Occasional Paper - 36

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COMMODITY STUDY ON DIVERSIFICATION OF INDIAN AGRICULTURE

DR. B. YERRAM RAJU

Departnnent of Econonnic Analysis and Research National Bank for Agriculture and Rural Development Mumbal

NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT

HEAD OFFICE DEPARTMENT OF ECONOMIC ANALYSIS AND RESEARCH

4th Floor, 'C Wing Plot No.C-24, 'G' Block P. B, No.: 8121 Bandra-Kuria Complex Bandra (East) Mumbai-400 051 Tel.: (022) 6523617, 6539521 Fax: (022) 6530086 E-mail: nabdear@vsnl.com

^ . ^ . ^ . i t ^ I ? 3 T R . / 3 f t ITT/ 207/3M-36 /2005-06 05^ 2005

Ref.NB.DEAR.OP/207/OP.36/2005-06 05 May 2005

Dear Sir Occasional Paper No. 36 on "Commodity Study on Diversification of Indian Agriculture" We have pleasure in forwarding to you a copy of the Occasional Paper on "Commodity Study on Diversification of Indian Agriculture" prepared by Dr. B Yerram Raju, Managing Director, Sandilya Consultants Pvt. Ltd, Hyderabad, on behalf of NABARD.
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2. We hope, the findings of the paper will be of interest to you. We solicit your suggestions for improvements in the quality of the Occasional Paper. Yours faithfully

(K.V Raghavulu) Chief General Manager

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End: As above

Occasional Paper - 36

COMMODITY STUDY ON DIVERSIFICATION OF INDIAN AGRICULTURE

DR. B. YERRAM RAJU

Department of Economic Analysis and Reseorcti Notional Banl< for Agriculture and Rural Development Mumbai 2005

3reT Pi^i^ich >i-ilfec^ ch'^Hc^'e>H 3T.1er., ^^TTc: ^ . 143, Rlvrj-MJi'?!, clKHIcW, t^^^TWR" - 500 017

Author
Dr. B. Yerram Raju, Managing Director, Sandilya Consultants Pvt. Ltd., Plot No. 143, Vijayapurl, TEimaka, Hyderabad - 500 017

The usual disclaimer about the responsibility of the National Bank as to the facts cited and views expressed in the paper is implied.

^cITS- ^ . #-24, -^-iencp, Tfr.sFT.^. 8121, ^t^-gJeit *l^cm, i t ^ ( ^ ) , 5 ^ - 400 051 IRT FmUlcT. Published by the National Bank for Agriculture & Rural Development, Department of Economic Analysis & Research, 4th Floor, ' C Wing, Plot No. C-24, G-Block, PB No. 8121, Bandra KurIa Complex, Bandra (East), Mumbai - 400 051.

cFifcfj 3ft^r?PT ^ , q>i^, ^ - 400 001 giYT g l ^ i Printed at Karnatak Orion Press, Fort, Mumbai - 400 001.

TABLE OF CONTENTS
Page No.
Ust of Figures List of Tables List of Abbrevatlons 31TWT Acknowledgement Executive Summary Chapter I Chapter n Introduction Diversification of Indian Agriculture A. Nature and pattern of DOA B. Definitions & Concepts C. Drivers of Diversification Strategic fit and Commodities Study A. Strategic fit with the Indian economy B. Commodities Study: Fruits & Vegetables C. Commodities Study: Aquaculture Diversification of Agriculture in Andhra Pradesh A. Overview of A.P. Agriculture B. DOA (District Level) Selected District Profiles and Case Studies (Fruits & Vegetables and Aquaculture Sub-Sectors) Suggested Policy Interventions Initiatives of the Ministry of Food Processing, Government of India Hazard Analysis Critical Control Point (HACCP) Notes & References 21 iv iv
V

vil ix xlv

Chapter i n

Chapter IV

49

Chapter V Annexure I Annezure n

65 77 80 85

ill

LIST OF FIGURES
No. Description 1 Per capita consumption increase by food group, India, 1977-99 2 Trends in Area and Production of Rice in AP 3 Trends in Area and Production of Jowar in AP 4 Diversification of Agriculture and Resource Endowments (Schematic) 5 Extent of Diversification in Andhra Pradesh Page No. 30 66 66 69 70

LIST OF TABLES
No. Description Page No. 1 State-wise Distribution of Districts and Share of HVC's 37 by Level of DOA 2 Average Yields of Livestock Products 1992-2002 40 3 State-wise Production of Milk in India (Lakh Tonnes) 41 4 Area and Output of Fruits and Vegetables 46 5 State-wise Area and Output of Fruits in India 47 6 State-v(/lse Area and Output of Vegetables in India 47 7 India's Share in World Exports of Fruits and Vegetables 49 8 Agro-Food Fruit and Vegetables 54 9 Agro-Food Cereals 54 10 State-wise Area Under Aquaculture 57 11 State-wise Production of Cultured Shrimp in India 57 12 India's Exports of Marine Products 58 13 Crop Shifts in Andhra Pradesh (Area) 62 14 Area Shifts in Andhra Pradesh by Region 64 15 Growth Rates for Area, Production and 67 Yield of Total Cereals 16 Growth Rates for Individual sub-categories of Cereals 67 17 Growth Rates for Area, Production, Yield etc.. in 68 Andhra Pradesh 18 Migration Coefficient between Coarse Cereals* and 70 Fruits and Vegetables fi-om 1993-94 to 1998-99 19 Area Under Principal Fruits & Vegetables in 72 Visakhapatnam and Chittoor Districts (2000-01) 20 Marine Fish Production by Districts in A.P 75 21 Migration Coefficient of Area and Production of Rice 75 and Aquaculture and Production of Shrimp: (1992-2000)
IV

LIST OF ABBREVIATION
AEZ AVRDC BCM CAGR CDA CMIE DOA EAC FAO FTA GOAP GOI HACCP HVC IFPRI MDG MSP NSS RBI SID SMP SPS TE TIFAC TRIPS TVE UN UPA WB : Agri-Export Zones : Asian Vegetable Research and Development Centre : : : : : : : : : : : : : : : : : : : : : Billion Cubic Metres Compound Annual Growth Rate Commodities Diversification of Agriculture Centre for Monitoring Indian Economy Diversification of Agriculture Export Agricultural Crops Food and Agriculture Organisation Free Trade Agreement Government of Andhra Pradesh Government of India Hazard Analysis and Critical Control Point High Value Commodities International Food Policy Research Institute Millennium Development Goal Minimum Support Price National Sample Survey Reserve Bank of India Simpson Index of Diversity Skimmed Milk Powder Sanitary and Phyto-Sanltary Measures Triennium

: Technology Information Forecasting & Assessment Council : Trade Related Intellectual Property Rights : Town ind Village Enterprises : : United Nations United Progressive Alliance

: World Bank

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ACKNOWLEDGEMENT
The author is highly thankful to Dr. P. P a r t h a s a r a t h y Rao. Senior Scientist, ICRISAT for permitting me to use the data on HVC in his draft paper and to Dr. K.J.S. Satyasai, Assistant General Manager, NABARD, Hyderabad for his valuable comments on the preliminary draft. He is also thankful to Ms. Sara Varkkl, Dr. Sujlth K.Mishra (APITCO), and Mr. Ravi Kumar Chandolu, Research Officers for helping in data collection and compilation in this Report. B. Yerram Raju

