Agricultural Diversification in

India: Regional Analysis

P. Parthasarathy Rao Dharmendra Kar
Workshop cum Training on Agriculture and Rural Indebtedness Jointly sponsored by the Project for economic Education, Press Institute of India and the Indian Liberal Group Oct 30, 2005 - New Delhi

Diversification of agriculture:Schematic
D i v e r s i f i c a t i o n
1 4

High diversification low per capita income.

SUBSISTENCE agriculture; low and erratic rainfall, poor infrastructure, low irrigation, low population density. RISK MITIGATION Strategy (Rajasthan, MP)
2

High diversification- high per capita income:

Commercial oriented diversification: need to sustain diversification through technology, vertical integration and value addition (Maharashtra, AP, Karnataka)
3

Low diversification - low per capita income.

Agro-climatically better endowed region, Lack of infrastructure, low irrigation, poor adoption of improved technology Need to promote diversification through technology, and infrastructure development. (Orissa and Bihar)

Low diversification - high per capita income.

SPECIALISED AGRICULTURE: high level irrigation, inputs, mechanization, low income risk no concern for sustainability, labor problems, low relative profitability of substitute enterprises (Punjab and Haryana)

Resource endowments

Facets of Agricultural Diversification

Macro level

Shift from farm to non-farm activities Shift to high value commodities/enterprises Use of resources in diverse and complementary activities
Micro level

To meet household food security Minimizing production and marketing risks Generating additional income

Definition of Diversification for this study

Diversification towards High Value Commodities (HVCs) HVCs for this study include: Fruits, Vegetables, Milk and Meat

Objectives:
Spatial sub-division of districts based on diversification towards HVCs Nature and speed of diversification Role of urbanization determining nature and speed of diversification Andhra Pradesh: Case study Implications for policy and regional planning

Determinants of diversification
Supply side factors
Technology Infrastructure

Demand side factors

Population growth Income growth

Market linkages
Resource endowments

Urbanization
Change in taste and preferences

Socio-economic factors

Export potential

Agricultural diversification (High Value Commodities)

Relative importance by level of diversification: 1998

Level of Diversification Selected indicators High Medium Low

No. of Districts
No. of districts (%)

56
18.1

167
54.0

86
27.8

Share in NCA (%) Share in VOP (%) Share in population (%)

Share in urban population (%)

11.3 14.0 19.7

24.9

53.0 57.9 60.3

54.1

35.6 28.1 20.0

20.9

Selected indicators by level of diversification: 1998

Indicators Population density Urban population (%) Literate rural female (%) Land size (ha) Small land holders (%) Irrigated (%) Normal rainfall (mm) Area under HYV (%) Fertilizer (kg/ha) Tractor density (per 000 ha) Market density (No./10,000 sq km geog) Road density (Km/100 sq km geog area) Value of HVC per district (Rs million) Level of diversification High Medium Low 426 31.5 41.9 0.9 88.3 29.1 1660 27.7 98.1 4.4 27.1 0.7 1370 370 22.3 29.4 1.5 80.3 40.7 1195 43.8 88.4 9.6 22.0 0.5 1099 227 26.0 25.4 2.6 60.6 35.7 952 26.7 62.4 8.8 21.6 0.4 568

Nature of diversification: 1998

90.00 80.00 70.00
Share (%)

60.00 50.00 40.00 30.00 20.00 10.00 0.00 High Medium Total livestock Low High value commodities

Crops

Fr&veg

Diversification and Urbanisation

Diversification and urbanisation

Relative importance of urban and other district groups: 1998

Urban Urban surrounded Others

No. of Districts No. of districts (%)

Share in NCA (%) Share in VOP (%)

31 10.0
10.3 14.6

91 29.4
31.4 33.0

187 60.5
58.3 52.5

Share in population (%)

Share in urban population (%)

20.1
41.2

30.2
21.7

49.7
37.2

Selected indicators of urban and other districts: 1998

Level of diversification Indicators
Population density Urban population (%) Literate rural female (%) Land size (ha)

