Thursday, 21 June 2012

COMPARATIVE STUDY OF AGRICULTURE IN INDIA, CHINA AND US


                                                                                       -Dr.S.VijayKumar
                                                                                                              
                Indian agriculture is labour intensive, mostly subsistence farming, nearly 60% of its population is dependent on farming and most farms are rainfed. On the other hand, American farming is capital intensive, mostly commercial farming less than 3% of its population is dependent on farming and most farms are irrigated. Both countries give subsidies to their farmers but, US subsidies are more than Indias, hence the Doha round dipute. For a number of obvious reasons the pace and pattern of recent economic development in China and India invite a systematic comparison. It is always interesting to measure and compare the progress of these two great neighbours, comprising a large fraction of the world's poorest people, both having recently launched massive programmes of expansion and development after centuries of foreign domination, chaos and stagnation. Over and above that, the significant differences in the institutions and policies, the two countries have chosen to adopt for attaining broadly similar economic goals. This is particularly true with respect to agriculture. Although, in both countries the major emphasis is on rapid industrialization because of the predominantly agrarian nature of the economies, the agricultural sector provides the basic foundation for industrial expansion with supplies of food, raw materials, and labour, with markets for industrial goods and with foreign exchange earned through exports of primary products. In both countries the pace of industrial advance is severely constrained by the vagaries of agricultural production and dependence on agriculture as a direct source of income is also very substantial, even after all these years of industrialization. One should note here that the prices at which output is valued being more favorable to industry in China than in India, the relative share of modern industry in national income is larger in China. Both have traditionally been agrarian economies and well over half of their billion-plus people continue to depend on land for their livelihood. Given their large populations and histories of famine, India and China also share similar concerns on issues such as food security. However, while India’s agricultural sector is growing by about 2.5 per cent; China’s has been steadily growing at between 4 and 5 per cent over the last 15 years. By 2005, China had in fact emerged as the world’s third largest food donor. China with lesser cultivable land produces double the food grains, at 415 million tons per year compared with India’s 208 million tons per year. This article is an attempt to make a compartive study of farming in India, China and US.

          The two widest agriculture-related discrepancies between India and China lie in the diverging productivity levels of various crops and in the differential mix of crop and non-crop segments in the overall composition of the farm sector. According to the Food and Agricultural Organisation (FAO), the average yield of rice in India between 2003 and 2005 was 3,034 kilograms per hectare. In contrast, the comparative figure for China was more than double at 6,233 kg/ha. For wheat the corresponding figures were 2,688 kg/ha for India compared to 4,155 kg/ha for China, while for rape and mustard India averaged 909 kg/ha to China’s 1,778 kg/ha. For rice the trend rise over 15 years leading up to 2005 in India was only 1 per cent, less than half of China’s 2.1 per cent. According to statistics from the International Rice Research Institute, India produced 124 million tonnes of rice compared to China’s 186 million tonnes in 2004, despite having almost doubled the area under paddy cultivation (42 million hectares vs. 28 million hectares). Regarding rape and mustard, the trend rise in China marked an even larger stride — 3 per cent compared to the India’s mincing step forward of 0.6 per cent. Other crops such as wheat and groundnut reveal similar trends, with China well in the lead.

      The widest divergence between India and China, however, is in the profitable horticultural sector with the production of fruits and vegetables in China leaping up from 60 million tonnes in 1980, roughly comparable to India’s 55 million tonnes at the time, to 450 million tonnes in 2003, way ahead of India’s corresponding 135 million tonnes. China’s added advantage lies in the more diversified composition of its agricultural sector, with animal husbandry and fisheries accounting for close to 45 per cent of the total in 2005, compared to less than 30 per cent in India. China has thus clearly developed a more diversified set of instruments than its southern neighbour for increasing net farm incomes.

          The key question that arises is why and how China has managed to outstrip India in agriculture when 25 years ago, the two countries were more or less on a par on most parameters. The report by the Economic Advisory Council to India’s Prime Minister, “Economic Outlook for 2007-08” has a special section on agriculture and points out that the traditional excuses for India’s substandard performance in the farm sector are not only tired but inadequate. Written by a team headed by C. Rangarajan, the report points out that Indian agriculture is placed favourably when compared to China in terms of quantity of agricultural land (161 million hectares vs. 130 million hectares), irrigated land (55.8 million hectares vs. 54.5 million hectares), average farm size (1.4 hectares vs. 0.4 hectares) and farm mechanisation (15.7 tractors per 1000 hectares vs. 7 tractors per 1000 hectares). Thus most of the usual excuses for India’s poor agricultural performance do not hold up when it is compared to China.