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EXECUTIVE SUMMARY
1. T h e r e is now a n u r g e n t need for a p a r a d i g m shift in a g r i c u l t u r a l policy to a d d r e s s t h e p r o b l e m s facing t h e agricultural sector in the new economic environment, domestic a n d global. Diversification of Agriculture (DOA) h a s been adopted as a strategy for enhancing incomes of the farmers in different parts of the World. This paper is an attempt to look into the way farmers in Asia with specific reference to India have taken to the diversification strategy. A survey of available literature indicates the following, among others, in regard to motivation for diversification: Optimization of resources in the context of inadequate/continually uncertain irrigation and depleting soil wealth; Shifts in consumption patterns from course cereals to fine and superfine cereals and other products, and; Growing urbanization and its impact on specific agro-regions. The key drivers of diversification noticed from the secondary data are: (1) Food Security; (2) Employment Generation through creation of off-farm and non-farm investment opportunities within the capabilities of the resource-poor farmers; (3) Changes in crop patterns and farming systems; (4) More effective use of land and water resources; (5) Market access initiatives replacing risk aversion with risk acceptance; (6) Changing consumer demands irrespective of the nature of habitation and standards of living due to spread-effect of health consciousness caused by the visual media and non-discriminatory demand for quality goods, a n d (7) The role of urbanization in fast developing countries like India. Diversification often meant shifts from food to commercied and non-food crops; from un-remunerative crops to horticulture and aquaculture and within horticulture from long gestation fruit crops to short duration fruits and vegetables. The Study proposes to examine the hypothesis thg.t with the opening of the economy. Diversification of Agriculture (DOA) as a strategy would, to a large extent, open up opportunities for value addition in agriculture and enhanced income earning o p p o r t u n i t i e s for t h e farming community. The s t u d y also xiv

2.

3.

4.

5.

6.

e x a m i n e s t h e drivers of diversification at aggregate a n d disaggregated levels and why certain commodities were in focus in the attempts towards diversification while others were not. 7. The s t u d y also a d d r e s s e s t h e i s s u e : If s u i t a b l e policy interventions are in place, would the DOA and within t h a t Coinmodity Diversification (CDA) rapidly transform the sector, promote more balanced regional development and assure secure livelihoods for millions of farmers who are threatened by the swift policy and economic changes in recent years? Crop-choice at the farm level is determined by several factors of which the farmer's risk perception is crucial. A weak assetbase, inadequate and as5rmmetric information, uncertain market outlook, and limited reach of extension services lead to the tendency to cultiva:te "safe crops" and risk-aversion. If DOA is to become a sustainable strategy, the relationship between "DOA and risk behaviour needs to be understood in greater depth, particularly in the context of trade liberalisation where the volatility of global agricultural prices and sudden or unexpected changes in the relative profitability of different agricultural commodities are additional factors operating on the farmer's decision-making p r o c e s s . However, some s t u d i e s conducted by the FAO and World Bank in the South Asian countries revealed that it is the single most Important source of poverty alleviation. Also, several researchers pointed out that increased DOA would reduce vulnerability to commiodity price volatility due to a wider range of outputs and thereby reduce risk for farmers to a certain extent.

8.

9.

10. India is the fourth largest economy in the world in terms of P u r c h a s i n g Power Parity (PPP). Per capita income Is now $2,530. With 143 million hectares of cultivable land and about 650 million persons dependent on agriculture, India has one of the largest agricultural sectors in the world. However, the overall growth rate of the economy at 5.8 per cent since the early 1990s and projected growth rates of above 8 per cent for the next few years has deflected attention from declining growth rates in agricultural output and rural employment. The primary t a s k facing t h e a g r i c u l t u r a l sector is to e n s u r e food a n d nutritional security to a vast and growing population with food grain production targeted at 300mt over the next decade to meet demand for food and animal feed. The average a n n u a l
XV