Urban

Urban Others surrounded 725 350.3 278.6 55.9 19.6 20.4 45.4 30.7 27.4
1.4 1.6 1.8

Small land holders (%)

Irrigated (%) Normal rainfall (mm) Area under HYV (%) Fertilizer (kg/ha) Tractor density (per 000 ha) Market density (No./10,000 sq km geog)

80.9
46.2 1253 37.5 110.7 11.5 30.0

75.8
40.0 1162 37.7 83.1 8.7 24.9

75.0
36.2 1229 36.4 73.2 8.3 18.6

Road density (Km/100 sq km geog area)

Value of HVC per district (Rs million)

0.7
1813

0.6
1148

0.4
794

Nature of diversification by district groups: 1998

80.00 70.00 60.00

Share (%)

50.00 40.00 30.00 20.00 10.00 0.00 Urban Crops Fr&veg Urban surrounding Total livestock Others

High value commodities

Sources of diversification by district groups: 1982-98 (1982 prices)

60.00 50.00 40.00 30.00 20.00 10.00 0.00 Urban Fr&veg Urban surrounding Others

Share (%)

Total livestock

High value commodities

Nature of diversification in urban surrounded district groups and highway passes

Items

No. of districts Share in agricultural value (%) Fruits Vegetables Bovine milk Meat Poultry, pig meat and eggs Total HVC's

No. of National Highway passes Two highways Zero One and above (0.39) (0.57) (0.82) 1982 1998 1982 1998 1982 1998 25 45 23 4.42 6.93 13.35 0.87 1.19 26.8 4.93 6.06 14.81 1.19 1.45 28.4 10.30 11.24 8.68 7.40 11.94 14.14 1.34 1.96 1.60 2.86 33.9 37.6 6.92 5.66 14.28 1.59 2.31 30.8 9.91 6.31 16.94 1.54 3.07 37.8

Spatial Analysis: HVCs

Area under fruits

(% NCA) (000s ha)

Area under vegetables

(000s ha) (% NCA)

Share of livestock value to total agricultural value: 1998

Milk Meat

Concluding remarks
HVCs account for > 50 % of agricultural production in 56 districts and < 25 % in 86 districts Milk and poultry meat had the fastest growth rate among HVCs Urbanisation has a significant influence on diversification towards HVCs , particularly poultry meat and fruits Other factors: road density, small farms, improved technology, fodder availability and rainfall positively influenced diversification Tractor density, HYV area and irrigation negatively influenced diversification

Andhra Pradesh: Case study

Andhra Pradesh farming sector: Facets of the crisis

Yield stagnation in traditional crops Food self-sufficiency achieved Accounts for 35% of rice procurement in India Relentless pressure on natural resources Declining water tables Unsustainable rice cropping Excessive use of inputs Fertilizers, pesticides, water, electricity Newer pressures from trade liberalization Prices, quality, sanitary and phytosanitary (SPS) measures Rising rural unemployment

Decline in rural per capita incomes

Inadequate access to formal credit Poor rural and marketing infrastructure Profound disquiet in rural areas AP has dubious distinction of highest farmer suicides High levels of out-migration to urban areas Highest incidence of child labor

Annual compound growth rates of agriculture sub-sectors and GDP, Andhra Pradesh (1993-94 prices)

Diets trending away from basic cereals

Food item Total cereals Milk & milk products Meat, egg & fish Vegetable & fruits Food total

NSS Round Expenditure Shares 1983 49.8 7.5 7.6 8.4 100 1987-88 41.8 8.4 7.3 10.9 100 1993-94 41.2 8.9 7.6 11.2 100 1999-00 40.7 10.0 7.5 11.6 100

Composition of the value of agricultural production by level of diversification; Andhra Pradesh, 1999-2001 (1980-82 prices)

Commodities

HVCs based diversification zones High Medium Low Total (Zone 1) (Zone 2) (Zone 3) (All zones) (% to total value) 16.0
1

Paddy Commercial crops Total crops Fruits Vegetables Total livestock High value commodities

38.2 16.8 62.5 14.7 1.2 21.6 37.5

25.0 33.5 73.4 3.5 2.2 20.9 26.6

27.8 24.8 63.6 10.7 2.0 23.7 36.4

23.5 49.4 16.0 2.9 31.6 50.6

1: Commercial crops include oilseeds, sugarcane, cotton, chillies, turmeric and tobacco.