      The reasons for China having outperformed India in agriculture are threefold: technological improvements accruing from research and development, investment in rural infrastructure and an increasingly liberalised agricultural policy. In China, the Central government invested RMB 12 billion ($1.5 bn) in agricultural research in 2006, up from RMB (Renminbi means, the people’s money, is the currency of China, is also called Yuan. 1 dollar = approx. 6.9 RMB/Yuan) 4 billion in 1995. The country currently has over 1,000 R&D centres devoted to agriculture and there is a huge push towards developing new strains of plants. Some two-thirds of all cotton grown in China is BT cotton and nearly 100 per cent of paddy is of a modern variety. According to the China Agricultural Year Book 2005, the Chinese authorities received and assessed as many as 2,046 applications for the registration of new plant varieties in the five years between 1999 and 2004. In contrast, despite India having the largest number of agricultural scientists on the government payroll in the world — over 30,000 — their research track record has been so abysmal that India’s current agricultural productivity is roughly equal to what China achieved in the mid-1980s.

            Production of grain and pulses has in fact been stagnant for a decade and there has been virtually no breakthrough in seeds or yield since the Green Revolution. Far from developing new strains, the number of field crop varieties released by the Indian Council of Agricultural Research (ICAR) actually fell by 50 per cent between 1997 and 2001, despite the fact that there was a sharp and sustained increase in funding for the organisation. One reason for the poor results of India’s R&D in agriculture is the state of the country’s agricultural universities.  According to a report, 90 per cent of the Punjab Agricultural University’s budget is eaten up by staff salaries with only 3 per cent going to research.

        In contrast, most agricultural research centres in China must use Central government funding purely for research. Funds relating to salaries and other administrative incidentals must be covered by funds generated by the centres themselves. The centres and their scientists are thus encouraged to engage in joint ventures with private sector companies to form commercial spin-offs from their research. In China, even public sector organisations today act somewhat like the private sector. Thus, more and more research staff is being hired on a contract basis with pay linked to research performance. Moreover, salaries for those who perform well have raisen several-fold in the last decade — from around $300 to $1,500 a month for a full professor. But research and technological advances by themselves would have been inadequate to lift Chinese agriculture to its present level of development, in the absence of these things. Investment in rural infrastructure, in particular roads as well as storage and other marketing facilities, has also been crucial. According to Xinhua news agency, China invested RMB 151.3 billion (almost $20 bn) in the building and reconstruction of 325,000 kilometres of rural roads in 2006 alone.

          In contrast, the main form of government assistance to farmers has been through subsidies rather than investment in India. Unlike India, China does not provide its farmers with subsidies for fertilizers or power. The RMB 340 billion ($44.7 bn) spent on rural agricultural investment by the Chinese government in 2006, only about 5 per cent was by way of subsidies. “There is some debate regarding subsidies and their utility in China, but the government realises that on the whole subsidies are against market reforms. They distort the market as well as reduce resource efficiency. China’s relative agricultural success to an increasingly liberalised farm policy with a focus on “efficiency as much as on equity.” Thus, not only is China sharply reducing its stocks of surplus grain, the government policy is also moving away from an exclusive emphasis on self-sufficiency to a considered leveraging of competitive advantages.         

