Whats the True Cost of Food in India and Why Agriculture industry in disarray?

Let’s Start by saying there are no free lunches in the world. Somebody is paying for it, many times the person who is paying does not know he is doing it.  This is a very important question we need to ask when we ask for Free something from government or others. 

For example, 2008 US great depression which impacted housing and banking sector crash where close to a trillion dollars lost is paid by all of us in different ways. The government kept bank rates close to zero so banks can recoup their losses. Sometimes government infused the money into insurance companies like AIG to keep it afloat, again paid by taxpayers.  Who is the looser (subsidized the risk takers), the guy who paid the mortgage regularly? Also, the people who thought it is safe to keep in the bank for 3 to 4% interest rate earnings are screwed big time thanks for dropping the interest rate. So in short organized risk evert people got screwed for the mistake of risk takers. So in short world is not fair ( We will discuss this point later ) 

Before I go deep in to want to give few examples which are a glimpse of people expectations, despite how justified they are.

First nugget:

We all remember 2017 Onion crisis when onions became expensive and there were protests against govt. not controlling the prices.  It was major news and even what’s app filled with jokes on onions.

The government has to start price control, ban exports to reduce the cost because of pressure from opposition?.   Did you ever think what is the impact of putting the control on the supply chain?

There are similarly Tomato crisis or rice price hike and more. The govt. always starts with banning exports.  Did we ever thought that is impacting ordinary farmers as well not just rich farmers or middleman?.    By Govt. controlling the price indirectly impacting farmers or undermining the whole food supply chain?

Also when Onion crisis happened, nobody able to say we can still cook food without onion if we have. Human food habits are never set in stone, they are changed based on availability. But from last 50 years, people in India able to demand governments to provide their food at cheaper rate and governments are keep giving them.

What about Produce became cheaper like Tomato's are Rs. 2 kg due to overproduction... Government get pressure on it too but they can't raise the price as there are no consumers

Second nugget:

Crops distribution

India has the highest number of agriculture land in cultivation, but put their 50% of the land only in the cereal production(Wheat /rice and corn)

Agriculture area

Also if you look at the cropping patterns, 50% of the agricultural land used for rice/ wheat kind of grains which need much higher need of water than other crops. This pattern had not changed from many decades.?

Third Nugget :

Indian cropping yields are low compared to many other agriculture countries. With many technological and new agricultural methods, across the world improved their yields from last 50 years, but India lags way behind other countries.

Whom to blame for not modernizing the agricultural process ?. Is Farmers are ready to adopt or just want to still follow old-fashioned way. 

1.       Farmers don’t like to change their cropping patterns. A Paddy/rice farmer still want to do the same thing.

2.       Our irrigation strategy is to seep the soil with water which is very ineffective, there are more efficient technologies like drip irrigation is not taking precedence  (one of the prime reason, is water is free for the farmer. We will discuss this later )

What is the True cost of the food?

If Agriculture is the major industry for India. why the GDP does not show that.  “Agriculture and allied sectors like forestry and fisheries accounted for 17.2% of the GDP (gross domestic product) in 2016, but about 50% of the workforce. ...”.

Why agriculture only contributes 18% of the GDP, it should be a lot higher, is not it?. Also why it takes 50% of the workforce?. Let's dig deep and understand the challenges of why 18% might not be an accurate representation.

India has extensive fertilizer subsidies which are around 10-12% of the federal budget or .5% of the GDP. This subsides directly goes to the fertilizer manufacturers. The more they manufacture the more they get the subsidies.  

Below chart gives the comparison of rice and wheat price in reference to the  Urea (Mostly  used fertilizer in agriculture)

Apart from Fertilizers, India also provides free water and electricity in almost all states.Farmers are biggest voting bank no party wants to hurt. We have even started loan waivers and pension programs etc.. All of this adds to another 1 to 5% of the GDP which is not accounted and also not reflected in the price. 

Let's also look who decides the price of the food, to understand who is the major purchaser of the food. If you look at the Wheat and rice, 1/3^rd of them were bought by Governments and distributes them to population thru their distributions channels (Thru ration cards and other means). So there is a direct line item in most of the state budget as income and expense of this food purchase and distribution.  Most of the states have commitments to provide cheaper food to their population.  E.g. : Two rupees kg rice promise by  NTR we all remember which still running strong.  Even if not two rupees, they have to provide the cheaper cost to their population. If a Kg. Rice goes by Rs.20/-, the government will surely collapse.  All these put downward pressure on the price.

