cent of the landless households relied on construction activities. However, large households did not derive any income from non-farm activities, which might be due to the reason that larger operational holdings assured sufficiently high incomes (12-times of marginal and almost 3-times of small farming households) and gainful employment opportunities to these households, thus reducing their tendency to divert towards non-farm activities which were less remunerative as compared to agriculture. The

agricultural income showed a positive relationship with the size of landholding, as expected. Small, medium and large farm households obtained about 85 per cent of their income from agriculture, while its share for landless and marginal households was 15 per cent and 36 per cent, respectively. Only a few households reported to have transfer income. The share of transfer income was 9 per cent for landless, 29.2 per cent for marginal, 6.9 per cent for small, 7.3 per cent for medium and 13.8 per cent for large households. Such a wide variation in the proportion of transfer incomes, regardless of the size of operational holdings, is mainly due to the nature of transfer income that these households accessed. For the poor, the households transfer income was mainly from social security contributions in the form of pensions received by the aged members/widows or in the form of internal remittances from a migrant family member. In the case of large and medium farm households, transfer income was mainly sourced from external remittances or in the form of pensions for the retired government officials. The other income mainly included rental income. The marginal and small farmers being unable to derive sufficiently high incomes from their holdings, tend to lease-out the land and seek employment in the nonfarm sector. Such tendency was particularly strong amongst the marginal farmers. The large farmers,

Pavithra and Vatta : Role of Non-Farm Sector in Sustaining Rural Livelihoods in Punjab Table 3. Distribution of total household income across different income sources


(`/annum) Source of income Landless A. Agriculture Crop production Livestock Agricultural wages and other income B. Non-farm Manufacturing Construction Wholesale and retail trade, hotels and restaurants Transport, storage and communication Finance, insurance and real estate Community, social and personal services (CSP services) C. Transfer D. Other E. Total income 15898 (14.84) 9864 (62.0) 6034 (38.0) 68434 (64.0) 12368 (18.1) 13220 (19.3) 8340 (12.1) 9000 (13.2) 6720 (9.8) 18786 (27.5) 13200 (8.91) 9540 (8.9) 107072 (100.0) Household type Marginal Small Medium 42379 (36.2) 16334 (38.5) 23045 (54.4) 3000 (7.1) 31200 (26.7) 6000 (19.2) 7200 (23.1) 18000 (57.7) 34200 (29.2) 9200 (7.9) 116979 (100.0) 184330 (84.9) 99338 (53.9) 84992 (46.1) 15250 (7.0) 10000 (65.6) 4000 (26.2) 1250 (8.2) 15000 (6.9) 2500 (1.2) 217080 (100.0) 229321 (84.2) 152821 (66.6) 76500 (33.4) 23000 (8.5) 16000 (69.6) 1000 (4.3) 5000 (21.7) 1000 (4.4) 20000 (7.3) 272321 (100.0) Large 529123 (84.1) 452201 (85.5) 76922 (14.5) 86500 (13.8) 13200 (2.1) 628823 (100.0)

Note: For particulars A, B, C, D and E, figures within the parentheses represent the percentage of total income, and for the subcomponents, percentage to total income under each category

however, tended to hire out their machinery services to small farmers and also derived some income from rents received from their non-agricultural properties. The income from other sources was 9 per cent for landless and 8 per cent for marginal households. The total farm and non-farm income was disaggregated further to assess the relative importance of different income-generating activities. The details of income received from various farm and non-farm activities are presented in Table 4. The share of income from crops increased with the increase in landholding

size. The large farm households obtained 85.5 per cent of income from crops, followed by medium (67%) and small (54%) farm households. On the other hand, the share of livestock income declined with the increase in size of operational holding. The livestock contributed significantly to the total agricultural income of marginal (54.4%) and small (46.1%) households. The landless households obtained 62 per cent of their agricultural income from animal husbandry. Agricultural wage income accounted for 38 per cent of the total agricultural income of landless and marginal farm households.


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Table 4. Number of income sources across various farm-categories of rural household (in per cent) No. of income sources Landless One source Two sources Three sources More than three sources Average number of income sources Farm income Non-farm income Transfer income Total income Source-wise DI 16.0 34.0 30.0 20.0 2.62 Marginal 10.0 50.0 30.0 10.0 2.4 Farm size Small 66.6 16.7 16.7 2.5 Medium 58.3 25.0 16.7 2.5 0.51 0.46 0.64 Large 40.0 40.0 20.0 2.9 0.33 0.47 0.51

Diversification Index for income source 0.50 0.62 0.50 0.81 0.57 0.50 0.40 0.58 0.89 0.86 0.63 Non-farm income Transfer income 0.82 0.53 0.86 0.63

Farm income 0.51 Diversification Index for total income 0.89

Other income Total income 0.80 0.80 0.64 0.51

Of the total non-farm income of landless households, the community-social-personal services accounted for the highest share (27.5 %), followed by construction (19.3%) and manufacturing (18.1%). The share of trade, transport and finance related activities was 12.1 per cent, 13.2 per cent and 9.8 per cent, respectively. Participation in low income-generating activities, such as construction, which involves hard work, was noticed only in the case of landless households. The landless workers neither owned the productive assets nor had access to higher education and skill development, hence, they usually got absorbed in low-paid construction or community, social and personal activities. The non-farm income to marginal farm households mainly accrued from finance, transport and manufacturing 57.7 per cent, 23.1 per cent and 9.2 per cent, respectively. For small farm households, manufacturing accounted for 65.6 per cent, finance 26.2 per cent and community-social-personal services 8.2 per cent of the total non-farm income. The shares of manufacturing, trade, transport and community-socialpersonal services in the total non-farm income of the medium farm households were 69.6 per cent, 4.3 per cent, 21.7 per cent and 4.4 per cent, respectively. Though, non-farm income was derived from diverse sources, the quantum of income from these sources

was very small, reflecting that diversification towards these activities was largely distress-driven, dominated by least productivity opportunities. There seems to be a complete lack of access to more remunerative non-farm activities for the landless and marginal households. Not only the source of household income, but the number of income sources also varied across different farm categories. The small, large and medium farm households accessed more than one income source. Amongst the landless and marginal farm households, 16 per cent and 10 per cent of the households, respectively had access to only a single income source (Table 4). It was significant to note that both landless and large, the two extreme categories on the basis of land ownership, had the highest proportion of households having more than three income sources. The estimates of income diversification index (DI) of rural households also confirmed the extent of income spread across various income sources among the different household categories. The overall income diversification decreased with the increase in landholding size (Table 4). The non-farm income was most diversified with the index being 0.81 which was almost same as the extent of total income diversification; this was followed by transfer income and farm income. The extent of income diversification

Pavithra and Vatta : Role of Non-Farm Sector in Sustaining Rural Livelihoods in Punjab Table 5. Probit estimates for determinants of households participation in various income-generating activities Variable Caste (General caste=1, otherwise =0) Family size (No.) Operational land1 (acres/household) Operational land squared Livestock (No. of cattle and buffaloes) Worker population ratio Gender of household head (Male=1, female=0) Age of household head (years) Age squared Education of household head (years of schooling) Constant Farm income 0.38 (0.77) 0.26** (0.11) 0.02 (0.10) 1.99* (1.12) 0.01 (0.15) -1.71 (0.107) 0.001 (0.001) -0.10* (0.06) 3.47 (4.09) Non-farm income -1.54*** (0.48) 0.28 (0.10)** -0.13** (0.06) 1.71* (0.94) -0.37 (0.02) 0.13 (0.10) 0.001 (0.00) 0.011 (0.04) -4.71 (2.98)


Other income 0.11 (0.41) -0.004 (0.07) -0.09 (0.08) 0.004 (0.002)* 0.05 (0.04) -0.67 (0.73) -0.66 (0.51) 0.03** (0.01) 0.02 (0.03) -0.265 (0.514)

Note: *, ** and *** indicate significance at 10 per cent, 5 per cent and 1 per cent levels of significance, respectively. 1 operational land was a perfect determinant of participation in farm income.

was highest amongst the landless households, followed by marginal farm households. The farm income of large households was least diversified as most of it was derived from crop production. Determinants of Household Participation in Different Economic Activities The probit estimates have revealed that caste, operational landholding and worker population ratio determined the participation of a household in nonfarm activities (Table 5). The probability of involvement in non-farm activities was high in the case of a household belonging to scheduled caste or backward caste. The households with higher worker population ratio were found to be more active in nonfarm income generating activities and the same was true in case of farm income. The increase in familysize led to a lower per capita income, thus leading to the increased participation of such households in both

farm and non-farm activities in order to supplement their low incomes. Land proved to be a perfect determinant of farm income, hence this variable was dropped from the analysis. However, size of landholding had a negative impact on the households participation in the non-farm sector. This indicated that the households with larger landholdings concentrated more on remunerative farm income, whereas the households with smaller landholding sizes were engaged in non-farm activities to increase their overall income. The other income category included heterogeneous sources such as service pensions, external and internal remittances, etc. The age of household-head was a major determinant of this income source which was related to retirement or old-age pension. However, due to small sample size and fewer households having these income sources, the influence of other variables on this income was not clear.


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Table 6. Gini decomposition of inequality by income source Income source Share in total income (Sk) Gini coefficient for source (Gk) 0.68 0.68 0.87 0.95 0.51 Gini correlation with rank of total income (Rk) 0.87 0.28 0.78 0.69 Contribution of source income to total inequality (RkGkSk ) 0.36 0.04 0.08 0.03 0.51 Proportional contribution of source to total inequality (RkGkSk/G) 0.71 0.08 0.16 0.05 1.00 Gini income elasticity (RkGk/G)

Farm Non -Farm Transfer Rental Gini for total income

0.61 0.22 0.12 0.04

1.15 0.36 1.31 1.29

Impact of Rural Household Income Diversification The Gini coefficients were estimated to measure the extent of income inequality and the results are given in Table 6. The Gini coefficient for overall income was 0.52, signifying the prevalence of high income inequality in rural Punjab. The transfer income and other income were more unequally distributed than other sources; their Gini coefficients being 0.87 and 0.95, respectively. However, the Gini coefficient for farm and non-farm incomes was 0.68 each, indicating that the distribution of income from these two sources was fairly equal vis--vis to other sources. It is worth noting that though non-farm sector enables the poor to enhance their incomes, the barriers for entry into productive activities lead to unequal distribution of gains. The Gini income elasticity value of more than one implies that an income source is inequality increasing, the value less than one indicates that the source is inequality reducing and the Gini income elasticity is one when the source does not affect the income distribution among the households. The Gini decomposition analysis shows that despite being a major income source for the landless and marginal households, the non-farm income had a similar impact on inequality as that of farm income. However, farm income, transfer income and rental income contributed to the increase in inequality among the households. The farm income depends on the ownership of land; similarly the rental income accrues to those households who own land or farm assets like machinery, while transfer income is mostly from pensions and remittances and accrues to households having access to a permanent job or remittances. Hence,

asset, education and skills acted as barriers for the poor households in having access to such income sources. The non-farm income showed an inequality reducing effect; it also showed a lower correlation with the total income as compared to the other three income sources. Similar effects of farm and non-farm income sources on income distribution were reported by Birthal and Singh (1995) in western Uttar Pradesh.

Conclusions and Policy Implications

The non-farm sector is an important component of the rural economy. It supports the livelihoods of rural poor by providing gainful employment, supplementing their meagre incomes and preventing them from falling further below the poverty line. Family size, caste, operational landholding and worker population ratio have been found to be the determinants of income diversification among rural households. Land distribution is skewed in the rural areas; hence, there is a need to improve the access of these households to productive assets. They should be provided adequate training so that they may enhance their participation in higher income-generating activities through skill development rather than restricting themselves to the last resort activities. It is very important to improve the education levels of the rural households. Their participation in more productive non-farm economic activities should be enhanced. There is a need to promote non-farm sector by encouraging farm and non-farm linkages and by developing necessary infrastructural facilities. These efforts will not only help in generating additional employment opportunities but will also help in reducing the income gaps between the rich and the poor.

Pavithra and Vatta : Role of Non-Farm Sector in Sustaining Rural Livelihoods in Punjab


The authors thank the referee for the critical comments on the earlier draft of this paper and for his suggestions on improving the presentation. They are also thankful to Mr Digvijay Singh Negi for his valuable inputs and help.

Gujrati, D.N. and Sangeetha (2007) Basic Econometrics, Fourth Edition, Tata McGraw-Hill Inc, New York. Joshi, A. (2004) Farm household income, investment and consumption. Economic and Political Weekly, 39(4): 321-23. Lerman, R. and Yitzhaki, S. (1985) Income inequality effects by income source: A new approach and application to the United States. Review of Economics and Statistics, 67(7): 151-156. Liitle, P. (2001) Income Diversification among East African Pastoralists. PARIMA Research Brief 01-08, Global Livestock Colloborative Research Program, University of California, USA. Saleth, R. M. (1997) Occupational diversification among rural groups: A case study of rural transformation in Tamil Nadu. Economic and Political Weekly, 32(30): 1908-17. Unni, J. (1991) Regional variations in rural non-agricultural employment: An exploratory analysis. Economic and Political Weekly, 26(3): 109-22. Vatta, K. and Sidhu, R.S. (2007) Income diversification among rural households in Punjab: Dynamics, impacts and policy implications. Indian Journal of Labour Economics, 50(4): 723-36. Vatta, K., Garg, B.R. and Sidhu, M.S. (2008) Rural employment and income: The inter-household variations in Punjab. Agricultural Economics Research Review, 21(2): 201-10. Verma, B.N. and Verma, N. (1995) Distress diversification from farm to non-farm rural employment sector in the eastern region. Indian journal of Agricultural Economics, 50(3): 422-36.
Received: Februray, 2013; Accepted June, 2013

Barrett, C.B., Benzuneh, M., Clay, D.C. and Reardon, T. (2001) Heterogeneous Constraints, Incentives and Income Diversification Strategies in Rural Africa. IFPRI, MSSD Discussion Paper No. 20, International Food Policy Research Institute, USA. Basant, R. and Joshi, H. (1994) Employment diversification in an agriculturally developed region: Some evidence from rural Kheda, Gujarat, In: Non-agricultural Employment in India: Trends and Prospects, Eds: P. Visaria and R. Basant. Sage Publications, New Delhi. pp. 222-257. Birthal, P.S. and Singh, M.K. (1995) Structure of rural income inequality: A study in western Uttar Pradesh. Indian Journal of Agricultural Economics, 50 (2):168175. Bhaumik, S.K. (2007) Diversification of employment and earnings by rural households in West Bengal. Indian Journal of Agricultural Economics, 62(4): 585-605. Eapen, M. (2001) Women in informal sector in Kerala: Need for re-examination. Economic and Political Weekly, 36(26): 2390-92. Ghosal, R.K. (2007) Dynamics of diversification of rural employment structure in India: The changing trajectories. The Indian Journal of Labour Economics, 50(4): 643-54. Ghuman, R.S. (2005) Rural non-farm employment scenario: Reflections from recent data in Punjab. Economic and Political Weekly, 40(41): 4473-80.