growth rate of food grain production h a s fallen from 2.85 percent during 1980-90 to 1.66 percent during 1991-2001. Policy interventions, therefore, will have to be framed keeping food security and farmers* livelihoods as goals with the highest priority. The large n u m b e r s of resource-poor farmers who constitute about 80 per cent of cultivators and the fact that rain fed/dry land agriculture accounts for almost two-thirds of cropped area makes the achievement of these goals a difficult task over the next two decades, unless crop-specific and regionspecific s t r a t e g i e s a r e designed. The WTO Agreement on Agriculture, the DOHA and CANCUN rounds of discussions, the Geneva Agreement have led to intensification of efforts at DOA. 11. In the Indian context, major diversification occurred in crop shifts to superior grains on one hand and in livestock, fruits, vegetables, fish and aqua on the other. Inter-State and intras t a t e indicators of diversification revealed the following: The s o u t h e r n S t a t e s , particularly Kerala and A n d h r a Pradesh, witnessed significant shifts from food grain to non-food grain crops by the early 1990s - with almost 20 per cent increase in Gross Cropped Area under non-food crops between 1970-71 and 1990-91. The highest percentage change in area under non-food grains was witnessed in Haiycina, Kerala, Rajasthan and Orissa. 12. There has been a shift not only in area from food grain to nonfood grain crops, but also, within non-food crops, shifts have been occurring in the crop-mix across regions. In several regions, there is a decline in area u n d e r millets and coarse cereals, and in favor of pulses a n d / o r oilseeds. Even in the c a s e of o i l s e e d s , some shifts h a v e o c c u r r e d away from traditional crops such as groundnut, towards non-traditional crops such as sunflower and soybesm. There is also growth in new sectors such as horticulture, floriculture and mushroom cultivation, which are in response to growing demand for these products. Shifts in area have strongly favored oilseeds in some regions, fruits and vegetables in several States followed by spices and sugarcane. The changing pattern of DOA across S t a t e s s i n c e 1 9 7 0 - 7 1 showed i n c r e a s e s in a r e a u n d e r g r o u n d n u t in Andhra Pradesh, Karnataka and Tamilnadu; coconut and rubber in Kerala; Soya bean and sunflower in M a h a r a s h t r a ; r a p e s e e d / m u s t a r d in G u j a r a t ; c o t t o n in R a j a s t h a n , Punjab a n d H a r y a n a a n d s u g a r c a n e in Uttar Pradesh. xvl

13. The shift from food crops to non-food crops has been highest in t h e s o u t h e r n a n d w e s t e r n S t a t e s (due partly to t h e slow expansion of irrigation for water-intensive crops), while the northern States have moved more rice and wheat specialization (due to price support policies, which are a main contributory factor for this crop pattern). Maize is gaining area in the south, driven by the demand for poultry feed; and pulses, oilseed' and fruits & vegetables are also witnessing an area shift in their favor. Though the eastern region remains rice-based to ^. large extent and has seen less DOA than the other regions, a major crop shift towards vegetables h a s been witnessed i n d e c e n t years with this region accounting for about 44 per cent of total area under vegetables in the country. DOA in favor of livestock and horticulture was found to be more in rain-fed regions bypassed during the Green Revolution and the shift to non-cereal crops was more by small farmers in r a i n fed a r e a s . D a t a i n a d e q u a c i e s prevented t h e a u t h o r from e s t a b l i s h i n g a n y correlation between the flow of credit and CDA though there is no denying the fact that easy and quick flow of credit in time would have accelerated the pace of CDA. 14. A n d h r a P r a d e s h h a s b e e n c h o s e n for a c a s e s t u d y in diversification particularly in the districts of Chittoor (Fruits and Vegetables) and Viskhapatnam (Aqua) as the diversification initiatives in these districts have not led to the suicides of farmers that were noticed in the Telangana and Rayalaseema districts. Where some suicides were reported in the past six m o n t h s in these two districts, they were more due to t h e family, faction and caste-ridden disputes. These districts have s h o w n i n c r e a s e s in incomes due to high value fruit a n d vegetable crops and aqua and favorable market responses. They also lead u s to conclude t h a t demand-led initiatives have a better scope for sustainability than supply driven initiatives, (see Chapter FV for case study details) 15. Gross inadequacies are noticed in terms of value addition due to inadequate attention to crop specific infrastructure and postharvest technologies like pre-cooling, cold storages with assured power at uniform voltage, price hedging operations, m a r k e t reforms in farm sector etc. Some States have initiated special studies in this regard to prioritize their investments in these areas and deploy the needed resources. The impacts of these initiatives would be felt in due course. However, there is a regulatory overhang in India with more t h a n twelve Union xvii

Ministries, corresponding State Ministries, laws framed by the Union Government with rules framed by the State Governments for implementing them, still seventy-odd food control orders governing the production and trade of those commodities and crops into which the farmers would like to diversify, the farmer, rural industry and farm trade are virtually strangulated. While there is an awakening In respect of these areas, the speed of reforms and actions In these areas deserve an urgent attention. Around 80 percent of resource use, flow of credit and active State interventions are noticed in just half of the Indian States. 16. Major attention is urgently required in terms of conferment and regularization of property rights, freer flow of agricultural goods and services across the States, easier access to information through information, communication and technologies (ICT) on weather and markets and extension supports in order to take advantage of t h e quick shifts in c o n s u m p t i o n p a t t e r n s by appropriate DOA.

