Friday, August 31

Punjab needs new plough to regain leadership

Punjab needs to make changes to regain its leadership role in agriculture, but is it ready to do so, ask Ashok Gulati, Ralph W Cummings Jr & Kavery Ganguly in The Economic Times, as they offer some suggestions to policymakers
Punjab’s agricultural success, dominated by wheat and rice, seems to have slowed down since the early 1990s. The sources of growth — land and yields — are reaching capacity. Wheat and rice cover over three-quarters of cropped area. Cities are expanding. Further land for agriculture is exhausted. Rice yield has almost stagnated, increasing only 0.02% annually during the 1990s, but has had some recovery since then, and wheat yield has slowed down significantly, declining from 3% annual gain in the 1980s to 2% in the 1990s, and has been negative in the early 2000s. Future income gains are likely to be confined to increases in prices. But consumption patterns are shifting away from wheat and rice. And the future is even less promising because Punjab is experiencing increasing stress on natural resources, which will further impact yields and constrain acreage. The potential answer for income augmentation is diversification — dairy, poultry, eggs, fruits and vegetables, and traditional commodities such as cotton, sugarcane, maize for feed, fodder, durum wheat, organic and basmati rice, selected pulses and their processing. Demand is robust, and economics favourable. However, farmers with relatively small quantities and limited markets face major problems, including high price and production risks, high transactions costs and high perishability in some of these. New institutional arrangements, including contract farming, co-operatives, producers’ companies and retailing are responding to those challenges. If these prosper, three things will follow: The India food chain will be radically changed, operating on a nationwide distribution infrastructure and transforming the way India shops and consumes. The huge amount of retail investment by major businesses will practically guarantee success if supplies can be obtained. There will be a rush to tie up producers to provide the supplies. However, as of now, trust between farmers and corporate companies is weak. The key challenge is who — agribusiness or farmers or both — will take the first step? But two major impediments stand in the way. First, the government has an open-ended public foodgrain management system, which is saddled with large subsidies. This, however, provides an assured market for wheat and rice and thus takes away most of the incentives for investing in infrastructure that would be more suitable to support high-value agriculture. This needs to change.
The government needs to decouple support price from procurement price, allow private sector to procure, trade and stock without any restrictions, including operations in futures markets. Second, subsidies on fertiliser, irrigation and power which arguably initially motivated farmers, especially small farmers, to adopt new technologies of wheat and rice and improve their yields have now turned perverse. These subsidies are now leading to highly unbalanced use of fertilisers, lowering water table and creating a crisis in the sustainable use of natural resources. This must change by undertaking a major exercise towards their rationalisation. A high degree of political commitment and long-term vision of Punjab is needed. Rationalisation of power and irrigation subsidies must accompany improvement in their quality of services, else it would be a non-starter. Similarly, fertiliser subsidy can be given directly to farmers through fertiliser coupons rather than through fertiliser industry. With money saved from reforming public foodgrain management and input subsidies, the government can do certain key things: Facilitate strengthening of private participation and marketing through freeing up of land lease markets, reforming the Agricultural Produce Marketing Committees (APMC) Act and abolishing the Essential Commodities Act. Improve environment in which high-value commodities can operate by investing in (roads and dedicated market yards) and providing incentives to the private sector to modernise infrastructure and institutions (risk mitigation strategies, insurance markets, storage infrastructure) to handle the special marketing and processing needs of high-value commodities (like cold storage, SPS, etc). Strengthen agricultural research on high-value commodities Looking twenty years to the future, we envision a very different Punjab agriculture than we see today — Punjab agriculture devoted 60% to high-value commodities and a broader mix of traditional commodities and 40% to wheat and rice; strong agricultural research at the Punjab Agricultural University (PAU) on HVCs; modern processing plants located throughout the state; bakery hubs around major mandis; processing and retailing institutions such as business-oriented co-operatives, contract farming and supermarkets linked to farmers; and fast-moving infrastructure, including cold storage chains, improved highways/rail lines and an international airport. Punjab is clearly at the crossroads. All incentives are stacked in favour of wheat and rice. The situation is not yet at a crisis. Incomes are stagnating in the near-term. However, in the longer term, changing demand and deteriorating environment will lead to progressively decreasing incomes. Can Punjab make the needed changes to regain its leadership role in agriculture?
(Gulati is director in Asia; Cummings is a freelance consultant; and Ganguly is a research analyst at International Food Policy Research Institute)

No comments: