Agriculture in India: - a business perspective(Part1)

Thanks for the huge support for my 1st post: a 100₹ note I hope, I will withstand with your expectations and will write better posts. Thanks once again..!

Note:- This post is written by extensively performed research. Research is based on government published report ‘Agriculture Statistics at glance-2015’ and various international organizations like USDA, FAO. Problems and their solutions are either found in research papers or they are my own experience. This post will help you to actually understand the problems faced by Indian farmers and what can we do for them. So I urge all of you kindly read this paper. Also it is quite lengthy so be patient and read this.

Introduction: -

   

In India,according to census 2011, 68.90% people are living in rural areas.
Among total workers in India, there is 54.60% workers are belonging to rural area comprising cultivators and agricultural labours. Despite being in top 3 nations in the world related to producing agricultural commodities; agriculture in India is so backward that average salary of Indian farmers is 6416₹ only! There are many reasons to this; but hardly someone would have written over this issue. In this post, we will discuss all parameters related to farmer’s conditions in India, actual reasons behind their backwardness and how we can improve them. The focus here is on solution rather than the problem

 Highlights of agriculture in India:- 

              1)India is world’s largest producer of milk, spices, and some fruits. 

   2)India is world’s second largest producer of wheat and rice.

   3)Indian population is growing faster than its ability to produce rice and wheat.

   4)India is world’s seventh largest agricultural exporter (US tops the list)

   5)Minimum wage for skilled Indian agriculture worker is 249₹-299₹ according to  minimum wages act 1948.

   6)Percentage in GDP contribution by agricultural sector is decreased from 51.81% to 17.9% from years 1950 to 2014.

   7)Out of 100, 51.90% agriculture households of rural households are indebted.

   8)In union budget 2017-2018,Modi government has allocated almost 8% of budget to agriculture and allied services which has

   contribution of 14% of GDP. 

  Peer to Peer comparison with USA and China:-

India v/s USA v/s China

       Conclusion: - We can easily see that we are lagging in almost all field with USA and China. Only average yield in metric tonnes per hectares in fruits is equal to china i.e. 11.6. In 2016, India has become 6^th largest agriculture exporter surpassing Australia. But Arable land is Australia is much less than the India (around 47.11 million hectares, according to world bank).

Factors responsible for destruction of farmers:-

     1) Producer’s Subsidy equivalent (PSE): -

Producer’s Subsidy equivalent or PSE can be defined as payments received by agriculturist, in excess of what they would have received, if the government had not intervened in the free marketing of agricultural produce. PSE (% of production in year 2015) in china is around 20% while in USA it is around 7.5%. It means that farmers in china and USA get 20% and 7.5% more than what they would have received in open trade. Sadly, I haven’t any data found for India! But in 1982-86 period, it was around -18% in India, according to US agriculture department. It means in the period 1982-86, Indian farmers received 18% less than what they would have received in free trade without intervention of the government. PSE includes minimum support price (like Fair remunerative price to be paid by sugar mills to sugarcane) and payments based farm incomes. There is always some kind of confusion while calculating the minimum support price for crops in India. So even getting minimum based price, agriculture is not in profit.  Public and Private investment in Agriculture and Allied Sectors in India was never more than 4% of GDP! This shows that agriculture in India is not an attractive field to invest!

     2) Small Holdings of farm: -

Average farm size in India is 1.6 hectares as compare to USA where it is 175.36 hectares. Though in china it is 0.65hectares; it doesn’t even matter as farms are the properties of Chinese government. As the sizes of Indian farms are small, revenue generated from farms are not enough to fulfill family’s needs. When you have large farm size, the production cost reduces as you can use various machines that reduce the cost up to large extent. But in case of India; It is not possible to buy these machines. When you have farms having size more than 15 hectares, you can afford machines like ‘wheat harvester machine’ which is priced around 10-12 lakh ₹  because, you can harvest wheat in such large area that utilization of such machines are economically viable. But farmers having land 1-2 hectares neither can purchase these machines nor it is viable for such farms. It is evident that when you increase the production, the cost of producing one unit is always less. If we take example of rice, the cost of production of rice including all parameters, in USA (cost/quintal), was 1134.16₹ whereas in India, it was 1259₹ in year 2014-15. (relative conversions are made accordingly). The average price of rice (per quintal) in USA of rice in August 2014 was 2754.68₹ whereas in India, it was 3002₹. This shows that production cost in USA was less than India. Also, as yield of rice of USA is thrice the India, even though price of rice in India is more, the farmers of USA earns more than that of Indian farmer.
 3) Inadequate irrigation facilities:-

In India, only 51.2% land has come under irrigation by the financial year 2012-13. It means that only 51.2% land can take more than two crops in a year. So those farms which solely depend on the monsoon, gets adversely affected when there is inconsistency in monsoon. Inadequate Irrigation also affects the productivity of the farms. 