xvlii

CHAPTER I INTRODUCTION
1.1 Backdrop

Never did Indian Agriculture, after attaining Green Revolution, receive so m u c h attention as now. Political parties that went through the h u s t i n g s realized t h a t ignoring agriculture from the purview of economic reforms that commenced in the aftermath of post-1991 Balance of Payments crisis harmed the interests of the farmers and t h e economy a s a whole. T h e r e is now a n u r g e n t n e e d for a paradigm shift in agricultural policy to address the problems facing the agricultural sector in the new economic environment, domestic and global. The agricultural sector in India is enormously significant despite its declining share in GDP. Sectoral shifts occurring as a result of the development process have raised the share of the Services sector in GDP during the 1990s, while Agriculture, which had a predominant share in GDP in the 1950s, contributes only 22.5 per cent by the end of March 2004 (Economic Survey, GOl, 2003-04). The annual compound growth rate for production (all crops) declined from 3.19 per cent during the 1980s to 1.73 per cent in the following decade well below the average annual population growth rate of 1.93 per cent. For the sector as a whole, the average annual rate of growth for Agriculture and Allied activities fell to 3.6 per cent during the period 1992-2000 compared with a growth rate of 3.9 per cent during the period 1980-1992 (at 1993-94 prices) and further down to 2.6 percent after 2000. The slow growth of employment in the economy (stagnant at 2.04 per cent per annum since 1983) and the declining emplo5nTient opportunities in the farm and non-farm sectors (with employment growth rate in agriculture falling from 1.51 per cent in 1983-84 to -0.34 per cent during 1994-2000) h a s kept development of the agricultural sector at the top of the policy agenda. Another issue relates to the regional imbalances. States like Bihar, Orissa, and West Bengal have rich natural resources in terms of water and virgin soils have not reached their potential even to the extent of meeting their own States' needs. These States are also the victims of natural calamities annually. Backwardness in agriculture and poverty are interrelated issues. Indian agriculture bears the attack of continual droughts, frequent cyclones, floods and uncertain monsoon, causing untold misery to millions of farm households

a c r o s s t h e c o u n t r y . Added to high m o n s o o n - d e p e n d e n c e a n d inadequate crop insurance, there are several other factors affecting the performance of the sector: declining productivity growth rates, stagnation in irrigated area, ineffective and poorly implemented policies over several decades, growing financial constraints of the Central and State Governments, declining public investment in agriculture, input supply bottlenecks, inadequate infrastructure and extension services, environmental factors and climate change, deterioration in the n a t u r a l resource base, among many other factors. Credit has been made out to be the villain of the piece and t h e UPA G o v e r n m e n t moved in to r e m e d y t h e s i t u a t i o n in furtherance to the recommendations of the Vyas Committee Report (2004). Planning Commission, in its mid-term review of the Tenth Plan mentioned that it would be difficult to reach 6-6.5 per cent growth per a n n u m without the terminal years touching 11-11.5 per cent growth rate and that the prospects of agriculture reaching 3 percent p e r a n n u m would also b e a c h a l l e n g e . (Financial E x p r e s s , 10.07.2004) The World Banks' Millennium Development Goal (MDG) of halving the poverty numbers by 2015 suggests that removal of subsidies to food grains could in the short term reduce agricultural output that received t h e m m o s t . But, t h i s could lead to significant crop diversification in these States. Again, the States that did not receive them in the past may benefit from the release of resources for rural infrastructure, research and extension leading to drop in the poverty levels. (WB, September 2004) Do the existing levels of DQA support this stance? 1.2 Scope and Objectives