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Dynamics of Labour Demand and its Determinants in Punjab Agriculture

Y. Latika Devi, Jasdev Singh*, Kamal Vatta and Sanjay Kumar
Department of Economics and Sociology, Punjab Agricultural University, Ludhiana-141 004, Punjab

The study on dynamics of labour demand in Punjab agriculture has revealed that between 1985-86 and 2006-07, the per-hectare labour use has declined by about 23 per cent; more so, in the case of dominant crops like wheat and paddy that have experienced large-scale mechanization. Wheat and paddy had together accounted for about 52 per cent of the gross cropped area in 1985-86, which further increased to 73 per cent in 2006-07. However, increase in labour use in cotton cultivation has been only marginal. The positive effect of agricultural growth on labour use has got neutralized due to the significant displacement of human labour by machines and also due to rising wage rates. The elasticity of labour use in agriculture has fallen drastically during the past two decades indicating little potential for absorption of additional labour in agriculture. Key words: Labour employment, labour demand, agriculture, Punjab JEL Classification: J20, J23, J43

Punjab is one of the most agriculturally-developed states of India with high level of agricultural productivity. The state has witnessed a significant increase in agricultural productivity and production due to large-scale adoption of high-yielding seeds, fertilizers and pesticides, and availability of assured irrigation and market for foodgrains. This has resulted in an increase in farm profits, which has encouraged large-scale mechanization of agricultural operations. Initially, farm mechanization, by raising cropping intensity and labour-intensive shifts in the crop mix, led to improvement in the input-use efficiency and also employment. But, after the mid-1980s, further * Author for correspondence
Email: sidhujasdev@yahoo.co.in The paper is based on the M.Sc. (Agri. Econ.) thesis, Agricultural Labour Employment in Punjab submitted by first author to Punjab Agricultural University, Ludhiana in 2011.

mechanization, especially in wheat and paddy, and increasing use of inputs like weedicides and herbicides, caused substantial displacement of labour in agriculture (Rangi and Sidhu 2004; Sidhu and Singh, 2004). Despite shifts towards relatively more labour-intensive crops, the total labour-use has either been stagnant or fallen (Bhalla, 1987). There has been a significant decline in the employment elasticity of agriculture in India with respect to aggregate output, from 0.54 during the early1970s to 0.36 per cent in the late-1980s (Bhalla, 1993). In Punjab, the employment elasticity of agriculture was reported to be even less than 0.20 during the 1990s (Sidhu, 2002). A number of factors such as increase in cropping intensity, shift in cropping pattern, wider adoption of bio-chemical and mechanical technologies, etc. affected the labour demand significantly (Bardhan, 1977; Parthasarathy, 1990; Sidhu and Grewal, 1990; Acharya, 1992). In this context, it became important to examine the dynamics of labour use in agriculture so as to devise suitable strategies to enhance


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employment growth. The present study has examined the changes in elasticity of agricultural labour demand with respect to some important factors of production.

X6 X7 X8 X9

= Use of fertilizer and manure (`), = Use of pesticide(`), = Use of weedicide (`), = Irrigation use (hours),

Data and Methodology

Data for this study were taken from the Comprehensive Scheme to Study the Cost of Cultivation of Principal Crops in Punjab for 1985-86 and 2006-07. Under this scheme, data were collected from a sample of 300 farm households in 30 tehsils spread across three agro-climatic zones of the Punjab state. From each zone, farmers were selected using three-stage stratified sampling technique, with tehsil as stage one, a village or cluster of villages as stage two and operational holdings within the cluster as stage three. From each cluster, a sample of 10 operational holdings, two each from the five size-classes, viz. marginal (< 1 ha), small (1-2 ha), semi-medium (2-4 ha), medium (4-6 ha) and large ( 6 ha), were selected randomly. For 1985-86, due to lack of availability of whole set of required data, a sample 150 farm households from 15 tehsils were selected. Analytical Approach A simultaneous equation model was used to estimate the labour demand function. This helped in determining both direct and indirect impact of selected economic variables on labour employment. The model was specified as: Labour use equation X3= a0 X1a1 X2a2 X4a4 X5a5 X7a7 X8a8 X9a9 X10a10 X11a11 (1) Output equation X1=b0 X2b2 X3b3 X4b4 X5b5 X6b6 X7b7 X8b8 X9b9 X10b10 (2) where, X1 = Gross value of agricultural production, including main product and by products of crops (`) = Farm size (ha), = Total human labour use (manhours), = Bullock labour use (hours), = Tractor use (hours),

X10 = Combine harvester use (hours), and X11 = Wage rate (`/hour). The 3-stage least square (SLS) method was used to estimate the model. In order to establish the relationship between employment (as dependent variable) and explanatory variables, all possible combinations were tried to select the best fitted labour use equations. The function was estimated for the pooled data for 1985-86 and 2006-07. The marginal effects of different variables on demand for labour in agriculture were estimated by formula (3):
Marginal effect on labour use = Geometric mean of labour use (man hours) ai Geometric mean of ith variable

(3) where, a i is the elasticity coefficient of labour employment with respect to the ith variable. Changes in Use of Labour and Other Inputs The changes in use of human labour, animal labour, machine labour and other inputs along with the value of output of the crop sector per hectare for 1985-86 and 2006-07 are presented in Table 1. The humanlabour use in the crop sector declined considerably, by 23 per cent from 1089 man-hours/ha in 1985-86 to 840 man-hours/ha in 2006-07. The use of animal labour declined by 60 per cent, from 68 hours/ha to 27 hours/ha, and the use of tractors increased by 127 per cent, from 14.0 hours/ha to 31.8 hours/ha during 198586 to 2006-07. The use of tractors had a positive impact on labouruse (per unit of net sown area) by facilitating shift towards labour-intensive crops and raising cropping intensity. Despite that, individual jobs in crops did get replaced by increased use of tractors (Binswanger, 1978; NCAER, 1981). The introduction of combine harvesters in the Punjab agriculture during 1980s caused a significant displacement of human labour, especially in harvesting. Note that use of combine

X2 X3 X4 X5

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Table 1. Use of human labour, animal labour, machine labour and material inputs in Punjab agriculture: 1985-86 and 2006-07 (per ha) Particulars Family Permanent Casual Hired (Permanent + casual) Total labour Bullock labour (hours) Tractor Combine harvester Irrigation machines Seed (`) Fertilizers (nutrients, kg) Weedicides (`) Insecticides (`) Output (`) Cropping intensity (%) 1985-86 2006-07 Absolute change -192 -40 -17 -57 -249 -41 17.82 1.76 94.82 3130 177 866 950 70698 14.71 Change, % -37.57 -20.73 -4.42 -9.86 -22.87 -60.29 127.19 1353.85 50.72 708.14 81.94 1186.30 879.63 629.15 14.71

Human labour (man-hours) 511 319 193 153 385 368 578 521 1089 840 68 27 Machine labour (hours) 14.01 31.83 0.13 1.89 186.95 281.77 Material inputs 442 3572 216 393 73 939 108 1058 11237 81935 183.81 198.52

harvesters increased from 0.13 hours/ha in 1985-86 to 1.89 hours/ha in 2006-07. Similarly, the use of irrigation equipment increased by about 51 per cent and of weedicides by a whopping 1186 per cent during this period. The expenditure on other material inputs such as seeds and insecticides also grew 7-8 times. The increased use of weedicides, as expected, led to a reduction in the use of human labour, and the increased use of irrigation equipment enhanced the use of human labour. The human-labour use was further examined by classifying into family labour and hired labour. It was found that the use of family labour declined by about 38 per cent (from 511 man-hours/ha to 319 man-hours/ ha), and of hired labour declined by only about 10 per cent, from 578 man-hours/ha to 521 man-hours/ha during 1985-86 to 2006-07. The further classification of hired labour into casual and permanent labour revealed that the decline was sharper (by 20.73%) in the use of permanent labour (from 193 man-hours/ha to 153 man-hours/ha) than in the use of causal labour (by 4.42%, from 385 man-hours/ha to 368 man-hours/ ha) during this period.

These changes point towards the structural shift in the pattern of labour-use in Punjab agriculture during the period 1985-86 to 2006-07. The dominance of family labour in agriculture declined sharply. Family labour dominated the total labour-use in 1985-86. But, it was the casual labour which accounted for the largest share of total labour-use in 2006-07. The successful adoption of yield enhancing technologies in the state resulted in an increase in the value of output (main product and by-product) from ` 11237/ha in 1985-86 to ` 81935/ha in 2006-07 (more than 6-times increase). The change in labour-use was further examined for major crops (Table 2). The total area under these crops increased from about 64 per cent to more than 83 per cent of the gross cropped area on the sample farms between 1985-86 and 2006-07. There was no significant change in area shares of wheat and cotton. But, there was a significant increase in the area share of rice, from 14.52 per cent in 1985-86 to 32.74 per cent in 2006-07. The use of human labour (per ha) in wheat and paddy declined to almost half during this period, mainly owing to large-scale mechanization of farm operations and widespread use of weedicides.


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Table 2. Use of human labour, animal labour and machine labour and material inputs in wheat, paddy and cotton crops in Punjab: 1985-86 and 2006-07 (per ha) Particulars Wheat 1985-86 2006-07 Family Permanent Casual Hired (Permanent + casual) Total labour Bullock labour (hours) 218.99 44.83 164.24 209.07 428.06 28.60 69.81 28.17 85.74 113.91 183.72 0.87 Change Paddy 1985-86 2006-07 Change -171.11 (-55.54) -11.99 (-15.84) -224.87 (-51.74) -236.86 (-46.42) -407.97 (-49.85) -30.53 (-96.58) 5.80 (57.20) 1.17 (354.55) 28.50 (8.45) 1985-86 439.87 72.85 299.27 372.12 811.99 46.10 Cotton 2006-07 255.80 102.00 463.40 565.40 821.20 3.97 Change -184.07 (-41.85) 29.15 (40.01) 164.13 (54.84) 193.28 (51.94) 9.21 (1.13) -42.13 (-91.39) 12.07 (181.78) 24.90 (231.41) -12.34 (-76.69) 55.49 (94.71) 76.62 (-) 1208.27 (361.24) 9.36 (73.01) -1.48

Human labour (man-hours) -149.18 308.09 136.98 (-68.12) -16.66 75.70 63.71 (-37.16) -78.50 434.59 209.72 (-47.80) -95.16 510.29 273.43 (-45.52) -244.34 818.38 410.41 (-57.08) -27.73 31.61 1.08 (-96.96) Machine labour (hours) 3.92 10.14 15.94 (33.45) 1.07 0.33 1.50 (1188.89) 4.52 337.47 365.97 (9.51)

Tractor Combine harvester Irrigation machines

11.72 0.09 47.52

15.64 1.16 52.04

6.64 10.76

18.71 35.66

Seed (kg) Fertilizers (nutrients, kg) Weedicides (`) Insecticides (`) Output (q) Area under crop (% of GCA)

103.08 169.10 44.73 15.37 36.62 37.07

Material inputs 0.22 NA* NA* (0.21) 225.33 56.23 164.83 185.60 20.77 (33.25) (12.60) 792.41 747.68 127.86 406.62 278.76 (1671.54) (218.02) 157.02 141.65 19.18 819.95 800.77 (921.60) (4175.03) 41.86 5.24 54.64 62.60 7.96 (14.31) (14.57) 39.99 2.92 14.52 32.74 18.22 103.30

16.09 58.59 0 334.48 12.82 12.22

3.75 114.08 76.62 1542.75 22.18 10.74

Note: Figures within the parentheses indicate per cent change over time. *Quantitative data not available

Except transplantation of paddy, almost all other operations for these crops have been completely mechanized. There was a tremendous increase in the use of combine harvester in wheat and paddy, by about 1189 per cent and 355 per cent, respectively. The use of tractor went up by about 33 per cent in wheat and

by 57 per cent in paddy. Such a mechanization extent led to the almost disappearance of the use of bullock labour in these crops during this period. In cotton, the use of human labour increased marginally despite tremendous increase in the use of

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tractor (181.78%) and a decline in the use of bullock labour. Increase in cotton yield by about 73 per cent resulted into a significant increase in the demand for labour, which compensated for the decline in demand for human labour due to mechanization. However, the increase in productivity of wheat as well as paddy could not arrest the decline in labour-use. Unlike paddy and wheat crops, where almost all farm operations are mechanized (except transplanting of paddy), the most labour-intensive operations of picking and hoeing in cotton are still out of purview of mechanization. In nutshell, despite tremendous increase in productivity, the use of human labour in Punjab agriculture has decreased significantly. The dominance of family labour has disappeared and casual labour has emerged as a major component of human-labour use in agriculture. Almost all the major operations in the cultivation of wheat and paddy have been mechanized and the use of bullock labour has almost disappeared on Punjab farms.

Determinants of Labour Employment in Agriculture A two-equation simultaneous model was used to establish the relationship between labour use and some of its important determinants, such as farm size, productivity, use of bullocks, tractors, combine harvesters, fertilizers, weedicides, irrigation machinery and wage rate. The labour employment elasticities (along with marginal effects) were estimated for the years 1985-86 and 2006-07 and are presented in Table 3. Almost 63 per cent of the variation in labour use in 1985-86 and 72 per cent in 2006-07 could be explained by these variables. The productivity level is assumed to have a positive impact on labour-use in agriculture. The elasticity of labour demand with respect to productivity was significantly positive in 1985-86, indicating a 0.62 per cent increase in labour demand with one per cent increase in productivity. The elasticity turned out to

Table 3. Elasticity coefficients of human labour demand function in Punjab agriculture: 1985-86 and 2006-07 Variable Elasticity Constant Value of agricultural output Farm size Bullock labour Tractor Insecticide Weedicide Irrigation Combine harvester Wage rate R2 1.31*** (0.76) 0.62* (0.09) -0.11* (0.02) 0.048* (0.01) -0.011NS (0.02) 0.00047NS (0.01) -0.031* (0.01) 0.025** (0.01) -0.048NS (0.05) -0.059*** (0.04) 0.63 1985-86 Marginal effect Elasticity 5.23* (1.44) 0.18NS (0.14) -0.23** (0.02) 0.026* (0.01) 0.19* (0.05) 0.013*** (0.01) -0.020** (0.01) 0.036* (0.01) -0.39* (0.02) -0.39* (0.08) 0.72 2006-07 Marginal effect

0.059 -30.26 0.77 -0.77 0.004 -0.46 0.15 -347.64 -32.59

0.0019 -49.65 0.84 5.17 0.01 -0.017 0.11 -172.94 -27.11

Note: *, **, *** denote significance at 1 per cent, 5 per cent and 10 per cent levels, respectively. NS means non-significant. Figures within the parentheses indicate the standard error


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be non-significant in 2006-07, highlighting that the potential of enhancing employment opportunities in Punjab agriculture seems to have been fully exploited with the current crop production technology. The negative elasticity of labour-use with respect to farm size at -0.11 in 1985-86 and -0.23 in 2006-07, indicates the doubling of labour displacing effect of farm size. A faster increase in mechanization on large farms was the main reason behind the decline in elasticity. Due to complementarity between the use of bullock and the human labour, elasticity coefficients of bullock labour were significant and positive at 0.048 in 198586 and 0.026 in 2006-07. A significant reduction in the use of bullock labour was the main reason for decline in its elasticity coefficient. The elasticity of human-labour use with respect to tractor use turned out to be positive and significant in 2006-07; one per cent increase in tractor use in 2006-07 resulted in an increase in human-labour-use by 0.19 per cent. Increased tractorization leading to intensification of agriculture together with increase in area under more labour-intensive crops (e.g. paddy) resulted in a marginal increase in labour use. The increased use of pesticides is postulated to be labour enhancing in nature. However, its impact on labour use was nonsignificant in 1985-86, and positive and significant in 2006-07. The employment elasticity with respect to weedicide-use was negative and significant, the elasticity coefficients being -0.03 in 1985-86 and -0.02 in 2006-07. The elasticity coefficient of irrigation was 0.25 in 1985-86 and 0.36 in 2006-07. The higher elasticity was due to the shift in cropping pattern in favour of paddy, a highly water-intensive crop. Though the employment elasticity of the use of combine harvester, which is a major labour-displacing machine, was non-significant in 1985-86, it was estimated to be -0.39 in 2006-07. The use of combine harvester for one hour was estimated to reduce the use of human labour by 173 man-hours in 2006-07. In nutshell, most of the labour displacement in the Punjab agriculture may be attributed to the large-scale use of combine harvesters. Lastly, employment elasticity of wage, as expected, was negative and significant; -0.06 in 1985-86 and -0.39 in 2006-07. The significant negative elasticity of labour demand with respect to wages indicates that

a rise in wage rate has a negative effect on labour use. Its marginal effect on labour demand indicated that with an increase in wage rate by one rupee, the demand for human labour declined by 32.6 man-hours/ha in 198586 and by 27.1 man-hours/ha in 2006-07. These results highlight that while the positive and significant effect of agricultural output on labour demand in 1985-86 had turned out to be insignificant in 2006-07, the negative impact of farm size, combine harvester and wage rate had further aggravated during this period.

Conclusions and Policy Implications

The study on dynamics of labour demand has revealed that the use of human labour on Punjab farms has declined by about 23 per cent; from 1089 manhours/ha in 1985-86 to 840 man-hours/ha in 2006-07. A decline has been observed in the use of family labour (~38%), total hired labour (10%) and permanent labour (21%). This has primarily been due to a significant increase in the use of tractors. The most labourintensive operations of harvesting of paddy and wheat have been completely mechanized. In 1985-86, the value of agricultural output, farm size, use of bullock labour and irrigation as well as the use of weedicides have been found to be the significant determinants of human-labour use. While an increase in the farm size and expenditure on weedicides have a depicted a negative impact on human labour demand, it is positively influenced by the increase in value of output, use of bullock labour and irrigation. In 2006-07, the value of output has turned out to be non-significant, but all other variables have depicted a significant effect on human-labour use in crop production. While the demand for human labour in 2006-07 increased with the increase in the use of bullock labour, tractor, pesticide and irrigation machinery, it declined significantly with the increase in farm size, expenditure on weedicides, use of combine harvester and wage rate. During the past two decades, the positive effect of increasing productivity on human labour employment has got neutralized; while the negative effects of farm size and mechanization have further strengthened. The technological changes in crop production have favoured an increase in the cropping intensity and shift in cropping pattern and thus increase in the humanlabour use, but have not been able to compensate the labour-displacing effect of mechanization in Punjab agriculture. This implies that the labour absorption

Latika Devi et al. : Dynamics of Labour Demand and its Determinants in Punjab Agriculture


potential of agriculture has been fully exploited in Punjab.

Binswanger, H.P. (1978) The Economics of Tractors in South Asia: An Analytical Review. ICRISAT, Hyderabad. NCAER (National Council of Applied Economic Research) (1981) Implications of Tractorisation for Farm Employment, Productivity and Income: Summary and Highlights, New Delhi. Parthasarasthy, R. (1990) Labour utilization in Tamil Nadu agriculture. Artha Vijnana, 32(2): 109-37. Rangi, P.S. and Sidhu, M.S. (2004) New farm technology and changing structure of agricultural labour employment in Punjab. Man and Development, 26(4): 61-80. Sidhu, H.S. (2002) Crisis in agrarian economy in Punjab Some urgent steps. Economic and Political Weekly, 37(30): 3132-38. Sidhu, R.S. and Grewal, S.S. (1990) Factors affecting demand for human labour in Punjab agriculture: An econometric analysis. Indian Journal of Agricultural Economics, 45(2): 125-33. Sidhu, R.S. and Singh, S. (2004) Agricultural wages and employment. Economic and Political Weekly, 39(37): 4132-36.
Revised received: May 2013; Accepted August, 2013

The authors are thankful to the anonymous referee for his critical comments and suggestions on improving the presentation of the paper.

Acharya, S. (1992) Labour use in Indian agriculture: Analysis at macro level for the eighties. Journal of Agricultural Economics, 47(2): 169-83. Bardhan, K. (1977) Rural employment, wages and labour markets in India: A survey of research. Economic and Political Weekly, 12(26-28): 1062-74. Bhalla, S. (1987) Trends in employment in Indian agriculture, land and asset distribution. Indian Journal of Agricultural Economics, 42(4): 537-61. Bhalla, S. (1993) Tests of propositions about the dynamics of changes in the rural work force structure. Indian Journal of Labour Economics, 36(3): 428-39.

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Research Note

Factors Affecting Profitability of Commercial Banks: A Rural Perspective

A.N. Shuklaa*, S.K. Tewaria and P.P. Dubeyb

Department of Agricultural Economics, College of Agriculture, G.B. Pant University of Agriculture and Technology, Pantnagar - 263 145, Uttarakhand b Department of Agricultural Economics, K.A.P.G. College, Allahabad - 211 001, Uttar Pradesh

This paper has examined the profitability of commercial banks in relation to selected rural banking parameters, viz. the share of rural branches in total bank branches, the share of agricultural credit in total bank credit, and the rural credit-deposit ratio. The study is based on the time series data for the period 1971-72 to 2011-12. The study has revealed that the share of rural branches in total bank branches increased during the period 1971-72 to 1990-91 but declined later on due to the shift in rural banking policy from expansion to consolidation. In terms of credit-deposit ratio, the paper has observed that of every hundred rupees mobilized as deposits, sixty rupees were given as agricultural credit. The study has suggested that credit delivery should be customized and non-performing assets should be minimized. The deposit mobilization should be rationalized and made more popular by making them compatible with preference and cash flow patterns. Key words: Commercial banks, earning to expense ratio, rural banks branches, agricultural credit, credit-deposit ratio JEL Classification: G21, O18, Q14

During the two decades of 1971-1991, the formal agricultural credit system comprising the National Bank for Agriculture and Rural Development (NABARD), rural and semi-urban branches of Scheduled Commercial Banks (SCBs), Co-operatives and Regional Rural Banks (RRBs), expanded sizably in number. It happened in response to the increasing demand for credit for adoption of new seed-fertilizermechanical technologies. The benefits of new technologies, however, have largely been limited to * Author for correspondence,
Email: dr.shuklaan@gmail.com The paper has been drawn from the first authors Ph.D. thesis entitled Performance of Commercial Bank Credit to Agriculture in India: An Empirical Analysis, submitted to C.S.J.M. University Kanpur, Uttar Pradesh in 2008.

the areas having irrigation potential. For drylands, watershed development programmes have achieved success at some locations but their benefits have been modest. With growing pressures for commercialization and diversification of agriculture in response to the growing demands for domestic market and trade, need for an efficient and effective institutional credit support has accentuated, in addition to other kinds of support such as policy and infrastructure . The process of globalization and deregulation of financial institutions has thrown open new challenges and opportunities. There is increased pressure on banks to speed up financial inclusion and to meet the expanding credit needs of agricultural sector (Tewari, 2007). This paper has examined the pattern of profitability of banks in relation to selected rural banking variables, viz. share of rural branches in total


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bank branches, share of agricultural credit in total bank credit, and rural credit-deposit ratio. The nonperforming asset portfolio in case of agriculture/priority sector could not be included as a variable due to nonavailability of consistent time series data.

Results and Discussion

Income, Expenses and Income to Expense Ratio A perusal of Table 1 reveals that the total income and total expenses of SCBs increased over time in both pre- and post-liberalization periods. The total income continued to increase from ` 685 crore in 1971-72 to ` 740799 crore in 2011-12. The total expenses also continued to rise from ` 628 crore in 1971-72 to ` 56700 crore in 2011-12. However, the income to expense ratio, in general, continued to dip during preliberalization period, but showed late resurgence during the post-liberalization period. During pre-liberalization period, the income to expenses ratio stagnated at around 1.1, but during the post-liberalization period, it showed signs of improvement after mid-1990s perhaps because of adjustments required to implement measures of banking sector reforms. Rural Banking Variables The share of rural branches in total bank branches (rural coverage of banks) increased consistently from
Table 1. Total income, total expenses and income to expenses ratio of scheduled commercial banks during pre-and post-liberalization periods Year Total income (in crore `) Total expenses (in crore `) Income to expenses ratio 1.09 1.13 1.01 1.01 1.02 1.01 1.05 1.12 1.31 1.29 1.31 1.32 1.35 1.30

Data and Methodology

The study is based on the time-series data for the period 1971-72 to 2011-12 obtained from various published sources. Data were collected from Reserve Bank of India publications, namely Report on Currency and Finance, Statistical Tables Relating to Banks in India; Report on Trend and Progress of Banking in India, (various issues from 1971-72 to 2011-12); Economic Survey of India and Economic and Political Weekly. The growing participation of commercial banks in financing agriculture sprung up several issues relating to its functioning and viability, including profitability (Shukla and Dubey, 2008). To examine whether there has been erosion in bank profitability with expansion of rural banking, regression analysis was done using linear regression equation of the following form: Y= a + b1X1 + b2X2 + b3X3+ The income to expense ratio of banks (Y) was regressed upon the following explanatory variables: X1 = Share of rural branches in total bank branches (%), X2 = Share of agricultural credit in total bank credit (%), X3 = Rural credit deposit ratio, a = Constant, b1, b2, b3 = Regression coefficients of X 1, X 2, X 3 respectively, and = Error-term The regression analysis was done separately for two different economic phases, namely preliberalization period (1971-1991), post-liberalization period (1995-2012) and also the pooled period (19712012). Before taking up regression analysis, zero-order correlation matrix for the variables under consideration was constructed to look for the problem of multicollinearity.

1971-72 1975-76 1980-81 1985-86 1990-91 1995-96 2000-01 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Pre-liberalization period 685 628 2098 1855 5323 5259 12447 12224 30404 29661 Post-liberalization period 65112 64199 132078 125654 220756 196174 276198 210279 368884 285212 463835 352481 494446 372100 571191 422100 740799 567600

Source: Report on Trend and Progress of Banking in India (various issues)

Shukla et al. : Factors Affecting Profitability of Commercial Banks Table 2. Share of rural branches of banks, share of agricultural credit in total bank credit and rural credit-deposit (C-D) ratio during pre- and postliberalization periods Year Share of rural branches of banks (%) Share of agricultural credit in total bank credit (%) Rural C-D ratio


1971-72 1975-76 1980-81 1985-86 1990-91 1995-96 2000-01 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Pre-liberalization period 36.0 7.2 36.6 9.2 51.2 14.2 55.7 18.5 56.9 14.2 Post-liberalization period 51.2 10.8 48.3 11.0 44.5 12.7 42.1 12.8 40.6 12.5 39.6 13.1 38.2 13.8 37.4 12.4 36.9 10.6

47.7 56.5 60.6 65.3 60.0 47.3 39.0 56.3 60.0 60.4 57.1 59.0 59.2 72.3

noticed in the case of share of agricultural credit in total bank credit which dipped to 10-13 per cent in post-liberalization phase after having touched the best at 18.5 per cent during pre-liberalization phase. However, the share remained below the minimum target of 18 per cent, except in the year 1985-86. A similar pattern was noticed in the case of rural creditdeposit ratio. This ratio continued to increase during the pre-liberalization period and attained the minimum target of 60 per cent. However, during postliberalization period, the C-D ratio fell below the target level of 60 per cent in general, except in the years of 2007-08 and 2011-12. It means that of every hundred rupees mobilized as deposits from the rural areas, sixty rupees were given as agricultural credit in the rural areas. The share of agricultural credit in total bank credit continued to increase till mid-1980s, but generally decreased thereafter. Bank Profitability and Rural Banking The correlation results (Table 3) showed absence of the problem of multicollinearty. Thus, income to expenses ratio (Y), as a measure of profitability, was regressed upon all the three selected variables, X1, X2 and X3 to find as to how the bank profitability gets influenced by certain rural banking variables. This analysis was done separately for pre-liberalization period, post-liberalization period and the pooled periods using the linear regression model. The regression results (Table 4) showed that during pre-liberalization period, the share of rural branches (X1), the share of agricultural credit (X2) and the rural C-D ratio (X 3) turned out to be non-significant variables. In other words, rural banking did not have an adverse influence on the bank profitability during pre-liberalization period. However, during post-

Source: Statistical tables relating to banks in India (various issues)

a little more than one-third (36%) in 1971-72 to more than half (57%) in 1990-91. But, during postliberalization phase, it started declining and became 44 per cent in 2005-06; it further declined to around 37 per cent in 2011-12. It was due to the shift in rural banking policy from expansion to consolidation by merging unviable rural branches to improve dwindling profitability of banks. An almost similar pattern was
Table 3. Simple correlation results: 1971-72 to 2011-12 Variable

Share of rural branches of banks (X-1) 1

Share of agricultural credit in total bank credit (X2) 0.612* 1

Rural C-D Income to ratio (X3) expenses ratio (Y1) -0.076 0.462 1 -0.735** -0.089 0.389 1

Share of rural branches of banks (X1) Share of agricultural credit in total bank credit (X2) Rural C-D ratio (X3) Income to expenses ratio (Y1)
Note: **Significant at 10 per cent level *Significant at 5 per cent level


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Table 4. Linear regression results on profitability of banks as affected by some rural banking variables Independent variable Dependent variables Income to expenses ratio (Y1)

1971-72 to 2011-12 (Total period) Constant (a) 1.165 -0.0204* Share of rural branches of banks (X1) (0.0040) Share of agricultural credit in total 0.0288** bank credit (X2) (0.0125) Rural C-D ratio (X3) 0.00084 (0.0032) Coefficient of multiple determination (R) 0.788 Adjusted R 0.714 1971-72 to 1990-91 (Pre-liberalization period) Constant (a) 1.052 Share of rural branches of banks (X1) 0.0040 (0.0038) Share of agricultural credit in total 0.011 (0.0147) bank credit (X2) Rural C-D ratio (X3) 0.0066 (0.0072) Coefficient of multiple determination (R) 0.923 Adjusted R 0.692 1995-96 to 2011-12 (Post-liberalization period) Constant (a) 1.22 Share of rural branches of banks (X1) -0.0213** (0.0069) Share of agricultural credit in total 0.0209 bank credit (X2) (0.0176) Rural C-D ratio (X3) 0.00083 (0.0033) Coefficient of multiple determination (R) 0.920 Adjusted R 0.872
Notes: Figures within the parentheses indicate standard errors of regression coefficients, * and ** indicate significance at 0.01 per cent and 0.5 per cent levels, respectively

share of rural branches in total bank branches as is corroborated by the data in Table 2. However, the results for the overall period (1971-72 to 2011-12) indicated that while share of rural branches of banks (X1) had a significant negative effect, the share of agricultural credit (X2) had a significant positive effect on bank profitability. The rural C-D ratio appeared as a non-significant variable in influencing profitability (Y1) in all the time phases. The total variation explained in profitability by the three variables together ranged between 71 per cent and 91 per cent during different economic phases considered in the study, as indicated by the adjusted R estimates. A perusal at the regression results shown in the Table 4 does not support the view that the increasing involvement of banks in the agricultural sector has been responsible for the erosion in profitability of banks. The commercial banks are involved not only in financing agriculture but also in many other sectors of the economy such as small, medium and large industries, services, exports etc. The commercial banks have been experiencing high volume of nonperforming assets (NPAs) largely in the nonagricultural sector, particularly in industries. Their exclusion, and a relatively less number of observations in the time series period, however, make the results only indicative and not conclusive in the present study.

Conclusions and Policy Implications

To turn the negative effect of expansion of rural branches into positive effect on profitability, the credit delivery system will have to be improved by making credit delivery timely, adequate, dependable and less costly. The credit delivery should be customized by aligning it to the specific content, scale, timing, mode of payment, back up services and cash flow patterns of different sections of rural producers and thereby helping to reduce non- performing assets of banks. Highly sick rural bank branches which can not be brought back to normal health may be consolidated through merger with other branches. Similarly, the deposit mobilization schemes already in operation should be rationalized and made more popular by making them compatible with preferences and cash flow patterns of different sections of rural producers. Thus, the quality of rural banking needs to be upgraded to improve the profitability of banks.

liberalization period the linear regression results showed significant negative effect of share of rural branches (X1) on bank profitability. This indicates that many of the rural branches were unviable and hence had to be merged with other branches. Such consolidation of branches resulted in a decline in the

Shukla et al. : Factors Affecting Profitability of Commercial Banks


Authors thank the anonymous referee for his critical comments and suggestions for better presentation of the paper.