     Unless India is serious about learning from China’s example in agriculture, particularly with regard to improved R&D and more pragmatic agricultural policies, it may not be able to meet its targets for the farm sector in the Eleventh Plan period. To illustrate the “fatal ignorance and blunders” an example can be cited from the latest edition of ICAR’s “Handbook of Horticulture” released in 2006; it recommends the pesticide, endrin, for use in growing bananas. Endrin was, in fact, banned in India and most parts of the world nearly 20 years ago. The rich countries heavily subsidise their farmers. In 2003, the Total Support Estimate (TSE) to agriculture in Organisation for Economic Co-operation and Development (OECD) countries was provisionally placed at $349.81 billion, the bulk of which was accounted for by the European Union ($137 billion), the United States ($94 billion) and Japan ($56 billion). While the volume of subsidy — almost $1 billion a day — is a subject of general consternation, including among Western NGOs and bleeding-heart liberals, a less focussed aspect though is what all this translates to in concrete, crop-specific terms for farmers in developing countries. To what extent do these subsidies enable European or American growers to cultivate crops at a higher cost and yet effectively compete with farmers in India or Brazil? For an answer, one needs to first get a picture of relative production costs. How much does it cost an Indian farmer to produce a kilogram (kg) of, say, wheat and what is the corresponding figure for the EU or the US?

         Comparing production costs in India vis-à-vis those in the US for different crops. The key reference source here is the annual production costs and returns estimates of the US Department of Agriculture (USDA) for various farm commodities, based on actual costs incurred by US producers. For India, the Minimum Support Prices (MSP) fixed by the Government has been taken as a proxy for production cost. The USDA data gives production costs in terms of dollars per acre along with crop yields per acre, expressed in either bushels or hundredweight (cwt). While the production costs per acre estimates are for 2002 — the latest year for which data is available — yields have been averaged over a five-year period (1998-2002) to eliminate one-time distortions.

     Further, to facilitate comparison with Indians costs, necessary quantity and exchange rate conversions have been made to arrive at the corresponding rupee-per-kg figures. Take wheat, for instance, where the US production cost per acre in 2002 was $175.63, or Rs 8,079 at Rs 46-to-a-dollar, with the corresponding average per acre yield being 36 bushels (980 kg). The cost of producing one kg of wheat in the US, therefore, was about Rs 8.25 per kg, which is much more than the MSP of Rs 6.30 per kg fixed by the Indian Government for the 2003-04 crops. In all these field crops - rice (paddy), corn (maize), sorghum (jowar), soyabean, cotton (lint) and peanut (groundnut-in-shell), barring corn, the production costs in the US are uniformly higher than the corresponding MSPs declared in India. The situation is no different for livestock products like milk. The average production cost of milk in the US in 2002 was $18.76 per cwt, or Rs 19.02 per kg. There is no MSP for milk in India. But going by prices paid by cooperative dairies here (Rs 11-12 per kg), the cost can be assumed to be around that level. Clearly, then, Indian farmers are cost-competitive relative to their American counterparts in virtually every farm product.

        This is notwithstanding per hectare yields in the US averaging about 7.8 tonnes for paddy, 8.6 tonnes for corn, 2.8 tonnes for sorghum, 2.6 tonnes for peanut, 2.8 tonnes for soybean and 647 kg for cotton lint, against the corresponding Indian levels of 3 tonnes, 1.8 tonnes, 0.8 tonnes, one tonne, 1.1 tonne and 220 kg, respectively. An average US cow yields over 9,000 kg of milk in a year which, again, is thrice what crossbreeds here typically produce. Only in wheat are average US yields, at 2.4 tonnes per hectare, lower than the 2.7 tonnes of India.

        How do Indian farmers produce crops at a lower cost, despite their yields being nowhere near American or European levels? The main reason for this is the capital-intensive nature of agriculture in the West. The USDA's production cost estimates cover both `operating costs' as well as `ownership costs'. The former includes cash expenses incurred on seeds, fertilisers, chemicals, fuel, custom operations, purchased water, repairs, hired labour and interest on operating inputs. Ownership costs mainly comprise the costs of maintaining the capital stock used in production, including asset depreciation and interest (capital recovery), taxes and insurance.

       They also cover the opportunity cost of family labour and owned land, which is basically the rental or wage income that farmers forego by deploying their land and labour to cultivate wheat or rice. It can be seen that the share of ownership cost in total production cost ranges from 40 per cent for cotton to 69 per cent for soyabean, indicative of how capital-intensive American agricultural operations are, and the additional costs they impose on the farmer. Incidentally, the MSPs fixed for various crops in India supposedly take into account — rather exceed — both `C2' and `C3' costs, as computed by the Commission for Agricultural Costs and Prices (CACP). The `C2' costs encompass "all actual expenses in cash and kind incurred in production by actual owner plus rent paid for leased land plus imputed value of family labour plus interest on value of owned capital assets (excluding land) plus rental value of owned land (net of land revenue)". The `C3' costs equal `C2' costs plus 10 per cent to provide for "managerial remuneration to the farmer".