     4) Inadequate knowledge of new methodologies in agriculture: -

This is vast topic to cover. Due to financial problems, rural India has deprived of education. In recent time, there is increase in education, but percentage of higher education is very less. Due to this, farmers are unaware of new methodologies introduced in advanced agriculture. Most of the Indian agriculture follow traditional way of farming which requires more labour, more usage of water to irrigate, more cost of production and less yield. This directly affects the financial and mental condition of farmers.

     5) Slow research in agriculture: -

Key difference in development of Indian and Chinese agriculture is research. We are not talking here about USA as it has got independence in late 19^th century. Both India and China got independence in same period. But prosperity in Chinese agriculture come from its research. China has invented new seed species which has more yield. In India too, due to green revolution, yield has increased but not to the extent of Chinese agriculture. Consistent efforts by Chinese government and researchers have made China as more prosper nation in case of agriculture. In India, rate of research in agriculture is very slow. Also, private investors are not interested to invest their money in research in agriculture field. That’s why slow research is affecting growth of Indian agriculture industry.

     6) Marketing facilities: -

This is one of the main reasons behind the destruction of Indian agriculture industry.  Farmers never have got actual price for their crops. Producer and consumer are the one who actually suffer. Actual profit is always taken by the middleman.  Government has failed to give minimum support price for crops, due to this, farmers never got actual price for their commodities they deserve. Government has started some institutions for purchasing crops like cotton, but for the other crops, rate is in the hand of middleman. In recent times, government of Maharashtra has changed the agriculture market rule according to which farmers can sell their goods anywhere they want. Previously, it was compulsory for farmers to sell their goods in market only. Though this initiative is worthy to praise but; government has not declared places where farmers can sale their goods. Also, there is no provision made what to do if goods are not getting sold. This may lead to chaos.

     7)The right Approach: -

This, I find, the most important reasons for the backwardness in the field of agriculture. 90% farmers in India, are doing farming just because it is inherited to them and they can do nothing than the farming. They have only one option to earn the bread i.e. agriculture. This is the major limitation for the growth as a farmer. These kind of people can’t think innovative things. They can only perform their duties. No pre-planning of crops, following traditional methods of agriculture, not analyzing the market, not finding other ways for selling the crops, not being with the modern methodologies. They are basically agricultural labourers. It is evident that those who have chosen the right approach, is making money from the farmers. Agriculture is a business; not just an inherited art from our forefathers to feed human beings.  We, Indian farmers have lack of approach. The lack of approach is the mother of all other problems.

Business approach to agriculture: -

         To choose any business we see following parameters: Demand of that product, initial investments, raw material needed, production cost, market availability, taxation, government schemes, future scope, risks etc. Seeing these parameters, I find agriculture is the best field to invest. How, let’s see.

• Demand: - Demand for food will always be there. We can not live without the food,anyone can tell u. According to some reports, growth of Indian population is faster than growth. Also, villages nearby the big cities are turning into cities. Hence, we can say that land under cultivation is reducing. “Production is less, Demand is more”, simple principle of economics states. Also importing agricultural products will cause strain on foreign currency and also, the cost of such products will be very high. This makes Indian agriculture to grow and fulfil the hungry stomachs of Indians.
• Initial investments: - Initial investments for farming will be land, water source (if any), irrigation systems, agricultural instruments, electricity. As the land and water are available free of cost for farmers. Investments can be in the instruments which are required for various agricultural works like ploughing, harvesting etc. These instruments are one-time investment. Irrigation System is also a one-time investment. You just have to maintain it properly. Electricity is also an initial investment which is also a free of cost, considered by farmers!
• Raw material: - raw material can be seeds, fertilizer and pesticides. These are quite costlier but can be covered if production is large.
• Production cost: - It includes overall cost required for producing a product. It includes electricity, water supply, labour cost and cost of raw material. As electricity and water supply is free of cost. Minimum wage for an agricultural labour is around 250₹ (for women, it is around 150₹). But I have experienced, it was never more than 300₹ a day. So as compare to other business, labour cost is very less in agriculture. So, overall production cost is less as compare to other businesses.
• Market availability: - It is the most challenging one. But in business, challenges are always there and you should be ready to face them. I will discuss this point in upcoming sections.
• Government schemes: - Government has various scheme supporting to agriculture including insurance. Government provide subsidies to various things like farm lakes, drip irrigation, cold food storage, solar pumps etc. You have to have necessary documents for it which is a tedious task; but it is always when government participation comes. Government provides free training for new agriculture methods like sericulture, famously known as ‘RESHIM UDYOG’. It also provides training allowance to farmers!
• Taxation: - This is where agriculture stands tall. You don’t have to pay single penny to government from your income as agriculture is free of cost. For a normal job, you have to give income tax to government. No income tax for farmers. No any other taxes. So, you can save large amount from the income and invest in other schemes.
• Future scope: - I will discuss this in coming sections.
• Risk: - Risks can be of two types: natural and market. Natural calamity be like drought, flooding, untimely rain, diseases like bird flu etc. Market risks like less price, no demand for particular commodity etc. Market risks can be minimized by good planning. Due to uncertain weather, natural risks are increased in recent years but; risk is a part of business and we have to take it if we are a businessman. Also, in natural calamities, government help the farmers (how much it is proved as beneficial is a topic to discuss!). There are insurance schemes for crops also. They can be useful to minimize the risk factor.