Shukla, A.N. and Dubey, P.P. (2008) Performance of Commercial Bank Credit to Agriculture in India: An

Empirical Analysis. Ph.D. Thesis, submitted to C.S.J.M University, Kanpur, Uttar Pradesh. Reserve Bank of India, Report on Trend and Progress of Banking in India, (various issues from 1971-72 to 201112). Tewari, S.K. (2007) Rapporteurs report on trends in rural finance. Indian Journal of Agricultural Economics, 62(3): 551-561.
Received: February, 2013; Accepted August, 2013

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Research Note

Exploring Possibilities of Extending Wheat Cultivation to Newer Areas: A Study on Economic Feasibility of Wheat Production in Southern Hills Zone of India
Ajmer Singha*, Rajbir Yadavb and Satyavir Singhc

Central Agricultural Research Institute, Port Blair - 744 101, A&N Islands Division of Genetics and Plant Breeding, Indian Agricultural Research Institute, New Delhi - 110 012 c Directorate of Wheat Research, Karnal -132 001, Haryana

The paper has explored the possibilities of expanding cultivation of wheat in the Southern Hills Zone of India by examining the economics of improved wheat varieties demonstrated through front line demonstrations (FLDs) so as to provide a basis for their adoption and dissemination in farmers fields. The average cost of cultivation of improved wheat varieties was higher by about 10 per cent over their traditional counterparts due to higher application of inputs and higher price of improved seeds, their unit cost of production was about half of that of the traditional varieties. The economic feasibility of cultivation of wheat in Southern Hills Zone, judged in terms of net returns, has revealed that while cultivation of traditional varieties is not profitable, improved varieties generate significant returns over investment. Key words: Wheat, economic feasibility, southern hills zone JEL Classification: Q15, O13, R11

Ever since the introduction of modern varieties in the mid-1960s, production of wheat in India has grown at an annual rate of 3.9 per cent. The growth occurred both from area expansion and yield improvements. However, overtime the area expansion has ceased to be a source of growth and yield growth has decelerated. Between 1996-67 and 1995-96, the area under wheat expanded at the rate of 1.9 per cent and yield improved at the rate of 3.3 per cent per annum. But since then, * Author for correspondence
Email: ajmerskundu@gmail.com

the growth in its area has decelerated to 0.6 per cent and in yield to 0.7 per cent per annum. The states of Uttar Pradesh, Punjab, Haryana, Madhya Pradesh and Rajasthan together account for close to 80 per cent of the countrys total wheat area and contribute 86 per cent to its total production. There is a little scope to bring additional area under wheat in these traditional wheat-growing states, and the only possibility to increase wheat production in these states is through genetic enhancement. India has varied climates and there are pockets in the non-wheat growing states where wheat cultivation can be promoted, conditional to the availability of appropriate varieties and cropping practices befitting the agro-climatic conditions. Jha and Tripathi (2011) having analyzed the effect of climate change on wheat yield, have suggested evaluation of varieties that are

The paper has been drawn from the project Economic analysis and impact assessment which formed a part of larger thematic programme Technology transfer, refinement and impact assessment, DWR/ RP/04/ 11.2 and DWR/ RP/07/ 12.2.


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more tolerant to extreme temperatures. The Southern Hills Zone (SHZ) is such a region that has potential for introduction of wheat. Almost entire demand for wheat in the southern region of the country is met through supplies from the traditional wheat-growing states or the public distribution system. The locallyproduced wheat will work out to be cheaper and affordable. Under this background, the present study has examined the economic possibilities of introducing wheat in the Southern Hills Zone of India.

During the crop years 2004-05 to 2009-10, efforts were made to introduce wheat in this zone through Front Line Demonstrations (FLDs) by the regional station of Directorate of Wheat Research (DWR), Karnal at Wellington in Tamil Nadu. A total of 259 experimentations were laid in farmers fields in different parts of SHZ, mainly in Tamil Nadu. Out of these, 46 demonstrations were conducted along with the checks, whereas in rest of the fields, only latest wheat varieties were planted so as to assess their suitability to the socio-economic conditions, economic strength and acceptability by the farmers. The costs and returns were calculated at the prevailing market prices. The primary data were recorded on input and output levels, socio-economic profile of the farmers and related information. Returns over variable cost formed the basis for advocating a particular technology for its dissemination and adoption. The latest technologies including the improved varieties are disseminated and up-scaled after these are refined and adapted to the area-specific peculiarities through front line demonstrations. Only the progressive and well-to-do farmers ventured out to produce wheat as was evident from the value of farm inventories including farm buildings. The participants in the FLD programme were included from different farmcategories. Small and medium farmers constituted a large portion in the sample.

Biophysical Characteristics of SHZ

The SHZ comprises Nigiri hills of Tamil Nadu and Palni hills of Kerala. During the past two decades, there has beena shift in the cropping pattern in this Zone, from vegetables towards tea plantation. However, it has been observed lately that tea plantation is becoming economically less remunerative (Shukla and Mishra, 2004; Nayeem et al., 2004) and also environmentally undesirable because of accumulation of toxins in the soil (Hanchinal et al., 2005). The climate of the SHZ is considered suitable for the cultivation of wheat. The economics also appears to favour wheat-vegetable sequence, but is constrained by the problems of rusts, powdery mildew and blight. The lack of availability of seeds of improved varieties and irrigation facilities are the other constraints in this Zone (DWR, 2004-05; Shukla and Mishra, 2004). The crop production environment and bio-physical characteristics of Southern Hills Zone are conducive to growing wheat and support the hypothesis that wheat can be introduced in this zone and can contribute to national wheat production significantly if suitable varieties are identified and production practices are standardized suited to the agro-climatic conditions there. The date of sowing of wheat for this zone has been standardized from November 15 to December 15, whereas harvesting period is 10-20 March. Typically, we can specify as the crop season in this zone from 15 Nov to 15 March. During the crop season, the maximum temperature rises up to 25 C and minimum temperature falls to 8C which support the crop growth and grain setting. The rains during crop season are brought by the north-west monsoon and are recorded at 1000-1200 mm. The sunshine for 10 hours during the crop season supports crop growth. The zone has red laterite to clay loam soil type which is again suitable for wheat cultivation.

Results and Discussion

The data showed that wheat crop in this SHZ was taken with only a limited number of tillage operations. Seed rate used by the farmers was found as per the recommendation, but the number of irrigations and other critical inputs applied in the field were not sufficient to harvest the potential yield. So, the potential for wheat production exists in the area, if the level of mechanization and capital investment requirements is met appropriately. Varietal Expanse The varietal demonstrations were organized in this zone with the varieties which were suitable to its agroclimatic conditions. In the majority of fields (65 %), the variety HW 3094 developed by IARI, Wellington, was sown under FLDs, though a total of eight varieties

Singh et al. : Exploring Possibilities of Extending Wheat Cultivation to Newer Areas Table 1. Varietal demonstration and performance at farmers fields in SHZ Varieties demonstrated HW 3094 HD 2833 HW 3070 HD 2781 HW 5018 HW 1085 HW 2044 HW 5001 COW (W) -1 Percentage of farms 46.98 13.02 1.40 2.33 0.47 0.93 2.33 1.86 30.70 Average yield (q/ha) 25.23 27.04 28.46 20.78 28.50 21.50 23.28 28.37 27.81


labour requirement. Wage rates were low given the socio-economic backwardness of the region, but this has significant implications for future of wheat production strategy in the region. Development of suitable machineries like power tillers of limited horse power and minimum cost for land preparation, drill machines and threshers will be at the core of reducing cost of cultivation in the future. This has also indirect socio- economic implications with respect to non-farm employment and farm productivity. Nutrients Consumption In the entire sample, N, P, K were applied at the recommended doses in FLDs, whereas in the case of check fields, P and K were applied in less than half of the recommended doses (Table 2). FYM was recorded to be added in several fields, but quite low at the rate of 18.2 q/ha. Farmers did show interest in replacing inorganic fertilizers with FYM. On an average, 1604 kg of FYM was applied in one hectare every year.
Table 2. Nutrients and other critical inputs applied in wheat crop in SHZ (kg/ha) Nutrients used Nitrozen (N) Phosphorus (P) Potash (K) Irrigations (No.) Seed rate No. of ploughings No. of plankings FLD 106.77 47.52 24.41 4.52 100 2.03 0.92 Check 101.20 23.48 12.40 4.60 100 2.02 0.00 t- value 1.326* 3.191*** 1.861** -0.576NS 0.252NS

were demonstrated for testing the economic viability (Table 1). The yield performance showed that varieties HW 3070, HD 2833, HW 5018, HW 5001 and COW (W)1 were superior as they yielded nearly 27-28 q/ha. The varieties HW 3094 and HW 2044 were moderate yielders (23-25 q/ha), whereas the varieties HD 2781 and HW 1085 gave only 20-21 q/ha. The process of mineralization is probably not over in this zone and thereby with little increase in the tillage operation with small power tillers, the harvest able yield of these varieties can be significantly improved. Farmers, generally expressed satisfaction over the performance of these varieties. Input Use It was observed that 40 hours of machine labour, 22 hours of bullock labour and 28 person-days of human labour were required per ha for the cultivation of wheat. Land preparation and sowing operations were performed manually due to compulsions of resource endowment, topography and cultural reasons. In general labour cost was lower on smaller farms were due to the larger component of women labourers on these farms who were paid less than their male counterparts. Machine labour was used mostly for irrigation purpose. There was no source of canal irrigation in the study area. Mechanical threshers operated by tractors were used only by large farmers @ 1.20 hours / ha on an average. Land preparation, sowing, harvesting and threshing consumed more than 80 percent of human

Note: ***, ** and * denote significance at 1 per cent, 5 per cent and 10 per cent levels, respectively. NS - Not significant

It was found that apart from labour and nutrients, the irrigation, seed and land preparation played a vital role in deciding the yield and profitability of wheat cultivation. The number of irrigations was more in control fields, but it was not statistically significant. The aberration occurred because some farmers had demarcated a part of the main field for the check varieties and, while irrigating fields, this portion could not be spared. The seed rate was uniform across all farmcategories on FLD as well as control fields. The


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planking was used only in FLDs. The number of ploughings was more in small farm-category, but in the case of irrigations, the situation was the reverse due to resource availability and economic conditions of large farmers. Cost and Returns The operational cost in traditional cultivation was around ` 9638/ha, which was less than that of other regions/zones of the country where the figures vary from ` 13709/ha in Bihar to ` 20508/ha in West Bengal (CACP, 2011).In the case of improved varieties (FLD), it was ` 10703/ha (Table 3) due to higher application of inputs and price of improved seeds. The cost of cultivation including operational cost, interest on working cost, management charges and risk allowance, was around ` 14391/ha, whereas in the case of check fields, it was ` 12260/ha. The threshing expenses were generally higher on smaller farms because proportion of mechanical threshing was higher on larger farms and it was less in FLD plots as these farmers being progressive farmers, had mechanical threshers in higher proportion. It was because of level of mechanization that yield levels were higher on large farms.
Table 3. Costs and returns on FLD and check farms

The unit cost of production was ` 574/q which was higher as compared to in NWPZ and other parts of the country largely because of lower yields, whereas in the case of traditional cultivation (check fields), it was almost double, ` 1131/q. Even this higher cost of production is attractive if the cost of transportation to this zone is taken into account (Nayeem et al., 2004). The overall profitability depicted by the net returns was higher at ` 13654/ha in improved varieties than from traditional varieties in check fields, where net returns were ` 3380/ha. The farmers margin arrived at by adding the imputed value of family labour and management allowance to the net returns was ` 16207/ha in the case of improved varieties and was ` 917/ha in the case of traditional wheat cultivation. So, cultivating wheat using improved wheat production technologies in this zone has vast economic and social benefits if comparative economics vis--vis other crops favour wheat cultivation in this zone A look at the composition of operational cost revealed that expense was highest on fertilizers, followed by seed, land preparation and labour. The expenses on harvesting and threshing were almost uniform in all the sample households and expenses on

(`/ha) Component Land preparation and sowing Seed Fertilizer Irrigation Harvesting Threshing Labour charges Operational cost Cost of cultivation Main product (q/ha) By-product (q/ha) Cost of production (`/q) Gross returns (`/q) Net returns (`/q) Returns over variable cost (`/q) Farmers margin (`/q) Technology situation FLD Check 1388 2052 2563 547 902 889 2298 10703 14391 25.89 39.66 574 28515 13654 17169 16207 1461 1100 1797 832 928 1118 2032 9638 12260 10.83 25.04 1131 9115 -3380 -1098 -917 Difference (%) -5.012NS 86.57*** 42.63*** - 34.18 *** -2.82NS -20.52*** 13.11*** 11.05*** 17.38*** 139.07*** 56.85*** -49.25*** 212.74*** 503.96*** 1663.66*** 1867.39*** t- value -0.6192 17.8320 5.1810 -8.6778 -0.8967 -4.9445 4.9991 2.6075 3.0349 17.0574 6.5781 -21.9873 17.9058 34.7999 16.0948 54.6549

Note: ***, ** and * denote significance at 1 per cent, 5 per cent and 10 per cent levels, respectively. NS - Not significant

Singh et al. : Exploring Possibilities of Extending Wheat Cultivation to Newer Areas Table 4. Factors affecting the yield of wheat in SHZ Variable Coefficient Operational holding Farm inventory Wheat area Ploughings Seed rate N P K Irrigations Human labour (Person-days) R2 0.006385 -3.1E-06** 0.028066 -0.11554 0 0.006106*** 0.000786 -0.00246 0.081491*** 0.002664 FLD plots Standard error 0.00327 1.13E-06 0.022976 0.093671 0 0.001552 0.001638 0.002817 0.017967 0.003364 t -value 1.952844 -2.73344 1.221581 -1.23346 65535 3.934347 0.480012 -0.87182 4.535591 0.792106 Coefficient 0.549 0.0329 0.0991 * 0.3747 0 0 0.226 * 0.0340 -0.1203 -0.1153 Check field Standard error 0.03645 0.0361 0.0439 0.2988 0 0 0.104 0.0334 0.1093 0.0750 0.314 (log linear)


t -value 1.50598 0.9112 2.2567 1.2536 65535 65535 2.1750 1.0051 -1.1015 -1.5376

0.248 (semi log linear)

Note:***, **and * denote significance at 1 per cent, 5 per cent and 10 per cent levels, respectively. NS - Non-significant

plant protection were negligible in this zone. The yield was quite low at around 25.89 q/ha and thereby returns were about ` 28515/ha (Table 3), giving a profit of ` 13654/ha. Factors Affecting Wheat Yield To know the relative effect of the factors responsible for variations in wheat yield, the output (Y) was regressed on different inputs like operational holding (ha), rental value of land (`), present value of farm inventories (`), wheat area sown (ha), ploughings (No.), seed rate (kg/ha), amount of N, P & K (kg/ha) applied, irrigations (No.) and number of person-days of human labour put to the field to raise the wheat crop. Semi-log linear and log linear functions were fitted and the coefficient values have been presented in Table 4. In the case of check fields, only P and size of wheat area planted were found significantly affecting the yields, whereas in FLD plots, operational holding (ha) of the farmer, rental value of land (`/year), value of farm inventories, level of N applied and number of irrigations were the significant factors affecting the yield levels. The seed rate was uniformly applied in all the FLD fields, whereas labour, P, K, wheat area and value of farm inventories had no effect on the yields

of improved varieties of wheat. As depicted by the coefficient of operational holding, rental value of land, irrigation, economic position and resource endowment of the farmer had a lot to do with the yield levels obtained in the FLD plots. Non-significance of N in check fields showed that intensive input-use was responsive only to the improved varieties. Constraints to Wheat Production in SHZ Wheat being a new crop for this zone, the constraints to its production have been examined from a different perspective. The constraints in this zone were quite different in nature than reported from other parts of the country. The termite infestation was reported as the most serious problem in this zone, despite the fact that climate of this zone is basically humid and soil is lateritic in structure. The wheat production is also hampered by late sowing due to heavy rains and destruction due to wild animals and birds. Lodging did take place in the case of rains which was accompanied by black rust that takes a significant toll on the wheat productivity in this region. The lack of irrigation facilities is another important constraint and demands serious attention from the planners. Cyprus rotundus (weed) and untimely rains are some of the other constraints but not so serious in nature, as per the reports (Anonymous, 2003-04 to 2009-10a).


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The study has revealed that SHZ region has potential to contribute to the total wheat production in the country and for the economic upliftment of its resource-poor farmers. The wheat varieties HW 5001, HW 508, COW (W)-1, HD 2833, and HW 3094 have been found performing well in this zone. The yield gain over traditional wheat varieties has been found 139 per cent. The unit cost of production per quintal has been found to be about half under FLDs than on check farms. The net returns from improved wheat varieties are significantly higher, indicating the feasibility of expanding wheat cultivation in this zone. However, to realize this, some specific measures like investment and encouragement to farm-mechanization, dissemination of labour-saving technologies, and development and dissemination of suitable varieties need to be addressed.

Lakshmanan, S. (2007) Yield gaps in mulberry sericulture in Karnataka An econometric analysis, Indian Journal of Agricultural Economics, 62(4). Jha, Brajesh and Tripathi, A. (2011) Isnt climate change affecting wheat productivity in India, Indian Journal of Agricultural Economics, 66(3). Nagarajan, S. (1998) Understanding the Issues Involved and Steps Needed to Increase Wheat Yields under Rice/ Wheat System A Case Study of the Karnal Area, Haryana, India , Institute of Plant Diseases, Universityof Bonn, Germany. Nayeem, K.A., Sivasamy, M., Prabakaran, A.J., Brahma, R.N., Asir, R. and Saikia, A. (2004) Wheat Cultivation in Southern Hills, Areas Adjoining Hills and Plains (Tamil Nadu and Karnataka), IARI Regional Station, Wellington. Reddy, A.R. and Sen,C. (2004) Technical efficiency in wheat production A socio-economic analysis, Agricultural Economics Research Review, 17(2). Shukla, R.S. and Mishra, P.C. (2004) Influence of ecosystem on components characteristics of wheat genotypes in semi-arid zone. Paper presented at the National Symposium on Wheat Improvement for the Tropical Areas organized by IARI, RS, Wellington and TNAU, Coimbatore at TNAU, Coimbatore during 23-25 September. Singh, Ajmer, Singh, Satyavir and Shoran, Jag (2004) Economics of latest wheat production technologies : A zonewise comparison with special reference to tropical areas. Paper presented at the National Symposium on Wheat Improvement for the Tropical Areas, organized by IARI, RS, Wellington and TNAU, Coimbatore at TNAU, Coimbatore during 23-25 September. Singh, R.P., Singh, Randhir, Singh, Satyavir, Singh, Ajmer, Mongia, A.D. and Shoran, Jag (2004) DWR Progress Report, Extension and Economics, Volume 2 , AICW&BIP, Directorate of Wheat Research, Karnal. Singh, Randhir, Singh, Satyavir, Singh, Ajmer, Kumar, Anuj, Singh, R.P., Shoran, Jag and Mishra, B. (2004-05) DWR Progress Report, Information Management and Communication, AICW&BIP, Directorate of Wheat Research, Karnal.
Revised received: February, 2013; Accepted June, 2013

The authors thank the referee for his critical comments on the paper.

Anonymous (2003-04 to 2009-10a) Annual Reports, Social Science Section, Directorate of Wheat Research, Karnal. Anonymous (2003-04 to 2009-10b) Annual Reports, Wheat Summer Nursery, Indian Agricultural Research Institute, New Delhi. CACP (2011) Report of the Commission for Agricultural Costs and Prices 2010-11, Ministry of Agriculture, Govt of India, New Delhi. Gondalia, V.K. and Patil, G.N. (2007) An economic evaluation of investment on aonla in Gujarat, Agricultural Economics Research Review, 20(2). Hanchinal, R.R., Patil, B.N., Kalappanavar, I.K., Math, K.K., Lohithaswa, H.C., Desai, S.A. and Yenagi Nirmala, B. (2005) 50 Years of Wheat Research in Karnataka, University of Agricultural Sciences, Dharwad.

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Research Note

Production and Marketing of Cumin in Jodhpur District of Rajasthan: An Economic Analysis

Vinod Kumar Verma*, Vishnu Shanker Meena, Pradeep Kumar and R.C. Kumawat
Department of Agricultural Economics, S.K.N. College of Agriculture, Jobner-303 329, Rajasthan

This study is on the production and marketing of cumin crop in the Jodhpur district of Rajasthan. It is based on the data collected from 60 cuminproducers in the tehsils of Falodi and Looni during 2009-10. The study has revealed that cumin cultivation in Rajasthan is a profitable enterprise as the returns per rupee invested have been found to be ` 1.95 on overall basis, varying from `1.84 on small farms to ` 2.16 on large farms. The costs on machine labour (14.4 %) and human labour (13.0 %) have emerged as the major components in the total operational costs. The cuminproducers have been found to follow two channels for the marketing of cumin; Channel-I: Farmer Village trader Wholesaler Retailer; and Channel-II: Farmer Wholesaler (Mandi) Retailer. The marketing cost has been found to be higher in Channel-I due to involvement of more middlemen in the channel. The producer share has been computed as 62.1 per cent in ChannelI and 68.1 per cent in Channel-II. The study has suggested that measures need to be adopted to increase access of farmers to market information and they should be motivated to market the produce collectively to reduce the cost on transportation. Key words: Cumin, economic analysis, marketing channel, economic viability, price spread, Rajasthan JEL Classification: Q13

In India, cumin (Cuminum cyminum) is mainly cultivated in the states of Gujarat, Rajasthan, Uttar Pradesh, Madhya Pradesh, Karnataka and Tamil Nadu. Rajasthan with its share of 13.15 per cent stands second in the total production of cumin in the country. In Rajasthan, it is mainly grown in the districts of Jodhpur, Jalore, Barmer, Nagour, Pali, Ajmer, Sirohi, Bhilwara and Tonk. Information on production, productivity, marketing and income being important to boost production of agricultural commodities, particularly on spices, several researchers have studied the economics of cultivation of ginger, fenugreek, chillies, saffron, etc. (Dodke et al., 2002; Dwivedi and Singh, 2010; Killedar et al., 2002; Rajur et al., 2008; Shah and Zala, * Author for correspondence
Email: dr.vinod4u@rediffmail.com

2006; Tripathi et al., 2006). However, such information seems to be lacking in the case of cumin cultivation in Rajasthan. Therefore, the present investigation was taken up with the following objectives: To study the cost of cultivation of cumin crop in Rajasthan, and To find the marketing behaviour of cumin-growing farmers and study the costs and returns and price spread in the marketing of cumin in Rajasthan.

Data and Methodology

Jodhpur district having the first place in the production of cumin in the state was purposely selected for the study. Then, two tehsils Looni and Falodi of Jodhpur district were selected and from these tehsils, based on the criteria of maximum production and sale of cumin, six villages falling under the


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command area of Krishi Upaj Mandi Samti, Mandor, were selected. A list of the cumin-growing farmers from these villages was prepared and a total of 60 farmers [28 small (< 2 ha), 22 medium (2-4 ha) and 10 large (> 4 ha)] were selected randomly in proportion to their total number in each farm- size group. For study, primary data relating to the agricultural year 2009-10 were collected from the selected farmers, wholesalers and retailers through personal interview using a set of pretested schedules developed specially for the purpose. The market behaviour of the cumin- growing farmers and breakup of the consumers price, viz. producers share in consumers rupee, costs of marketing and margins of different intermediaries involved in cumin marketing channels were worked out.

relationship with farm-size. The rental value of owned land was the major component of the overhead costs. Its share was 17.4 per cent, 18.2 per cent and 18.9 per cent on small, medium and large farms, respectively. Depreciation cost with 7.6 per cent share was the second major component of overhead cost and it showed a positive relationship with the farm-size. Returns from Cumin Crop The overall gross income from cumin cultivation, given in Table 2, has been found to be ` 57292/ha in the study area. This income has depicted a direct relation with farm-size. The average farm business income from cumin cultivation was worked out to be ` 38758/ha and it has also shown a positive relation with farm-size. The overall returns over variable cost have been found to be ` 38389/ha. The cost of production was highest on small farms (`5568/q), and minimum on large farms (` 4748/q), depicting an inverse relationship with farm-size. Costs, Margins and Price Spread in Marketing of Cumin Crop It was found that farmers adopt following two channels for marketing of cumin: Channel-I : Farmer Village trader Wholesaler Retailer Channel-II : Farmer Wholesaler (Mandi) Retailer The marketing costs in both the channels were worked out and are presented below.

Results and Discussion

Cost on Cultivation of Cumin Crop The overall total cost on cultivation (cost c2) of cumin crop was found to be ` 26746/ha, being highest on small (` 27587/ha), followed by medium (` 26257/ ha) and large (` 25469/ha) farmers. The total overall operational cost was found to be ` 18903/ ha, and it was also highest on small (` 20259/ha), followed by medium (` 18272/ha), and large (` 16496/ha) farms (Table 1). In the overall operational cost, the expenditure was highest on machine labour (14.4%), followed by human labour (13.0%) and FYM (9.7%). Thus, machine labour was the main component of operational cost and it was found to increase with increase in farm-size. Another major component of the operational cost was human labour. It was observed that the share of human labour was maximum on small (15.0%) farms, followed by medium (12.3%) and large (8.4%) farms. The higher use of human labour on small and medium farms was attributed to lesser use of machine labour in comparison to large farms. The share of plant protection chemicals in the total cost ranged from 8.47 per cent to 9.92 per cent on different farm- size groups with the average value of 8.94 per cent. The use of plant protection chemicals was higher on large farms, followed by medium and small farms. The share of overhead cost in the total cost was 29.3 per cent on overall basis and it ranged from 26.6 per cent on small farms to 35.2 per cent on large farms, depicting a direct

The marketing costs incurred in Channel-I have been depicted in Table 3. A perusal at Table 3 revealed that the total cost in marketing of cumin at village level was `1043 / q. Among the three intermediaries in this channel, the retailer bore the maximum marketing cost (` 655/q) due to VAT and the wholesaler had to pay ` 329/q as the Mandi fee. It was noted that VAT alone accounted for the maximum share (60.8%) in the total marketing costs, followed by Mandi fee (16.6%) and commission charges (10.36 %). Transportation charges amounted to 5.5 per cent of the total marketing costs in Channel-I. The stakeholder-wise break up indicated that the highest cost was borne by the retailer (62.8%),

Verma et al. : Production and Marketing of Cumin in Jodhpur District of Rajasthan


Table 1. Operational and overhead costs in the cultivation of cumin crop on sample farms in Jodhpur district of Rajasthan: 2009-10 (` /ha) Particulars Small (< 2ha) Bullock labour Machine labour Seed FYM Fertilizers Plant protection chemicals Irrigation charges Interest on working capital Human labour Sub-total of operational costs Farm-size groups Medium (2-4 ha) Large (> 4ha) 382 (1.50) 4420 (17.36) 2414 (9.48) 1366 (5.36) 606 (2.38) 2527 (9.92) 2162 (8.49) 480 (1.89) 2134 (8.38) 16496 (64.77) 2997 (11.77) 4800 (18.85) 20 (0.08) 1155 (4.54) 8973 (35.23) 25469 Overall 1491 (5.58) 3849 (14.4) 2199 (8.22) 2588 (9.7) 454 (1.70) 2392 (8.94) 1899 (7.10) 550 (2.06) 3477 (13.0) 18903 (70.67) 2040 (7.63) 4800 (17.95) 20 (0.07) 982 (3.68) 7843 (29.33) 26746

(A) Operational costs 2274 998 (8.24) (3.80) 3304 4283 (11.98) (16.32) 2107 2218 (7.64) (8.45) 3373 2144 (12.23) (8.17) 373 489 (1.35) (1.86) 2337 2401 (8.47) (9.14) 1747 1973 (6.34) (7.51) 590 532 (2.14) (2.03) 4150 3230 (15.04) (12.30) 20259 18272 (73.44) (69.59) (B) Overhead costs 1626 2132 (5.89) (8.12) 4800 4800 (17.40) (18.20) 20 20 (0.07) (0.08) 881 1032 (3.20) (3.94) 7328 7985 (26.56) (30.42) 27587 26257

Depreciation Rental value of owned land Land revenue Interest on fixed capital Sub-total of fixed costs Total cost (A+B)

Note: The figures within the parentheses are per cent of total cost

followed by wholesaler (31.5%) and village trader (5.3% ). The farmer- producer had to bear 0.4 per cent of the total marketing cost in Channel-I. Channel-II The marketing cost incurred in marketing of cumin in Channel-II, depicted in Table 4, was found to be

` 1022/q. Among the two intermediaries figured in Channel-II, the retailer bore the maximum marketing cost (` 654/q) due to the payment of VAT and the wholesaler had to pay ` 329/q as the Mandi fee. In the total marketing cost in Channel-II, the VAT accounted for the highest share (62.0%), followed by Mandi fee (16.9%) and commission charges (10.6%).


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Table 2. Returns from cultivation of cumin crop in Rajasthan: 2009-10 (in `/ha) Particulars Small Gross income Farm business income Returns over variable cost Family labour income Net income Returns per rupee Cost of production (`/q) 55884 37377 35625 31815 25538 1.84 5568 Farm- size groups Medium 57627 39199 39355 32287 28743 1.99 5154 Large 60498 41658 44002 35486 32487 2.16 4748 Overall 57292 38758 38389 32602 27871 1.95 5198

Table 3. Marketing cost of cumin in Channel-I in Jodhpur district of Rajasthan: 2009-10 (`/q) Particulars Producer Transportation Gunny bag VAT Mandi fee Commission Brokerage Loading + unloading sieving, weighing, etc. Total 4 (100) 4 (0.4) Cost borne by Village trader 39 (70.9) 5 (9.0) 11 (20) 55 (5.3) Wholesaler 9 (2.73) 6 (1.82) 173 (52.58) 108 (32.83) 27 (8.21) 6 (1.8) 329 (31.5) Retailer 9 (1.37) 6 (0.92) 634 (96.79) 6 (0.92) 655 (62.80) Consumer cost 57 (5.46) 21 (2.01) 634 (60.79) 173 (16.59) 108 (10.35) 27 (2.59) 23 (2.21) 1043 (100)

Assumptions: (1) VAT will be borne by the retailer. (2) Commodity is transferred from producer to retailer

Transportation charges amounted to ` 47/q (4.6%) in Channel-II. The stakeholder-wise break up indicated that the highest cost was borne by the retailer (63.9%), followed by wholesaler (32.2%) and producer-farmer (3.8%). Price Spread Price spread in cumin in both the marketing channels is discussed below:


The details of price spread in marketing of cumin in Channel-I are given in Table 5. It shows that the cumin-farmer got ` 9845 /q (62.1%) out of the consumer price of ` 15854/q. The marketing costs incurred by the producer, village trader, wholesaler and retailer were 0.02 per cent, 0.35 per cent, 2.07 per cent and 4.13 per cent, respectively of the price paid by the consumer. These together accounted for 6.57 per cent

Verma et al. : Production and Marketing of Cumin in Jodhpur District of Rajasthan Table 4. Marketing cost of cumin in Channel-II in Jodhpur district of Rajasthan: 2009-10


(`/q) Particulars Producer Transportation Gunny bag VAT Mandi fee Commission Brokerage Loading + unloading, sieving, weighing, etc. Total 29 (74.36) 4 (10.26) 6 (15.38) 39 (3.81) Cost borne by Wholesaler 9 (2.73) 6 (1.82) 173 (52.58) 108 (32.83) 27 (8.21) 6 (1.8) 329 (32.19) Consumer cost 47 (4.60) 16 (1.56) 634 (62.03) 173 (16.93) 108 (10.57) 27 (2.64) 17 (1.66) 1022 (100)

Retailers 9 (1.37) 6 (0.92) 634 (96.94) 5 (0.76) 654 (64.0)

Assumptions: (1) VAT will be borne by the retailer. (2) Commodity is transferred from producer to retailer Table 5. Price spread in marketing of cumin in ChannelI in Rajasthan: 2009-10 Particulars Producers share Cost incurred by (a) Producer (b) Village trader (c) Wholesaler (d) Retailer Total cost Margin earned by (a) Village trader (b) Wholesaler (c) Retailer Total margin Consumers price ` /q 9845 4 55 329 655 1043 941 1573 2453 4967 15854 Share in consumers rupee (%) 62.10 0.02 0.35 2.07 4.13 6.57 5.94 9.92 15.47 31.33 100.00 Channel-II

The details of price spread in marketing of cumin in Channel-II in Rajasthan are given in Table 6. It shows that the cumin-farmer got ` 10807 /q out of the consumer price of ` 15854/q, (68.16%). The marketing costs incurred by the producer, wholesaler and retailer were worked out to be 0.24 per cent, 2.07 per cent and
Table 6. Price spread in marketing of cumin in ChannelII in Rajasthan: 2009-10 Particulars Producers share Costs incurred by (a) Producer (b) Wholesaler (c) Retailer Total cost Margin earned by Wholesaler Retailer Total margin Consumers price ` /q 10807 39 329 654 1022 1573 2452 4025 15854 Share in consumer rupee (%) 68.16 0.24 2.07 4.13 6.45 9.92 15.47 25.39 100.00

of the consumers price. In the total marketing margin of ` 4967/q, the share was highest of retailer (` 2459/ q, 15.5%), followed by wholesaler (`1573/q, 9.9%) and village trader (`941/q, 5.9%).


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4.13 per cent, respectively of the price paid by the consumer. The total marketing costs and marketing margins accounted for 6.45 per cent and 25.39 per cent, respectively in the consumers price. The marketing margin was higher of retailer (`2452/q, 15.47%) than of wholesaler (` 1573/q, 9.92%).

(ii) The farmers should be motivated to transport their produce collectively to lower the cost on transportation and hence on marketing, particularly by the small farmers.

The authors thank the referee for his helpful comments on the earlier draft of this paper which helped in improving its presentation also.

The study has revealed that cumin cultivation is a profitable enterprise in the Jodhpur district of Rajasthan. The net income on overall basis has found to be ` 27871/q, ranging from ` 25538/q on small farms to ` 32487/q on large farms. The marketing cost has been found to be higher by ` 21/q when cumin was sold through Channel-I due to involvement of more middlemen in this channel. The study on price spread in marketing of cumin in Channel has shows a significant difference in the margins of intermediaries. Of the consumer rupee, the village trader received 5.94 per cent share, wholesaler received 9.92 per cent, and retailer got 15.47 per cent share. Among all the functionaries, the margin of retailers was higher due to the sale of cumin in piecemeal at high prices to the consumers. The producers share in consumers rupee in the sale of cumin directly in the regulated market of Mandor was 68.2 per cent as compared to 62.1 per cent in sale at village level. For marketing of cumin, the channels followed are: Channel-I: Farmer Village trader Wholesaler Retailer, and Channel-II: Farmer Wholesaler (Mandi) Retailer.

Dodke, L.B., Kalamkar, S.S., Shende, N.V. and Deoghare, B.L. (2002) Economics of production and marketing of fenugreek. Indian Journal of Agricultural Marketing, 16 (2): 69-74. Dwivedi, Sudhaker and Singh, Tarunvir (2010) An analytical economics of saffron cultivation in Jammu and Kashmir. Journal of Hill Agriculture, 1 (2): 168-171. Killedar, N.S., Lahor, N.S., Babar, V.S. and Ingavale, M.T. (2002) Economics of production and marketing of ginger in Satara district of western Maharashtra. Indian Journal of Agricultural Marketing, 16 (2): 76-77. Rajur, B.C., Patel, B.L. and Basavaraj (2008) Economics of chilli production in Karnataka. Karnataka Journal of Agricultural Science, 21 (2): 237-240. Shah, S.P. and Zala, Y.C. (2006) Cost-benefit analysis of ginger cultivation in middle Gujarat. Agricultural Economics Research Review, 19 (Conference issue): 206. Singh, R.P. and Toppo, Anupama (2010) Economics of production and marketing of tomato in Kanke block of Ranchi district. Indian Journal of Agricultural Marketing, 24 (2): 1-16. Tripathi, A.K., Mandal, Subhasis, Datta, K.K. and Verma, M.R. (2006) Study on marketing of ginger in Ri- Bhoi district of Meghalaya. Indian Journal of Marketing, 20 (2): 106-115.
Revised received: August, 2013; Accepted: October, 2013

The study has made following recommendations: (i) The farmers should be educated to sell their produce in the regulated markets which fetch higher returns as compared to village level marketing.

Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013 pp 293-297

Research Note

Post-harvest Losses in Wheat Crop in Punjab: Past and Present

D.K. Grover* and J.M. Singh
Agro Economic Research Centre, Punjab Agricultural University, Ludhiana 141 004, Punjab

The crop losses during the process of harvesting, threshing, transportation and storage of foodgrains are quite significant. The present study has estimated the extent of losses occurring during post- harvest phase of wheat crop based on the experience of 120 wheat-growing farmers of various farm-size categories from Ludhiana and Ferozepur districts of Punjab. The study has observed that harvesting losses were more for the late harvested crop due to shattering of the grains, while losses during transportation, handling and rodents attack in the case of stored grains have been found insignificant. In totality, the post-harvest losses have been worked out to be 1.84 per cent currently. Earlier studies had estimated such losses to be 9.3 per cent during 1971and 3.71-3.85 per cent in 1992. Thus, better post-harvest management has resulted in minimizing post-harvest losses. The study has suggested timely harvesting of wheat crop and organization of training programmes for control of rodents / fungus/pests attack to further curtail the losses at field level. Key words: Post-harvest losses, wheat crop, post-harvest management, Punjab JEL Classification: Q11, Q16

The production and availability of foodgrains are sometimes mistakenly used as synonyms. To estimate the food supplies correctly, the losses during and after harvest in terms of storage, transportation and marketing, etc. need to be studied scientifically. The production in agriculture is exposed to natural environment, but post-production operations play an important role in providing stability in the food supply chain. Losses in food crops occur during harvesting, threshing, drying, storage, transportation, processing and marketing. In the field and during storage, the products are threatened by insects, rodents, birds and * Author for correspondence
Email: dkg_59@rediffmail.com

This research article is drawn from research report entitled Assessment of Pre and Post Harvest Losses of Major Foodgrains in Punjab, carried out by Agro Economic Research Centre, Ludhiana, and sponsored by Ministry of Agriculture, Government of India, New Delhi

other pests. Moreover, the product may be spoiled by infection from fungi, yeasts or bacteria. Food grain stocks suffer both qualitative and quantitative losses while in storage. To minimize the losses during storage it is important to know the optimum environment conditions for the storage of product, as well as the conditions under which insects/pests damage the produce. Birewar (1977) has stressed the need of equal importance to quality and quantity of the grains produced and the losses during post-harvest operations were estimated to be of the order of 10 per cent in India. Gill and Singh (1986) have reported the total losses in foodgrains, including the losses at the threshing floor, as 9.33 per cent in Punjab. According to a FAO study, about 70 per cent of the farm produce is stored by the farmers for household consumption, seed, feed and other purposes in India. Farmers store grain in bulk using different types of storage structures made from locally available materials. For the better storage it is necessary to clean and dry the grain to increase its life during storage. In addition, storage


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structure, design and its construction also play a vital role in reducing or increasing the losses during storage. With the scientifically constructed storage, it is also essential that the grain being stored is also of good quality. Generally, harvesting is done at high moisture content and, therefore, before storing the same, it is necessary to obtain the desired moisture to obtain safe post-storage grain. Basavaraja et al. (2007) have estimated grain losses during wheat harvesting in Karnataka state as 0.36 kg per quintal. These losses were mainly due to shedding of grains. The amount of loss depended on the crop stage and time of harvesting. The losses during cleaning/winnowing operation were estimated to be 0.14 kg per quintal. The average losses have been worked out to be 0.45 quintal per hectare. Singh et al. (1992) have estimated the post-harvest losses in wheat crop in Punjab to be 1.49-1.55 per cent during harvesting (sickle-harvested) and 1.57-1.60 per cent (combine-harvested). The wheat loss during threshing was 1.42-1.45 per cent and during marketing was 0.80 per cent. During the past two decades, there have been several developments in farming- related operations. These include increased use of farm-mechanization, reduction in harvesting period, increased road connectivity, better road network, increased transportation facilities, superior packaging material, etc. These coupled with longer experience of foodgrains handling of farmers must have affected the post-harvest management of foodgrains. Thus, there was an urgent need to assess the post-harvest losses in foodgrains under the changed scenario and get fresh estimates of their net availability. Therefore, the present study was conducted in Punjab with the following specific objectives: To estimate the post-harvest losses in wheat crop during various post-harvest handling operations, and To study the impact of better management and other developments on post-harvest losses of wheat crop.

Ludhiana and Ferozepur, of Punjab. The post-harvest losses during different farming operations, transportation and storage were quantified based on the estimates provided by the farmers. To collect the primary data, a sample survey was conducted in the selected districts during rabi 2010-11 (November to May). Ludhiana district represented the central plain region, while Ferozepur district represented the south western region of the state. From each district, two villages one nearby the market/mandi centre and the other far off from the market centre were selected and from each village 30 wheat- growing farmers were selected randomly, constituting the total sample of 120 farmers. The farm-size-wise there were 22 marginal (< 2.50 acres), 24 small (2.51-5.00 acres), 24 medium (5.01-10.00 acres) and 50 large (> 10.00 acres) farmers in the sample. In addition to the primary data, district office of the Department of Agriculture as well as experts at Punjab Agricultural University were also consulted to find wheat loss estimates during postharvest operations. Simple statistical tools were used to interpret the survey results.

Results and Discussion

The results have been discussed under the following sub-heads: (i) Socio-economic status of respondents, (ii) Post-harvest losses, and (iii) Impact of better management and infrastructural facilities. Socio-economic Status of Respondents The socio-economic characteristics of the sample households revealed that the average number of income earners were two in all the farm-size categories, except in large category, where there were three earners. The farmers interviewed were mostly household-head and the average age of 71-79 per cent respondents was above 40 years, and of 12-26 per cent was between 25 and 40 years. Most of the sample farmers were educated though educational level varied. The annual household income varied from `1.65 lakh to `12.60 lakh, being lowest on marginal and highest on large farm categories. The share of owned land was more on all the farm-size categories as compared to leased-in or leased-out land. The net operated area on overall basis was 11.4 acres, it being 2.2 acres on marginal, 3.9 acres on small, 8.0 acres on medium, and 20.7 acres on large farmers. The farms of all categories were irrigated and the cropping intensity was nearly 200 per cent. Paddy

Materials and Methods

The study is based on the farm level data collected from two major wheat-growing districts, namely

Grover and Singh : Post-harvest Losses in Wheat Crop in Punjab


was the major kharif crop (occupying nearly 40% of gross cropped area), followed by basmati (6.1%) and fodder crops (3.7%). Wheat was the major rabi crop (occupying 46.9 per cent of gross cropped area), followed by rabi fodder with 2.7 per cent area. The entire area sown under various kharif, rabi, summer and perennial crops was under HYV seeds, as revealed by the sample households. Post-harvest Losses in Wheat Crop This section presents the assessment of production losses during harvesting, threshing/ winnowing, transportation, handling, storage along with, quantitative assessment of storage and pest control measures adopted by the selected households. Production Loss during Harvest The production losses during different stages of wheat harvesting have been depicted in Table 1. A perusal of Table 1 shows that the average wheat area harvested per household was highest (8.85 acres) during the mid stage of harvesting, followed by late stage (1.62 acres) and early stage (0.21 acres). In terms of percentage, it was 82.9 per cent in mid season, 15.1 per cent in late and 2.0 per cent in early season. Of the total 10.68 acres area harvested per household, 2.14 acres (20.0%) was harvested manually and 8.54 acres

(80.0%) mechanically. The area mechanically harvested in terms of stages of harvesting was highest in mid (79.1%), followed by late (18.4%) and early (2.5%) stages. The area manually harvested in the mid stage was 98.1 per cent and just 1.9 per cent was harvested during late season. The ranking of loss during different stages of crop harvest was reported to be low by 2 per cent households during early stage, 86 per cent during mid stage and 12 per cent during late stage of harvesting. The quantity of wheat lost per acre was 20.4 kg during early, 26.7 kg in the mid and 47.2 kg in the late harvesting stages of wheat crop. Therefore, wheat loss at different stages was 1.1 per cent in early, 1.4 per cent in mid and 2.5 per cent in late harvesting. The higher wheat loss in late harvesting was due to shattering of grains in the fields. The lower loss in the early harvesting was due to the negligible (2.0%) area being harvested during this stage. Production Loss during Threshing and Winnowing It was reported by 35 per cent of the sample farmers that presently threshing was being done mechanically using a thresher and winnowing was not required separately due to the facility of fan in the threshing operation itself. The average loss was 3.95 kg/acre which came out to be just 0.20 kg/quintal on the sample farms.

Table 1. Quantity lost at different harvesting stages of wheat crop Particulars Early Area harvested per household (acres) Percentage area harvested Area manually harvested (acres) Percentage area manually harvested Area mechanically harvested (acres) Percentage area mechanically harvested Quantity lost during harvest kg/acre kg/quintal % of harvest amount 20.4 1.1 1.1 26.7 1.4 1.4 47.2 2.5 2.5 28.7 1.5 1.5 0.21 2.0 0.21 2.5 Stages of wheat harvest Mid 8.85 82.9 2.10 98.1 6.75 79.1 Overall Late 1.62 15.1 0.04 1.9 1.58 18.4 10.68 100.0 2.14 (20.0)* 100.00 8.54 (80.0)* 100.0

Note: Figures within the parentheses show percentage of total area harvested


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Production Loss during Transportation and Handling It was found that tractor- trolley was the only mode being used by the sample farmers to transport their produce to the market. The average quantity transported per household was 183.5 quintals, and the average distance covered was 4.1 km with transportation cost of ` 3.60/quintal. The average loss in wheat during transportation was found to be 0.06 kg/q, which was just 0.0003 per cent of the total quantity of wheat transported. Similarly, the average loss in wheat due to handling at different stages was calculated as 0.20 kg/q which was merely 0.001 per cent of the handled quantity. Thus, loss during transportation and handling was negligible in wheat crop. The transportation losses were low due to the use of tractor-trolley and better management of wheat grains with special care of putting gunny as well as plastic covers, beneath as well as on the sides of the trolley before filling it with the produce to be sold in the market. Production Loss during Storage Although, there are several modes of wheat storage, the one being adopted by the sample respondents was of steel drum and the average wheat stored was 19.5 quintals per household. It was observed that for storage of wheat proper scientific method was being followed by the respondents of using properlydried steel drums for filling of wheat grains, applying proper fumigation to the produce and making the container airtight by applying wet soil on its openings. All the households reported drying of wheat grains before storage. The stored produce was gradually withdrawn as per household requirement and, therefore, was stored for the whole year. The rank of losses was low as reported by all the sample households. The average wheat quantity lost during storage was reported to be 0.012 kg/q due to rodents and 0.008 kg/q due to fungus infection. The storage cost has been worked out to be ` 3.35 per quintal of stored quantity. Total Post-harvest Losses in Wheat The total post-harvest losses in wheat, depicted in Table 2, reveal that the highest loss was during harvesting of wheat crop. It was estimated to be 1.52 kg per quintal. The losses during threshing,

Table 2. The post-harvest losses in wheat crop Loss in different operations Harvest Threshing Transport Handling including loading/uploading Storage Total post-harvest losses (kg/q) Total post-harvest losses (kg/acre) Amount lost (kg/q) 1.52 0.04 0.06 0.20 0.02 1.84 35.14

transportation and storage were found very small; these were 0.04 kg/q, 0.06 kg/q and 0.02 kg/q, respectively. The wheat loss during loading/ unloading was also found to be small (0.2 kg/q). In total, the post-harvest losses in wheat crop worked out to be 1.84 kg/q or 35.14 kg/acre. Thus, major grain loss (82.60%) was incurred during harvesting of wheat crop while during other post- harvest operations, the losses were meagre.