         But either way, capital costs form an insignificant portion of total costs borne by the Indian farmer and many of these notional expenses do not even explicitly figure in his cost calculus. He will produce crops as long as his operational (cash) costs are met, in contrast to the US farmer, who seeks a return on total capital employed, both current and accumulated. The interesting bit about the American farm economy, however, relates not to its capital intensity and resulting high cost structure. What sets apart US agriculture from European or Japanese farming is its apparent deference to free trade and the immutable laws of supply and demand. Indeed, prices of agricultural commodities in the US are largely market-determined. Farm-gate prices (The price of the product at which it is sold by the farm) of most crops not only do not cover production costs, but they are even below the corresponding ruling MSPs in India.

       Unlike in India, where state agencies buy grains or oilseeds at the notified MSPs, the US Government does not intervene directly in agricultural trade, which is left entirely to private players and `market forces'. But this does not mean that the farmer is not guaranteed a price that effectively covers his costs. On the contrary, in the US, the Secretary of Agriculture is required by law to provide income and price support for 20 specified crops, including wheat, rice, corn, sorghum, barley, oats, cotton, milk, peanuts, sugar, tobacco, soyabean and other oil seeds. There is no such legislative binding on the Government in India to ensure farmers obtain the MSPs declared for various crops. Only in sugarcane is there a statutory minimum price that mills are legally obliged to pay under the Sugarcane Control Order. As a result, Governmental procurement is mostly an ad hoc exercise, which is, of course, a function of the political clout wielded by individual producer lobbies.

        In the US, the new Farm Security and Rural Investment Act, 2002 even establishes `target prices' for each crop that farmers are entitled to receive. For the 2004-07 period and at Rs 46-to-the-dollar, these work out to (on per kg basis) Rs 6.63 for wheat, Rs 10.65 for paddy, Rs 4.76 for corn, Rs 4.65 for sorghum, Rs 9.80 for soyabean, Rs 73.42 for cotton and Rs 22.77 for groundnut. The target prices are way above the farm-gate prices that farmers get at the point of sale. Moreover, they cover a substantial part of production costs, making agricultural operations viable on the whole. The target prices also exceed the MSPs that the `rich' farmers of Punjab and Haryana obtain for the paddy and wheat they sell to the Food Corporation of India (FCI).

      The key difference, though, lies in the mechanism by which the Government enables farmers to recover production costs. In the US, the Government simply forks out the difference between the target price and the farm-gate price through direct and `counter-cyclical' payments. These are over and above crop disaster payments, deficiency payments, market loss payments and assorted other payments towards pest and disease control, conservation programmes, etc. But importantly, all these payments are `decoupled' and made outside the marketplace. The Government does not seek to influence farm-gate prices, which are plain supply-and-demand-determined. The decoupled payments mechanism works perfectly well in the US because there are hardly 2.3 million farms there, compared to India's estimated 120 million operational holdings. The sheer number of farming households to be covered makes direct payments impossible in the Indian context.

      The Government, therefore, if it wants to guarantee remunerative prices to farmers, has no choice but to `distort' the market by directly engaging in agricultural trade. Developing and middle-income countries are becoming increasingly important export markets for high-value agricultural products due to population, urbanization, and income growth. 

       The U.S. agricultural export sector is well placed to meet the increasing demand for high-value food products, such as meat, dairy products, and prepared foods.
       In many developing countries, agricultural productivity growth is the strongest driver of income growth. Income growth has increased food imports by developing countries, particularly since higher incomes strengthen the demand not only for traditional food but also for a more diversified diet. As a greater proportion of the world’s population seeks to expand the quality and quantity of foods consumed, U.S. agricultural exports—such as feed and fodder and high-value foods—will continue to increase.

        According to USDA long-term projections, developing countries will be the main source of projected growth in global food demand and trade. Food consumption in developing countries is considerably more responsive to income growth than in developed countries. Nearly 40 cents of an additional dollar of income will go to food in developing countries, compared with 10 cents in developed countries.