            So, overall if we see, farming is a nice business for those who have inherited arable lands and interest in this particular field (this is the most important!).  It is the most challenging one. But in business, challenges are always there and you should be ready to face them. I will discuss this point in upcoming sections. 

       Why Loan Waiver scheme is a fraud?

           Many people think that if farmers are exempted from their loans, farmers will get relief and they will stop suicide. This may look like lucrative but; it has serious advantages. Union government has waived the loans twice: in 1990 and 2008. Under the Agricultural Debt Waiver and Debt Relief Scheme of 2008, the government waived entire loans to marginal and small farmers (those with landholding of up to 2 hectares) and offered one-time relief of 25% to other farmers.

           The government disbursed ₹52,516.86 crore up to 2011-12 under the scheme, according to International Council for Research on International Economic Relations (ICRIER). But this didn’t reduce the suicides of farmers. look at this chart: 

           You can easily see that even after 2008 waiver scheme, suicides haven’t reduced that much. Farmers who have taken the loans, after waiver scheme, took longer time to repay the loans. Also after the waiver scheme, loan officers didn’t lend the loans to farmers as the punishment for bad loan is more than lending the loan wisely. So the applications of farmers who haven’t paid the load, is rejected. These are mostly small and marginal farmers. In the end, the debt relief results in fewer farmers getting access to credit, which is the exact opposite of what the government had intended to achieve.

        Also, these schemes are for those farmers which have lands less than 2 hectares. So those farmers having land more than 2 hectares didn’t get the benefit of this scheme. Farmers having land less than 2 hectares didn’t get the loan from the banks. They have to depend on the private money lenders. This scheme didn’t cover the waiver for the loans given by money lenders.

                

        Reasons behind the suicides of farmers is not just a debt. There are many other reasons too. This chart will show you, different reasons behind this:

        Failure of crops and debt are only 20% reasons of the suicide. There are many other reasons which are important to note.

Basic improvements to be done by the farmers:-

Note: -These are the improvements for the beginners. Those don’t have money to invest in modern technologies of agriculture, can find it as useful. All new methodologies will be covered in next post.

•  Deciding the crop: - This thing is hardly done by the farmers. Most of the farmers decide to cultivate particular crop just because of surrounding farmers are cultivating it. There has to be done some analysis like which crop is produced last year most? , which crop has remained in small amount in country? , which is the least produced crop last year? Etc. This has to be done very carefully because last year when everyone was taking production of onion, there was serious deficiency of ‘Tur’ in Maharashtra. The rate of onion was dropped to 3-4₹ per kilo while Tur was forcing people to cry with its price around 200₹/kg. So deciding the crop is the most basic improvement should be done by the farmers. Deciding the crop should be done analysing production of that crop in last 3-4 years. Because there is general pattern followed by Indian farmers. They took 3 or 4 crops alternatively within 2years. If we take example of last year, onion had price around 5-6₹/kg while cotton has price 5000₹/quintal. These results were supposed to be opposite in 2015. In November 2015, the price was about 4000-4100₹/quintal for cotton while in august 2015 the price was onions around 30-40₹/kg due to shortage of supply. Farmers have to strike this balance between choosing the farmers.      
• Pre-planning the crop: - After deciding which crop to be cultivated, one has to plan the crop. In planning, 1st thing is to be decided is that: when your crop will ready to arrive in market? This study is essential because it is observed that crops which come either early or late in market, gets good value. See this example: 

onion price in year 2013(rate ₹/kg)

           The price of onions in market was around 15-20₹/kg in market on 4^th February 2013. It was dropped to 7-10₹/kg in May. From June onwards, it has shown upward trend in price/kg. Those who had planned their crop yield in the months July-October they had got very nice returns. So planning of the yield is very important.