“If Govt. has to keep the cost of goods low and if they promise Cheap food to people… , Who has to pay?”

Indian Governments both Congress, BJP or whoever… all are in this trend from last 50 plus years. Even in 1990 when all the subsidies are taken out the fertilizer subsidies were not touched. On top of it, they keep adding free water, Electricity and Loan Waivers.  In last 10 plus years, lots of state governments even going further to providing pension and more.

If you include all of these subsidies across the states and federal government, it is anywhere 20% of their budgets.

There is another side effect of all these free things :

a.       What will be motivation for the farmer to optimize his electricity usage.

b.      Why does farmer want to move towards drift irrigation or how do you tell him he does not need to seep his soil with water?

Let me put another twist… What is the farmer direct contribution to State or federal budget?.  That is big Zero.   Even richest of the rich farmers never pay taxes. Do you ever heard a farmer paying income tax?.

“All Farmers are not poor, we all know richest families from farming communities.” 

“So Now look at all these and ask what is the true cost of the Food coming on Table?”. 

As simple economics question, if you assume any state government as a corporate entity… what is their motivation to invest in the Farming infrastructure?.  There is no direct return on investment?. If you’re an investor , do you invest that way?. 

I don’t blame only governments or farmers, but as a society, we are in a deadlock on this cycle and don’t have easy way out. Governments can’t take out subsidies or increase the food prices, both are suicide steps for their existence. Farmers cannot get away from debt traps as lack of infrastructure improvements or new farming methods.

Crop Insurance:

Every farmer wants certainty of their crop minimum returns and wants a minimum guarantee. Looks so simple, but not that easy.

Any insurance policymaker has two challenges 

1.       Who pays the premium?  : Asking farmer to pay the premium for the policy was a non-starter, so the commercial insurance policies have no scope.

2.       How do you regulate: Any insurance policy want to put certain restrictions to reduce their risks. Like identifying the right crop for the soil of the land, diversified crops so there is demand for the crop they are planting, the right amount of fertilizer and much more. 

That’s why the farm insurance is always discussed but never materialized in a meaningful way…   But every election cycle or farmers unrest people talk about food insurance as a solution. Unless underlying the problems can’t be solved this might never take place.

Smaller Farmers is a Challenge in itself:

India farm sizes are getting smaller and smaller from 1960 as property distribution taking places from generation to generation.  When the size of farm gets smaller, they can’t incorporate large-scale commercial agriculture farming technique used in most of the advanced countries.  When a farmer working on a land of fewer than 10 acres, still uses manual seeding, fertilizing and don’t have scope to experiment. 

Banana Supply Chain :

Compare to a world where Costa Rica, Columbia supply ’s most of the banana’s across the USA  stores because of their sustained farming and efficient supply chain. Dole company rules all the operations end to end.   The Philippines perfected the similar thing to supply banana’s across Asia. India nowhere near in the process despite the largest producer of bananas.

Again no company can commercial operate in India all the way from farm to stores like Dole in banana industry… Reasons?.

Small State of Iowa supplies corn for the whole USA or Idaho supplies potato’s to 50 states all happens commercial agriculture methods…  Indian mid and small farmers can’t get that potential.

There is community farming explored by governments, but never succeeded in a meaningful way as the government can’t run as a commercial industry.. our sick PSU’s (Public sector units) are great examples.

If even an Indian company want to acquire a 1000 acre of land and do commercial agriculture, do you think any government approves it?. Does the farming lobby approve it?. We are in big deadlock?

There is a lot of reasons which goes around same concepts.

Conclusion:

My only goal about this to explain the complexity of the farming community challenges. I don’t perceive that I have a solution. But same time I don’t think current path of giving “Free”  is a solution for long-term growth of agriculture sector.

Here are some suggestions, again not sure it is easy to implement in India

1.       Consider Agriculture as any other industry and let it grow as any commercial companies can evolve in food processing, commercial agriculture.

2.        Promote advanced agriculture methods for sustained forming.

3.       Tax the farmer's income like others. 

Question to readers: With the latest Fad on organic forming, which further reduces the yields what is the impact to farmers?  

 Some of the interesting sources for more research:

 Banana supply chain video

Banana supply Chain in india

State of Indian Agriculture