Developing Countries Are Important Markets for U.S. Agriculture:
           Strong income growth and rising populations in developing countries have increased demand for high-value food products, such as meats, dairy products, and a greater variety of fruit and vegetables, as well as a broad range of prepared foods. Growing urbanization also contributes to dietary changes. City dwellers are exposed to new food varieties, and their lifestyles often lead to less cooking and increased purchases of prepared foods. Developing countries now account for more than half of all U.S. agricultural exports. Mexico and China are two major markets for U.S. agricultural exports, and countries such as India, Indonesia, and Colombia are becoming important export destinations. Among the large number of developing-country trading partners, 16 low- and middle-income countries account for 37 percent of U.S. agricultural exports, up from 15 percent in 1990. Since 1990, the average growth of U.S. exports to these countries has exceeded 10 percent annually.

        While low- and middle-income countries are becoming increasingly important export markets for the U.S. agricultural sector, high-income markets are moving in the opposite direction. Nine high-income countries, most prominently Canada and Japan, accounted for 55 percent of U.S agricultural exports in 1990, but their share fell to 43 percent by 2008. Average annual growth in U.S. exports to these high-income countries was just 2.4 percent during that period.

       Most high-income countries are reaching a point of food demand satiation. Average per capita consumption in high-income countries is close to 3,400 calories per day. The volume of food consumed is unlikely to increase considerably, and changes in diet composition will be marginal. Between 1990 and 2005, consumption patterns changed little in high-income countries. The share of staple foods, such as cereals and roots and tubers, remained at 29 percent of the average diet, and vegetable oils accounted for about 12 percent.

Consumption Patterns Changing in Developing and Middle-Income Countries:
     Staple foods averaged 60 percent of total food consumption in low-income countries and 42 percent in middle-income countries in 2005; however, those shares are declining. ERS researchers found that all countries are moving toward similar, more varied diets characterized by fewer staples and more meat, dairy, vegetable oils, and fruit and vegetable products. Many low- and middle-income countries are not able to meet increased demand through domestic production and rely instead on the world market. For instance, as incomes have risen, demand for basic staples declined in Indonesia while dairy, fresh fruit, and other high-value imports from the United States increased. The volume of Indonesia’s dairy imports from the United States grew more than 30 percent per year between 1998 and 2008. The quantity of snack food imports increased more than 20 percent annually, and fresh fruit, 17 percent. Imports of processed fruit and vegetables also grew steadily at close to 7 percent per year. India’s agricultural imports from the United States have similarly increased, with fresh fruit imports gaining 57 percent annually from 1998 to 2008 and snack food imports 35 percent each year.

Staples or High-Value Products: How Is Additional Income Spent?
           Governments, policymakers, businesses, food producers, market analysts, and others concerned with global food trends can better anticipate future import demand if they know how income growth affects food spending. ERS researchers estimated two different measures of the effect of income growth on food spending. The marginal share shows how much of an additional dollar of income in a particular country is spent on food or other consumption categories, such as housing or recreation. For example, in extremely poor countries like the Democratic Republic of Congo and Burundi, over half of this additional dollar is spent on food. For countries such as India, Indonesia, and Colombia, which account for an increasing share of U.S. agricultural exports, the portion of that extra dollar spent on food is between 28 and 39 cents. In high-income countries, less than 10 cents of that dollar—and only 4 cents in the U.S.—is spent on food. 
             A second measure—income elasticity—looks at the additional food or other spending as a result of a percentage increase in income rather than an across-the-board $1 increase. Obviously, one additional dollar in Tanzania is not the same as in the United States. Income elasticities are, therefore, a better measure of the responsiveness of demand to changes in income and are more comparable across countries. ERS researchers (Economic Research Service of USDA) calculated these elasticities for broad consumption categories such as food, clothing, and housing, as well as for detailed food categories such as cereals, meats, dairy, and fruit and vegetables.

         The ERS estimates were based on the 2005 International Comparison Program dataset, which covers 146 countries (2 countries were dropped in the ERS study) and offers a global perspective on consumption and food spending. For the analysis, ERS researchers divided the 144 countries into three income categories: low-income (having less than 15 percent of U.S. per capita income), middle-income (15-44 percent of U.S. per capita income), and high-income (greater than 45 percent of U.S. per capita income).

           Low-income countries spend a smaller total amount but a much larger share of their incomes on food than both middle- and high-income countries. Households in Tanzania, for example, spend close to three-quarters of their income on food, while the share is about 12 percent in the U.S. Given that most food spending in low-income countries currently goes toward cereals and other staples, an income increase of 10 percent would raise spending on cereals (5 percent) by less than spending on meat and dairy (both 8 percent), which are considered high value and typically less affordable for households in low-income countries. In contrast, a 10-percent rise in income in high-income countries increases spending on meats and dairy by 5 percent each and on cereals by only 0.2 percent. In most low-income countries, high-value food products and restaurant meals are luxury items—goods for which spending increases by a greater percentage than the increase in income. For example, a 10-percent increase in income in low-income countries boosts spending on high-value food items by 14 percent, more than twice the increase in high-income countries.

Agricultural Productivity as a Source of Income Growth:
          As developing-country incomes rise, the resulting increases in food demand may help expand U.S. agricultural export markets. But what are the catalysts for income growth in the poorest countries? In a number of countries, improved domestic agricultural productivity is a strong driver of income growth. Many developing countries rely heavily on the agricultural sector for economic growth, and agricultural productivity growth plays a key role in reducing poverty and improving food security.

       Enhanced agricultural efficiency, through improved input quality or resource allocation, generates greater food availability, increases demand for industrial goods and services, and could result in higher export earnings. As agricultural productivity rises, a reinforcing cycle of supply and demand may be generated between agriculture and the rest of the economy, which can stimulate income growth. As agricultural efficiency improves, labor and capital are released to search out higher wages in other economic sectors, facilitating growth in the rest of the economy.

       Developing countries such as India, Indonesia, and Colombia have achieved growth in agricultural productivity, while at the same time increasing U.S. agricultural imports. Agricultural productivity growth in these three countries from 1990 to 2006 was above the world average of 1.5 percent. During the same period, per capita gross domestic product (GDP) rose 4.2 percent in India, 3.2 percent in Indonesia, and 1.5 percent in Colombia, nearly matching or exceeding the global average of 1.6 percent.      As incomes rise, consumers purchase more higher value foods, including meat products. Increased demand for domestic meat, in turn, boosts demand for feed and fodder. Between 1998 and 2008, annual feed and fodder export volumes to Indonesia increased 28 percent, and those to India and Colombia increased 18 percent.

Developing Countries Will Strengthen Their Position as Important
U.S. Agricultural Export Destinations:
          Future demand for agricultural products will increasingly come from developing countries, which have seen much higher income growth as a group than developed countries. Even during the recent worldwide recession, most developing countries were able to avoid the deep economic downturns experienced by many high-income countries. According to the International Monetary Fund, the GDP in emerging and developing countries grew 2.5 percent in 2009, while advanced economies shrank by more than 3 percent. Average annual growth in developing countries is projected at around 6.5 percent through 2015, compared with about 2.5 percent in advanced economies. Developing countries have faster growing populations and incomes, which are increasingly, spent on high-value food products. The U.S. is well placed to compete in these new and expanding markets.

           To conclude, in agriculture our yields per acre are well below the international norms. India could be a giant exporter of food, only if we could put our ‘house in order’ to near world class standards. China with lesser cultivable land produces double the food grains than us. God has been very kind to India with a lot of sunshine, rain, rivers, lakes, coastline and good hard working citizens. The Governance in India have not done enough to show the results that it is capable of achieving rate as the No.1 country in the world for potential vs performance. Indians score high marks on performance outside India. This is because the Governance is better outside. In countries where the Governance & Administration is poor, the performance of its citizens is also low.


4 comments:

  1. Just to say,I am glad to read so good article in the website.Well,OK.I have to say,what a wonderful blog it is.thank you for your sharing so good articles in the website.I like it very much.It is very interesting in it.Look forward to reading so good articles in the website. study in china

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    1. Thank you very much Mr. Steven Parker for your comment. Such comments from the readers like you are like a tonic for me to write more such articles.
      -Dr. S.Vijay Kumar

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  2. sir COMPARATIVE SYLLABUS OF EDUCATION SYSTEM IN INDIA AND USA
    plzz sir

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  3. Good study gives a point where to improve the agriculture techniques and gives a better growth.
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