By Lakshman Krishnamurthi And Sugandha Khandelwal

    Tauseef Mustaf/Agence France-Presse/Getty Images
    Every effort should be made to shift employment towards higher value-added components like horticulture, animal husbandry, and fisheries that account for more than 50% of the value of the agricultural sector.

    What steps need to be taken to make a major and lasting impact in the nation’s agricultural outlook?

    First, farm education is needed to encourage the formation of cooperatives that realize economies of scale, to teach more efficient and effective cultivation practices, and to learn better water management. Second, as Prime Minister Manmohan Singh stated recently, significantly higher investment is needed in agricultural research and development to improve yields from farm crops to cash crops to horticulture to animal husbandry to fisheries.

    Indian farming has a complex and tortuous history of exploitation of farm labor and small farmers. So there is a myriad of laws to provide protection for the marginalized. But the laws need to adjust to a new reality.

    Tenancy laws that are in place to protect small and marginal farmers also work against them. Laws inhibit corporate ownership and integration of all aspects of the supply chain. An open and legally enforced lease market will encourage medium and large farmers to lease land from small farmers who might find more remunerative employment elsewhere. It could also encourage small farmers to lease land from large farmers to achieve some level of minimum scale to improve productivity.  Enforceable but not stifling safeguards are needed to unleash entrepreneurial capitalism to turbo-charge farm economics.

    The entire distribution system has to be reformed. Inefficiencies result in low producer prices but high retail prices. Improvements in purchasing, logistics and storage, as well as more efficient agricultural marketing, should lead to higher producer prices and lower retail prices, which should lead to increased supply and increased demand. This, in turn, is expected to reduce producer prices but the higher volumes should lead to higher incomes for farmers.

    As many farmers of produce are small scale, they have little leverage in price negotiations with agents. The only way to change this is to allow private sector involvement and/or the formation of farmer cooperatives which aggregate supply. The 2003 revision of the APMC act took steps in this direction but implementation has been spotty. There are also levies on the movement of goods across states, which cause significant price distortion. A unified national market is an urgent priority.

    We have only addressed the food grain component of agriculture. The higher value-added components are horticulture, animal husbandry, and fisheries. Every effort should be made to shift employment towards these components. These three components already account for more than 50% of the value of the agricultural sector.  For example, chicken farming has grown tremendously. But infrastructure hurdles are even higher for these components as the product is perishable.

    The good news is that the share of investment in agriculture as a percent of gross domestic product has increased in the last five years compared to the previous five years.  Although the share of public sector investment has increased, which is not necessarily positive because much of it is spent on subsidies, private sector investment is playing an important role as well. This is particularly the case in new seed technology both in crops and in horticulture, which is important to increase yield.

    Will the education and agricultural marketing improvements make a significant impact on the poorer, agriculture-dependent population?

    It should but the reality is that there are simply too many people working the land inefficiently.  The proportion of the work force of some 478 million is approximately split 52%, 14%, and 34% in agriculture, industry and service sectors in India, compared to 38%, 28%, and 34% respectively of a workforce of 780 million in China.

    Even though the absolute number of Chinese agricultural employment is higher, the proportion employed in agriculture in India is too high. As discussed earlier, crop yield rates show that production is inefficient. This is not because of lack of labor. As a country gets wealthier, the progression is to shift employment from agriculture to industry to services.

    The proportion employed in agriculture has decreased over time, but not fast enough. India’s rural population, most of whom work in agriculture, averaged 79% of the total population in the decade of 1970-79 and 71% in the decade of 2000-2009, so a decline of 8 percentage points.

    But India’s total population increased dramatically over this 40-year period.  As a result, the average rural population, which was 479 million in 1970-79, grew to an average of 775 million in the decade of 2000-2009, which is an increase of 62%.

    For the same time periods, the average Chinese rural population as a proportion of the total population registered a much greater decrease from 82% to 60%.  In addition, China’s population grew much more slowly than India’s, so the average Chinese rural population only grew by 5.3% over these two time periods.

    Unfortunately, most farm workers in India do not have the skills to work in factories. The only solution to this problem is vocational, skill-based education starting after elementary school. Farming families need to believe that such education will lead to better futures for their children.  This shift in employment could take a decade to bear fruit but will rebalance the economy by improving the productivity of both the industrial and agriculture sectors.

    At present, the overwhelming majority of famers earn very little. The improvement in yield of food grains will free up land for cultivation of higher-value crops which will bring greater remuneration to farmers. There is scope for such improvement. If China can improve crop yields so significantly, why can’t India?

    Intelligent land, water and crop management policies at a national level, not just by individual states, are needed to reach the goal of 4% growth in agricultural GDP. India’s future depends on it.

    Lakshman Krishnamurthi is professor of marketing at the Kellogg School at Northwestern University; Sugandha Khandelwal is a former research associate at the Kellogg School.

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