Districtwise HVC share in total value: Andhra Pradesh,

Change in share, 1982 to 2001

Distribution by HVC share

Selected indicators by level of diversification; Andhra Pradesh, 2001.

Indicators
Population density (No./KM2) Urban population (%) No. of small land holders (%) Irrigated area (% to GCA)

High Medium Low (Zone 1) (Zone 2) (Zone 3)

319 37 82 34 291 22 84 59 236 22 78 36

Feed availability (t/livestock unit)

Rainfall (mm)

1.3
793

2.0
1031

1.6
847

Income from HVCs - Kurnool, AP: 2002-03 (household survey)

Irrigated

Rainfed

Employment effects of HVCs, AP, 2002-03 household survey (average)

HVCs: Challenging policy terrain

Marketing
Domestic Export

Processing Contract farming

Case study: Gherkins

Credit Infrastructure

Share of food processing industry by type: Andhra Pradesh

Share in total enterprises 1999-00 1.8 1.0 0.6 66.7 2.4 8.4 Growth rate 1991-92 to 1999-00 4.91* 0.58 3.91 1.43* 4.27* 5.1*

Item Manufacture of dairy products Canning and preservation of fruits Processing, canning and preserving of fish, crustaceans and similar foods Grain milling Manufacture of bakery products Processing of edible nuts

Source: Mahendra Dev and Chandrashekar Rao, 2005

Contract farming: a new frontier

Company Sical, Godrej, Palmtech Mark fed. Cadburys India Ltd BHC Agro Global Green, Capricorn Foods Ltd., A.V.Thomas Co. Dabur India Exim Foods Pvt. Ltd. Venkateshwara Hatcheries Crop Oil palm Area (ha) 38000 District Covered East & West Godavari

Cocoa Vegetables Gherkins

8500 417 3333

East & West Godavari Chittoor AEZ-Gherkins Districts

Marigold Amla (Indian Gooseberry) Baby corn Broiler birds

208 417

Ananthapur Across State

208 50-75 farms

Around Hyderabad Around Hyderabad

Source. A.P Horticulture Department.

Agri-Export Zones (AEZ) in Andhra Pradesh

S.no 1 2 Name of AEZ AEZ Vijayawada AEZ Hyderabad Districts covered Krishna Ranga Reddy, Mahabubnagar and Medak Ranga Reddy, Mahabubnagar, Medak, Karimnagar, Warangal, Nalgonda and Ananthapur. Chittoor Guntur Fruits / Products Mangoes Grapes and Mangoes Total estimated cost (crore Rs.) 18

57

AEZ Gherkins

Gherkins 20

4 5

AEZ Chittoor AEZ Chillies

Mango pulp and vegetables Chillies

11

Source: A.P Horticulture Department.

Distribution of priority sector credit Andhra Pradesh 2003-04

Priority sector

Crop sector

Distribution of credit by diversification zones, Andhra Pradesh, 2003-04

Pro-HVC policy interventions

Pricing water Building efficient marketing networks
Implement Model Marketing Act Dismantling government monopoly

Emphasizing vertical integration thru contract farming

Increase enforceability
Harness private sector innovations in food processing and marketing Adding value thru processing Simplify procedures for setting up food processing industries Enhancing access to formal credit Expand crop/rainfall insurance schemes Enabling public-private partnerships Extension

Increasing investments in infrastructure

Roads, cold storage, bulk coolers

Foster improved linkages between

rural-urban markets