           After this plan, Farmers should do soil test. This thing is almost ignored by all the farmers. Soil test will help you decide in fertilizer need of your farm. Most of the time farmers follow the prescribed amount of fertilizer to the farm without considering whether it actually needs it or not. Soil test will save your extra expenditure on the cost of fertilizers. 

           Farm in which the crop is to cultivate should be analyzed thoroughly. Most of the time, the side which is away from the water outlet in the farm, never gets adequate water. So sowing in such area is almost useless because seeds get wasted and production cost will also increase. So avoid the area where water doesn’t reach properly. Also, if water outlet is in one corner of the farm then, as we go away from it, the rate of water flowing in the water channel becomes slow. So it becomes difficult to irrigate the crop which is away from the water outlet. One thing can be done by making 3 outlet valves instead of one. It can be down by this way:

(My drawing is the worst! Try to get it...!!)

        In ‘current scenario’ there is one outlet. So to irrigate crop area2 and crop area3 it will take a lot of time as water has to travel more distance as compare to crop area1. This will waste time as well as water. If ‘current scenario’ is changed to ‘modified scenario’ then both these 3 crop areas can be irrigated either serially or either 2 of them in parallel. This will speed up the irrigation process and also save lot of water. Some modifications have to be made here which will cost more but; it will show definitely better results.

1

• Create weekly income source: - It is quite interesting. Farmers either have to cultivate vegetables or something like lemon trees which can give you money weekly basis. This income need not be too much. If it is in between 1500-3000₹, it will solve the labour cost problem. E.g. If 2 women are working in your field with daily wage of 150₹ for a week then, the labour cost for a week will be:2100₹. If more than 2 women are working then, it will solve the labour cost partially. It will reduce the labour cost. Seasonal fruits like guava (Peru), Tamarind (chinch) will also give you good money. These Things can be sold at local weekly market.
• Strict scheduling the fertilizer and pesticides: - Schedule has to be followed to increase the yield or productivity of the crop. This schedule can easily get from the agriculture service centres. Most of the time, schedule gets delayed due to some reasons. Try to avoid delay.
• Start supplementary business: - Supplementary business is the business which depends upon the agricultural product. Animal husbandry, Goat Farming, Poultry Farming, Sericulture, Manure formation project, Bio-slurry etc. These business will handle economic conditions when your crop will not produce money for you. Supplementary businesses are very efficient. In draught hit area like ‘Marathwada’, 'Goat farming' is getting popular. Goat farming returns your investment within 1st year along with some profit and from next year you start earning without investing a single penny!
• Market availability: - After harvesting, whatever product we have, try to sell as early as possible if any good storage facility is not available. Making temporary storage system doesn’t work as it has many drawbacks. Unless until you don’t possess any standard storage system for cereals, vegetables and fruit, try to sell them as possible as possible. Hoping for increasing the market will not work always. Crops like onion are very sensitive to weather. If there is any humidity in storage system, they start degrading and this will result in degradation of almost all crop. It is better to lose some amount rather than losing a crop! Try to find all possible nearby markets and rate of crop there. Calculating travelling cost and other expenditure try to decide the right market to sell your goods. This is about market availability. ‘Market Creation’ will be discussed in next post.
• Learning new technologies: - Farmers should try to learn new things like internet, online payment services, smartphone etc. Because these things will help them to get updated with the world. Using internet, they can get every data related to crops, weather, new trends in agriculture etc. This will help them in deciding policy related to farming. If farmers get timely update with the weather, it can be used for changing the current strategy in accordance with the weather. This will save the crop from changing weather and its ill effects. Whatever data will be required in deciding and pre planning the crop can be get from the internet. Even on messengers like Whatsapp and telegram, there are groups working for farmers where they can get this all knowledge in their native languages. It will be difficult for the old farmers but; new generation of farmers are familiar with it and they can use this wisely for betterment of their field.

           These are some of the basic improvements I have suggested. There are many. You can find them when you start thinking about improvements. 

(To be continued )

Note: - This is the 1st part which tells about Indian agriculture and agriculture of USA and China. Also, I have discussed about reasons for backwardness of farmers, Basic changes suggested for farmers. Check out 2nd part of this series here: agriculture in India: a business perspective part 2