Conclusions and Policy Implications

The study has brought out that post-harvest losses in wheat crop have declined with the passage of time. These losses were estimated as 10 per cent in India by Birewar (1977). On the other hand, Gill and Singh (1986) reported these losses as 9.30 per cent in Punjab. Later on, Singh et al. (1992) have estimated the postharvest losses in wheat to be 3.71-3.85 per cent which included losses during harvesting (sickle and combine), threshing and marketing operations. The present investigation has estimated the total post-harvest losses in wheat to be 1.84 per cent in Punjab. These are quite small and can be attributed to the mechanical harvesting of a significant area under this crop. It has also been observed that the losses during wheat harvesting are high in case of late harvesting of the crop due to shattering of grains. Hence, farmers should be advised to undertake timely harvesting of wheat crop to minimize harvesting losses. There is also a need to impart training to the farmers on scientific handling and better management of grains, particularly during storage to minimize the post-harvest losses. Due to adoption of latest farm technologies with emphasis on mechanization of various farm operations, Punjab farmers have minimized post-harvest losses at their farms. The judicious use of farm resources and

Grover and Singh : Post-harvest Losses in Wheat Crop in Punjab


better post-harvest management by the farmers have played a significant role in curtailing the grain losses in wheat crop.

Gill, K.S. and Singh, R. (1986) Marketing and Handling of Wheat and Paddy in the State of Punjab, Department of Processing, College of Agricultural Engineering, Punjab Agricultural University, Ludhiana. pp.16-26. FAO (Food and Agriculture Organization), Research and Development Issues in Grain Post-harvest Problems in Asia; www.fao.org/wairdocs/x5002e/X5002e02.htm Singh, G., Singh, J., Thapar, V. K., Sehgal, V. K. and Paul, S. (1992) Post-production losses of wheat at farm level in Punjab, Bulletin of Grain Technology, 30: 20-27.
Revised received: June 2013; Accepted September, 2013

Basavaraja, H., Mahajanashetti, S.B. and Udagatti, Naveen C. (2007) Economic analysis of post-harvest losses in food grains in india: A case study of Karnataka. Agricultural Economics Research Review, 20(1): 11726. Birewar, B.R. (1977) Post- harvest operations, Productivity, 18(2): 227-40.

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Abstracts of M.Sc. Theses

R.B. Godambe (2013): Economics of Production and Disposal of Okra (Abelmoschus esculentus (L.) Moench) in Thane District , Department of Agricultural Economics, College of Agriculture, Dr. Balasaheb Sawant Konkan Krishi Vidyapeeth, Dapoli415 712, Maharashtra Major advisor: Dr S.R. Torane This study has been conducted in the Thane district of Maharashtra with a sample of 135 okra growers using the data pertaining to the agricultural year 201112. The study has revealed that the average size of landholding was 2.8 ha, of which net cultivated area was 2.5 ha. At overall level, the total cost of cultivation was ` 191660/ha, gross returns were ` 488637/ha and net profit was ` 296977/ha. The input-output ratio was 1:2.55, indicating that okra is a highly profitable enterprise. Seed, fertilizer, plant protection and human labour have been found to have statistically significant and positive influence on yield. However, they were being excessively used and decreasing returns to scale were observed. The three marketing channels operating in study area were: (1) Producer consumers, (2) Producer retailers consumers, and (3) Producer commission agent-cum wholesalers retailers consumers. The highest quantity of okra was sold through channel-III. However, the producers share in consumers rupee was highest (98.26%) in channel-I. Non-availability of certified seed, high cost of plant protection chemicals, high transportation cost, wide fluctuations in price and high commission charges have been identified as the major problems being faced by the okra growers. The problems reported by the vegetable traders were unstable prices, lack of market information, and lack of sanitary facilities in the market yard. The study has concluded that okra being a profitable crop, higher resources need be allocated for development of highyielding seeds and capacity building of farmers in having a better access to market information. B.C. Karbhari (2013): Economics of Production and Disposal of Arecanut in Raigad District, Department of Agricultural Economics, College of Agriculture, Dr. Balasaheb Sawant Konkan Krishi Vidyapeeth, Dapoli415 712, Maharashtra Major advisor: Dr V.A. Thorat The economics of production and disposal of arecanut has been studied in the Raigad district of Maharashtra by selecting total 155 gardens. The data pertained to agricultural year 2011-12. The study has revealed that the per hectare cost of establishment for arecanut garden was ` 182463 of which maximum (63.1%) was incurred on human labour, followed by FYM (16.0%) and planting material (12.6%). The cost of maintenance for arecanut garden was worked out to be ` 261762/ha, of which highest (31.8%) was the rental value of land, followed by hired male labour (18.7%) and amortization value (13.9%). The overall gross returns were ` 499000/ha, of which maximum returns (47.6%) were obtained from arecanut, followed by coconut (23.55%) and black pepper (9.2%). The net returns were highest from arecanut + coconut + black pepper cropping system (` 189098), followed by (` 189033) arecanut + coconut + black pepper + cinnamon cropping system. The study has revealed that values for NPV, BCR (at 15% discount rate) and IRR were ` 22348, 1.05 and 16.67, respectively with payback period of 6 years. Across the different cropping systems, NPV (` 58200), BCR (1.10) (at 15% discount rate) and IRR (17.49%) were highest in arecanut + coconut + black pepper cropping system with payback period of 6 years. To study resource-use efficiency in arecanut, the Cobb-Douglass type production function was fitted. It was found that among different inputs, the use of human labour (both male and female) was in excess and use of fertilizers, manures, and plant protection chemicals was below the optimum level. The study has revealed that at overall level, the total production of arecanut was 1319 kg, and almost all the produce was sold in the market. The marketed shares of other commodities were also high. These were: coconut 91.0 per cent, black pepper 90.1 per cent; nutmeg 98.8 per cent; cinnamon 90.8 per cent; banana 94.0 per cent and pineapple 85.6 per cent.


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D.A. Killedar (2013): Study of Co-operative Credit Societies in Sindhudurg District, Department of Agricultural Economics, College of Agriculture, Dr. Balasaheb Sawant Konkan Krishi Vidyapeeth, Dapoli415 712, Maharashtra Major advisor : Dr H.K. Patil This study has been undertaken with a random sample of 144 borrowers (72 defaulters and 72 nondefaulters) from 36 co-operative credit societies in the Sindhudurg district of Maharashtra. The total average farm business income was ` 1,21,015 in the nondefaulters group and ` 21,125 in the defaulters group. The average income from other sources was ` 45,781 in non-defaulters group and ` 25,390 in defaulters group. The average amount borrowed was ` 98,960 by non-defaulters group and ` 16,732 in defaulters group. The share of short-term borrowing was more in both the groups, it being 84.4 per cent in non-defaulters and 82.2 per cent in defaulters groups. In non-defaulters group, the highest share of short-term credit was contributed for fruit crops (76.6%) and in defaulters group, it was contributed for rice (88.8%). The non-defaulters group had utilized 83.4 per cent of its short-term borrowings for productive purposes and 16.6 per cent was diverted towards unproductive use. The defaulters group had utilized a lower share (57.3%) of their total short-term borrowings for productive purposes. In the case of medium-term credit, the non-defaulters group utilized 76.4 per cent of their borrowings for productive purposes and 23.6 per cent was diverted to the unproductive uses. The defaulter group utilized only 17.0 per cent of total borrowing for productive uses and 83.0 per cent was used for unproductive purposes. The results of logistic regression model have revealed that the variables education and proportion of credit utilized for productive purpose were positively related with non-defaulters. As the level of education and the proportion of credit used for productive purpose increased, the probability to be a non-defaulter also increased.

P.N. Kumbhar (2013): Marketing of Mango in South Konkan Region of Maharashtra An Economic Analysis , Department of Agricultural Economics, College of Agriculture, Dr. Balasaheb Sawant Konkan Krishi Vidyapeeth, Dapoli-415 712, Maharashtra Major advisor: Dr A.C. Deorukhakar This study on the marketing of mango in south Konkan region of Maharashtra is based on the information collected from 120 mango growers for the year 2011-12. On overall basis, the average production was found to be 26.34 q/ha and the average number of trees per hectare was 104. The per farm area of orchard was 1.56 ha and per farm average number of trees was 163, with average production of 36.8 quintals. At overall level, the total quantity of mangoes sold was 36.13 quintals, of which 6.95 per cent was sold on-farm and 4.76 per cent in the local market. The quantity sold in distant market was 88.29 per cent, of which 78.19 per cent was sold in the Mumbai market and remaining in the Pune and Kolhapur markets. The study has observed that mango is marketed through five channels: (I) Producer consumer (direct sale), (II) Producer wholesaler/commission agent retailer consumer, (III) Producer pre-harvest contractor wholesaler/commission agent retailer consumer, (IV) Producer co-operative society consumer, (V) Producer fruit merchant hawker consumer. The per quintal cost of marketing was highest in channel III (` 2116), followed by channel II (` 1906), channel IV (` 917), channel V (` 886) and channel I (` 358). The price spread of mango fruits showed that the producers share in consumers price was highest (95.0%) in channel I and lowest (31.8%) in channel III. The gross margin of commission agents and retailers in channel II was 8.75 per cent and 22.95 per cent, respectively. The gross margin of pre-harvest contractors in channel III was 36.48 per cent, whereas, the gross margin of co-operative society in channel IV was 15.49 per cent. The gross market margin has been found highest in channel III (68.2%), and minimum in channel I (5.0%). The marketing efficiency has been observed highest in channel I and lowest in channel III. For marketing of mango, channel I has been found to be most efficient, but most of the cultivators sell their produce through commission agents.

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R.D. Mhaske (2013): Economics of Production and Disposal of Turmeric in Sindhudurg District (M.S.), Department of Agricultural Economics, College of Agriculture, Dr. Balasaheb Sawant Konkan Krishi Vidyapeeth, Dapoli-415 712, Maharashtra Major advisor : Dr V.G. Naik The economics of production and disposal of turmeric has been studied with a sample of 100 cultivators drawn from Sawantwadi, Dodamarg, Kudal and Vaibhavwadi tahsils in Sindhudurg district of Maharashtra. The data pertained to the agricultural year 2011-2012. In input-use, the proportion was more of family labour days than of hired labour days in all size groups of turmeric farms. About 40 per cent of the total human labour (243 person-days) was used for harvesting, nursery bed preparation and sowing operations. The cost of cultivation of turmeric worked out to be ` 1,79,063/ha and net returns were ` 51,450/ ha. The benefit-cost ratio worked out to be 1.29. To estimate the contribution of explanatory variables on turmeric yield, Cobb-Douglas production function (log linear form) was fitted. The coefficients of determination (R2) indicated 84.7 per cent variation in turmeric production. The coefficients of seed, human labour, fertilizers and manures were statistically significant and the ratio of MVP to factor cost for seed, human labour, fertilizers and plant protection was less than one, indicating excess utilization of these resources. The per farm total production was 228.2 kg of which 29.8 per cent was retained for seed purpose and 70.2 per cent was available for disposal. The quantity of processed turmeric rhizomes was 78.3 kg, of which 96.3 per cent was sold, remaining 2.7 per cent was used for family consumption and 1.0 per cent was given to the relatives. The major constraints being faced by the turmeric cultivators were fluctuations in market price (62.0%), incidence of pests and diseases (39.0%), nonavailability of labour on time (32.0%), difficulties in securing seed of improved varieties (30.0%) and storage problems (20.0%).

V.V. Vibhute (2013): Economics of Production and Disposal of Kokum in South Konkan Region , Department of Agricultural Economics, College of Agriculture, Dr. Balasaheb Sawant Konkan Krishi Vidyapeeth, Dapoli-415 712, Maharashtra Major advisor: Dr S.S. Wadkar This study has been undertaken in the south Konkan region of Maharashtra with a sample of 120 kokum cultivars (40 having grafted origin kokum orchard and 80 having seed origin kokum orchards). The information was collected for the agricultural year 2011-12. The study has revealed that the growth rate in area and production of kokum has increased significantly over the period for both Ratnagiri and Sindhudurg districts. The cost of establishment of kokum orchard for the initial five years has been found to be higher (` 64038/ha) in grafted kokum orchard than in seed origin kokum orchard (` 32977/ha). The cost of production was also higher in grafted kokum orchard (` 37884/ha) than in seed origin kokum orchard (` 25572/ha). The per hectare kokum production was 60.8 quintals and 61.7 quintals in grafted and seed origin kokum orchards, respectively. The kokum cultivation has been found to be a profitable enterprise at all the levels of cost and in both types of kokum orchards. The benefit-cost ratio was 1.20 and 1.81 in grafted kokum orchards and seed origin kokum orchards, respectively. The cost of production has been found to be higher in grafted kokum orchard (` 623/q) than in seed origin kokum orchard (` 415/q). All financial feasibility tests in kokum plantation have been found positive for grafted as well as seed origin kokum orchards, indicating that kokum cultivation was an economically-feasible enterprise.

Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013 pp 303-304

Abstracts of Ph.D. Theses

(Ms) A.V. Nikam (2013): Economics of Oilseed Crops in Maharashtra, Department of Agricultural Economics, MPKV, Rahuri 413 722, Dist. Ahmednagar, Maharashtra Major Advisor: Dr B.V. Pagire This study has analyzed the past performance, present scenario and future prospects for oilseeds production in Maharashtra based on the districtwise time-series data for the period 1960-61 to 2009-10. The study has also projected supply-demand estimates of oilseeds in Maharashtra by 2019 and 2029. The study has revealed that the area under oilseeds in Maharashtra has increased from 17.56 lakh ha to 39.87 ha during this period. Across different regions of the state, area under oilseeds has increased in Marathwada and Vidarbha regions, and declined in Konkan and western Maharashtra regions. During this 50-year period, the production of total oilseeds in the state has increased by 305 per cent and productivity by 78.6 per cent. Among different oilseeds, the area under kharif groundnut, safflower and sunflower has decreased by 74.8 per cent, 39.7 per cent and 28.7 per cent, respectively, and increased under soybean by 5560.8 per cent. The production of kharif groundnut in the state has decreased by 52.3 per cent and of soybean, safflower and sunflower has increased by 102.5 per cent, 72.6 per cent and 9.7 per cent, respectively. In the state, for the entire period, the area and production of soybean have increased significantly at the rate of 31 per cent and 33 per cent per annum, respectively, while the productivity has shown a growth rate of 1.73 per cent per annum. The growth rate of area, production and productivity of total oilseeds were 1.7, 3.8 and 2.0, respectively for the entire period. The growth rates of area, production and productivity of total oilseeds were positive but non-significant for the pre-TMO period, and were positive and significant for the postTMO period. The estimated supply of oilseeds in Maharashtra would be 50.2 lakh tonnes by 2019 and 56.8 lakh tonnes during 2029 by taking the productivity constant; it would be 61.3 lakh tonnes and 82.9 lakh tonnes by 2019 and 2029, respectively on considering the productivity growth to be 2.0 per cent per annum. As against this, the demand for oilseeds would be 28.229.5 lakh tonnes for rural population and 49.8 to 52.0 lakh tonnes for urban population by 2019 under different situations. The gaps in availability and demand for oilseeds in Maharashtra would be in the range of 28.2-30.8 lakh tonnes by 2019 and 110.1-122.6 lakh tonnes by 2029 assuming the constant productivity. By assuming increasing productivity @ 2.0 per cent per annum, the gaps in availability and demand for oilseeds would be in the range 17.2-19.7 lakh tonnes by 2019 and 83.9-96.4 lakh tonnes by 2029. Therefore, efforts need to be made to increase the area under oilseeds by making irrigation available and increasing its potential. A positive price policy is required to increase the area and/or to bring improvement in productivity. The supply-demand gap for oilseeds can be bridged by increasing the adoption of improved technology through strengthening of the TMO. Huma Sehar (2013): Productivity and Sustainability Measurements of Cropping System in Jammu, Department of Agricultural Economics, Sher-eKashmir University of Agricultural Sciences and Technology Jammu Major Advisor: Dr Jyoti Kachroo This study has been carried out on the basis secondary data on area, production and productivity of various crops grown in the Jammu region. The data for calculating total factor productivity and sustainability were collected from various annual reports of Farming System Research Centre (FSRC), SKUAST-J and for estimating supply response were collected from various organizations and departments. The study has revealed a significant increase in area irrigated by wells, from 2.35 per cent in 1981 to 6.16 per cent in 2010; however, area irrigated by canals has been found to be highest (84.16%). In the Jammu region, rice, maize and wheat crops had together occupied more than 80 per cent of the gross cropped area during the past three decades. The results of expansion effect have shown that the area had expanded to its limit and there exists the substitution effect now


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which ultimately leads to crop diversification. Yield instability was the major source of variability which increased in rice, maize and wheat and decreased in pulses over the years. For the entire study period (1986-87 to 2010-11), the OLS and MLE coefficients for human labour, seeds, phosphorus, irrigation and miscellaneous charges have been found positive, and for herbicide, urea, FYM and machine labour have been found negative. The estimated yield gap I has been recorded to be 26.19 per cent and 26.47 per cent for rice and wheat, respectively. The total yield gap has been recorded to be 66.12 per cent in rice and 57.42 per cent in wheat.

The supply elasticity with respect to own price elasticity for rice has been found to be 0.070 in shortrun and 0.065 in long-run, while in the case of wheat, the elasticities were 0.311 and 0.846 in the short-run and long-run, respectively. The estimated own price elasticity of maize has been found as -0.426 in the shortrun and -0.385 in long-run. The study has concluded that substitution effect is higher than expansion effect. The total factor productivity has been found to be less than one for most of the period. The own price elasticity has been found positive for all the crops studied, except for maize.

Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013 pp 305-306

Book Review
Agricultural Growth and Productivity in Maharashtra Trends and Determinants, by S.S. Kalamkar, Allied Publishers Pvt Ltd, New Delhi. 2011, pp. 218 + xviii. ISBN: 978-81-8424-692-6, Price ` 500/Agricultural growth plays an important role in achieving national goals which include providing food and nutritional security, reducing rural poverty, supplying raw materials to major industries and earning foreign exchange, among others. A number of analysts have examined the trends in agricultural productivity and the determinants of stagnation in productivity of important crops. The book under review mainly covers district-wise growth and stagnation in production of important crops in the state of Maharashtra. It analyses the regional variations in Maharashtra at district level, identifies the determinants of these variations and suggests appropriate interventions to address the problem of stagnation. The book is organised under six chapters. ChapterI introduces the topic and analyses the growth in area, production and productivity of major crops/crop groups in India and Maharashtras contribution thereto. The recent developments in agriculture of Maharashtra are discussed in Chapter-II. Chapter-III covers the measurement of growth and stagnation in crop productivity, while Chapter-IV analyses the trends and patterns in production and productivity in Maharashtra at the district level. The determinants of productivity stagnation of major agricultural crops in Maharashtra are discussed in Chapter-V. Finally, Chapter-VI summarises the findings and draws conclusions for policy advocacy. The book is mainly based on the secondary data collected for the period 1960-61 to 2004-05 from various published sources, mainly from Maharashtra. The book first provides an overview of the recent agricultural developments in Maharashtra. Though performance of agriculture has improved during the past fifty years, its progress has not been sustained and shows wide fluctuations. The recent suicides of farmers in the Vidarbha and Marathwada regions have once again highlighted the regional disparity in agricultural development in Maharashtra. Due to low irrigation facilities (hardly 18%), not only low-value crops are being cultivated predominantly in the state, but the productivity of most of the crops is also very low compared to the national average. The cropping pattern in Maharashtra has though shown a shifting trend in favour of high-value crops in recent years, this shift is not impressive vis-a-vis at the national level. For instance, in 2004-05 coarse cereals which accounted for only about 15 per cent of the gross cropped area (GCA) at all-India level, accounted for over 30 per cent of GCA in Maharashtra, which ranks first in area and production of coarse cereals, mainly jowar and bajra. Similarly, the share of area under pulses in GCA has declined to about 1.31 per cent at all-India level in 2004-05, but the same has increased by 2.31 per cent in Maharashtra, which is the second largest producer of pulses after Madhya Pradesh, wherein tur and gram are two important pulse crops grown in most of the districts in the state. Area under oilseeds, especially soybean and cotton is also higher in Maharashtra (a total of 17.98% of GCA in 2004-05) as compared to all-India average (15.41%). Apart from these crops, sugarcane is another important crop of the state, which accounted for 22 per cent of the total national production in 2006-07, but the productivity has remained almost constant during the past few years, due to sugarcane mono-cropping, which has even deteriorated the soil fertility. Strict rules need to be enacted to discourage the cultivation of sugarcane under flood irrigation method by introducing volumetric pricing for canal water, at least in the areas where productivity is declining.


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One of the significant changes that have taken place in the cropping pattern of Maharashtra recently is the development of horticultural crops. Area under fruit and vegetable crops has increased by about 6-times over the past 40 years. The major factors limiting the growth of horticultural sector in Maharashtra have been limited crop diversification in non-traditional areas, deceleration in area and productivity of certain crops and poor post harvesting infrastructural facilities. As future growth of agriculture in the state is heavily dependent on the performance of horticultural sector, it is essential to examine the growth rate of certain horticultural crops. Introduction of drought-resistant HYVs, promoting balanced use of fertilizers and welldesigned location-specific policies or programmes like watershed development can help increase the productivity of crops appreciably. The book further elaborates on the rate and growth of agricultural inputs. The pattern of land use has been fairly stable at the state level since 1961, with marginal downward change in the share of forest area or increase in the proportion of land under non-agricultural use. Further, there has been a decrease in the irrigation intensity of the state due to low space growth in gross irrigated area as compared to the net irrigated area. The area under HYVs in the state has declined in few districts. The district-wise growth rate of credit disbursement by PACS has indicated a significant increase in credit disbursement to agriculture and allied sector in all the districts of the state. Along with this, the state has recorded an increase in the number of plant protection equipments and tractors. The key driver of economy, viz. annual growth rate of electricity-use in agriculture, has shown that despite limited availability, consumption of electricity for agriculture in the state has significantly increased. The use of one of the important yield-increasing inputs, namely fertilizer, is considerably lower in Maharashtra

than all-Indian average. Poor irrigation facilities coupled with cultivation of low value crops are the main reasons for low use of fertilizers. The book reveals based on the total factor productivity (TFP) growth rate analysis that the number of regulated markets and annual rainfall are the most important sources of growth of agriculture in Maharashtra. The effect of research, literacy and rainfall in TFP has been found negative. Therefore, there is a need to target public investment in the research field. The significant deceleration in TFP growth during the later period in respect of major crops has serious implications for the agricultural development. This food-deficit state may witness a further decline in food production. Therefore, there is an urgent need to increase TFP growth in the major crops to make their cultivation profitable and to increase crop diversification and optimal use of land and other resources. The main strength of this book is the extensive data collected by the author and other contributors for various crops grown in different districts of Maharashtra. The book has adequately focussed on various critical issues concerning agricultural growth in Maharashtra, which provide many policy implications that need to be taken up by the Government of Maharashtra to maintain sustainable growth in production. The findings and policy implications of the study are expected to be useful to the policymakers for formulating region-specific policies focussing on agricultural development in Maharashtra. The book provides an interesting reading for students, research managers and developmental agencies. Prof. V.R. Kiresur Department of Agricultural Economics University of Agricultural Sciences Dharwad, Karnataka

Agricultural Economics Research Review Vol. 26 (No.2) July-December 2013 pp 307-308

Agricultural Economics Research Review

Guidelines for Submission of Papers/Abstracts
1. The journal publishes research articles, review articles, research notes and communications in basic and applied research on economic aspects of agriculture and rural development. Comprehensive review articles in the area of agricultural economics (including livestock, horticulture and fisheries), conference/symposia proceedings and book reviews are also published in the Journal. To encourage the young researchers, recent abstracts of M.Sc. and Ph.D. theses in agricultural economics are also published. The journal is managed by the eminent economists under the domain of Agricultural Economics Research Association (India). The authors submitting papers to Agricultural Economics Research Review should be members of this Association. Two copies of manuscript typed in double space should be sent to The Managing Editor Agricultural Economics Research Review F-4, A Block National Agricultural Science Centre Complex Dev Prakash Shastri Marg Pusa, New Delhi - 110 012 and a soft copy to aeraindia@gmail.com simultaneously. All articles must include an abstract in about 100-150 words. 4. Authors should include the complete source of research article, like project, along with sponsor, M.Sc./Ph.D. thesis, etc. They should mention the title of the Project/Thesis also. The length of papers should not be more than 20 (double space) typed pages, including tables, diagrams and appendices. Abstracts of recent M.Sc. theses should not exceed one typed page and those of Ph.D. theses, two typed pages. The authors must mention at the top of the abstracts the degree for which the thesis was submitted and the year of award, like M.Sc. (2008), Ph.D. (2008). The name of major advisor should also be included. 7. Name(s) and affiliation(s) of the author(s) with email address(es) should be provided on a separate page along with the title of the article. Only essential mathematical notations may be used. All statistical formulae should be neatly typed. Footnotes should be numbered consecutively in plain arabic superscripts. References: Only cited works should be included in reference list. The citation of references should be in the following order: author(s) name(s); year; title of article; name of journal; volume; number; and pages. Please follow the style of citations as in the latest issue of this journal. Papers not submitted in the standard format, as suggested above will not be considered for publication. The reference list should be alphabetized and not numbered. To avoid ambiguity, the title of journal should be given in full. The following examples, as typical enteries, provide guidance for enteries in the reference list. Research Paper: Rosegrant, M.W. and Pingali, P.I. (1994) Policy and technology for rice productivity growth in Asia. Journal of International Development, 6(6): 6656-88. Book: Rosegrant, M.W. and Hazell, P.B.R. (2000) Transforming Asian Economy: The Unfinished Revolution. Oxford University Press, Hong Kong. Chapter in a Book or Paper in a published proceedings: Kumar, P. (2001) Agricultural performance and productivity. In: Indian Agricultural Policy at the Crosswords, Eds: S.S. Acharya and D.P. Chaudhri. Rawat Publication, New Delhi, pp. 353-476.








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Paper in a Conference/Symposium: Kapoor, B.C. (2000) Managing in the face of not-sodeveloped and organized environment. In: Proceedings of National Symposium on Management and Development, held at Institute of Public Administration, Jaipur, 23-25 July. Thesis: Behera, Sumanta (2004) Impact of Technological Change and Economics of Cocoon Production in Mandya District of Andhra Pradesh, MSc (Seri Technol) Thesis, submitted to University of Mysore. Units: Use SI units; a few examples are given below: Hectare Rupees Litre Millilitre Gram Kilogram ha ` L mL g kg Milligram Million hectares Tonne Million tonnes Metre Centimetre mg Mha t Mt m cm

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Address for correspondence: Secretary/Treasurer Agricultural Economics Research Association F-4, A Block National Agricultural Science Centre Complex Dev Prakash Shastri Marg, Pusa New Delhi - 110 012 Email: aeraindia@gmail.com Webpage: www.aeraindia.in Correspondence may preferably be done through E-mail.


President : Dr. P.G. Chengappa, National Professor, Institute for Social and Economic Change, Bangalore 560 072 (Karnataka)

Conference President : Dr. V.P.S. Arora, Vice Chancellor, Supertech University, Rudrapur (Uttarakhand) (2013) Vice Presidents : Dr. K.C. Hiremath, Former Professor, UAS, Dharwad, XI Cross Road, Nirmal Nagar, Dharwad 580 003 (Karnataka) Dr. P. Kumar, Former Professor, Division of Agricultural Economics, Indian Agricultural Research Institute, New Delhi 110 012 Secretary : Dr. Suresh Pal, Head, Division of Agricultural Economics, Indian Agricultural Research Institute, New Delhi 110 012 : Dr. V.C. Mathur, Professor, Division of Agricultural Economics, Indian Agricultural Research Institute, New Delhi 110 012 : Dr. Anjani Kumar, Principal Scientist, National Centre for Agricultural Economics and Policy Research, Pusa, New Delhi 110 012 Dr. M.H. Wani, Divison of Agricultural Economics and Marketing, Sher-e-Kashmir University of Agricultural Science and Technology-K, Shalimar Campus, Srinagar 191 121 (Jammu & Kashmir) Members : Dr. Anil Kumar Dixit, Senior Scientist (Agricultural Economics), Central Institute of Post Harvest Engineering & Technology, Ludhiana 141 004 (Punjab) Dr. (Ms) Nikita Gopal, Scientist, Central Institute of Fisheries Technology, P.O. Matsyapuri, Cochin 682 029 (Kerala) Dr. Manjeet Kaur, Farm Economist, Department of Economics and Sociology, Punjab Agricultural University, Ludhiana 141 004 (Punjab) Dr. V.R. Kiresur, Professor of Agricultural Economics, Department of Agricultural Economics, University of Agricultural Sciences, Dharwad 580 005 (Karnataka) Dr. Naveen P. Singh, Principal Scientist, National Institute of Abiotic Stress Management, Baramati 413 115 (Maharashtra) Dr. R.K.P. Singh, Former Professor, RAU, 101/A, Shivam Heritage, Ashiana Road, Patna 800 001 (Bihar) Dr. Smita Sirohi, Principal Scientist (Dairy Econ.), National Dairy Research Institute, Karnal 132 001 (Haryana) Dr. K.C. Talukdar, Professor, Department of Agricultural Economics, Assam Agricultural University, Jorhat 785 013 (Assam)


Joint Secretaries

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Agricultural Economics Research Association (India)

About the Association

Agricultural Economics Research Association (India), a registered society which came into being in 1987, has on date more than 745 life members, 110 ordinary members, more than 115 institutional members and 25 honorary life members from India and abroad. The mandate of the Association is to promote the study of agricultural economics in particular and socio-economic problems in general. The Association has been regularly publishing a six-monthly research Journal Agricultural Economics Research Review since 1988. Besides refereed research articles, comprehensive review articles in the area of agricultural economics (including horticulture and fisheries), conference/symposia proceedings and book reviews are also published in the Journal. To encourage the young researchers, abstracts of M.Sc. and Ph.D. theses in agricultural economics are also published in the Journal. The Association has been successfully organizing national conferences regularly on topical policy issues, the proceedings of which have been published. The Association undertakes sponsored research studies. Over the years, the Association has attained a wide visibility and professional credibility. The official journal of the Association, namely, Agricultural Economics Research Review has been highly rated by National Academy of Agricultural Science, New Delhi.

Address for Correspondence: Secretary Agricultural Economics Research Association (India) F-4, A Block, National Agricultural Science Centre (NASC) Complex Dev Prakash Shastri Marg, Pusa New Delhi 110 012, India

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