Monday, June 3, 2019

Some thoughts on Indian agriculture

Harish Damodaran presents cluster and area-based proposals focusing on specific crops for improving farm incomes in UP. This all sound great. But here is the challenge.

It has been known for a long time that the Indian agriculture landscape is dotted with exceptional and truly world-class examples of productivity and prosperity in a variety of crops. They represent the best in irrigation systems, agronomic practices and extension services, integrated co-operatives like linkages, and upstream integration with global markets. But scaling these, beyond small areas, has remained elusive. It has been so even in areas which have concentrated on specific crops and therefore potentially have all the ingredients to reap the benefits of economies of scale and scope. In fact, even significant productivity improvements have remained elusive, and the large production increases have largely been the result of inputs and less due to productivity. What gives?

As a framework of analysis, we can perhaps classify agriculture interventions into five broad categories - inputs, extension services, research, market linkage, and policy support measures. The first requires huge investments and is also a function of the country's stage of development (access to high quality inputs in villages, for example, depends on connectivity and access to the village itself). The second is critically dependent on state capacity to deliver services, and that too human engagement intensive ones (or thick activities). The potential for technical productivity improvements is a function of research. The fourth is critical for staggering supply releases and ensuring that farmers get good value for their produce. And the fifth involves the application of public policy to create enabling conditions for market-based transactions and rectify market failures.

The interventions that require capex investments will take time. So farm credit, irrigation, access to high quality inputs, and storage facilities will not come easily. They are also dependent on physical capital accumulation in the economy and will therefore depend on the stage of development. But large-scale capital formation in this area should be a priority, especially in the development of dry and cold storage infrastructure, essential to create the holding capacity throughout the chain that is critical to staggering the release of supply so as to increase farm incomes

Extension services is perhaps where some form of leap-frog is possible, especially when it is combined with research. Currently extension services exist only in name. Consider this reality. It is well-known that prices are a function of the quality of the produce, and this in turn is a function of adherence to the standards required for specific markets. This, in turn, all things being equal, depends almost entirely, on the agronomic practices being followed. But dissemination of agronomic practices requires strong extension services system.

And there are reasons to question the connect between the ongoing agriculture research and its applied relevance. How much of agriculture research is first-order applied in nature? What can be done in research to improve the effectiveness of extension services?

Market linkages are important, but perhaps not as important as is often made out. The gains from disintermediation in the chain between farm-gate and wholesale buyers is unlikely to be very high. 

Policy is more complicated. Sample all the recent policy interventions in agriculture. Micro and drip irrigation, crop insurance schemes, amendment to APMC Act, electronic market places or e-NAM, farmer producer organisations etc have, beyond marginal gains, not been able to generate anywhere close to the expected results. All of them require the mobilisation of several enabling conditions and behavioural change management, apart from the related market infrastructure. Unfortunately, very few of these requirements are in place, and are unlikely to be so in the foreseeable future. 

Consider an electronic trading marketplace. Its effectiveness is critically dependent on the credibility of the quality assurance mechanisms available. This, in turn, depends on deep internalisation of grading and sorting practices at the farm gate itself. In the absence of this, any form of electronic trading is just meaningless ab-initio - almost like replacing hand-written bills with computerised billing with all other activities (like physical inspections and face-to-face meetings intact).

So there are no easy answers to the question about the struggles with replicating great examples of successes. It is just super-hard. Being aware of the true magnitude of the challenge ahead is perhaps the best preparation to meet the challenge.

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