Agsiinst this backdrop, the Study proposes to examine the hj^othesis that with the opening of the economy, Diversification of Agriculture (DOA) as a strategy would, to a large extent, open up opportunities for value addition in agriculture as well as lead to better crop planning and enhance income earning opportunities from the farm sector. It would also examine the drivers of diversification both at the aggregate and disaggregate levels. Further, within the range of diversification in the country which commodities responded to the initiatives and why? If suitable policy interventions are put in place, would the DOA and within t h a t Commodity Diversification (CDA) rapidly transform the sector, promote more b a l a n c e d regional development and assure secure livelihoods for millions of farmers

who are threatened by the swift policy and economic changes in recent years? The Study would rely on the secondary and data and information. Objectives would accordingly be: 1. To examine the nature and pattern of crop diversification in India at the aggregate as well as disaggregate level (State/ District level to the extent data becomes available at t h e disaggregate level) To examine the drivers of diversification s u c h a s income maximization objectives, changing consumption basket, price, incentives support by the b a n k s and government, contract farming etc., To analyse crop diversification strategies in relation to wider processes operating in the Indian economy; for example, rural industrialization, WTO stipulations on quality standards like t h e H a z a r d Applications a n d Critical Control A n a l y s e s (HACCP), conservation of land a n d water r e s o u r c e s a n d sustainable development and To suggest policy interventions that would facilitate crop shifts t h a t a r e technologically feasible a n d e n v i r o n m e n t a l l y sustainable. Data and Methodology

2.

3.

4.

1.3

Review of literature on the subject and study of secondary data and information: Post-green revolution in India has brought about food security to a considerable degree more in comparison to the p r e - g r e e n r e v o l u t i o n period t h a n in r e g a r d to t h e i n t e r n a l requirements of food security. While the period 1980-91 reflects the ushering in of economic reforms in most South Asian economies intensification df reforms occurred in the post 1990-91 in India. The Study, therefore, proposes to anlayse the data on area, production and yields of principal food and non-food crops in different States where the crop shifts occurred during the past ten years (1991-2001) to examine the reasons behind them. Again, within the non-food crops, in view of t h e a p p a r e n t surge in d e m a n d of fruits a n d vegetables and aqua products, the extent to which the migration had occurred in terms of area and production would be studied. These two s e c t o r s also require adoption of global s t a n d a r d s even in domestic markets due to WTO stipulations to gain better market access. A brief examination of the essential components of these s t a n d a r d s t h a t require compliance from t h e p r o d u c e r s to t h e

manufacturers and traders would be done with regard to the value addition and its sustainability. The consumption patterns and their influence on the DOA in respect of fruits, vegetables and a q u a products would be also analysed from the last ten years data. The main data sources are: CMIE, National Sample Survey results of the relevant years, Indian Council for Agricultural Research: National Horticulture Board under the Ministry of Agriculture, NCAER data: Union Ministry of Commerce and Industry for d a t a on exports; APEDA and MPEDA: Ministry of Food Processing Industry, RBI and NABARD. Commodity Diversification occurs due to changes in consumption patterns in the markets that the relative commodities access or intend to access at ajuture date. It is also spurred by the favorable regulatory mechanisms. After examining the implications of DOA for the country I looked at its effects in Andhra Pradesh more as a case in point. Since the objective is to study the effects of DOA in relation to Fruits and Vegetables and aqua products 1 preferred to look at a couple of districts-Chittoor and Nellore-where t h e impulses for diversification were s p u r r e d by the State initiative a n d farmer initiative respectively. I relied on t h e NSS d a t a on h o u s e h o l d consumption of these commodities to examine the shift that has so far occurred on one hand and its further prospects on the other. It is considered worthwhile to establish the relationship empirically over a decade through a migration coefficient. Migration Coefficient is arrived at as follows:

'Zxy
<P = Ndxdy

Where a s x = XLX; y = Y - Y dx = Standard Deviation of x dy = Standard Deviation of y N = Number of pairs of observation The value of cp as obtained by the above formula shall always lie between +1 to - 1 . When <p = +1, it means there is perfect positive correlation between the variables. When y? = - 1 , t h e r e will be negative correlation between the variables. When j = 0, it means that there is no relationship between the two variables. Change in the area of a crop could result in a shift to another crop or another strain of the same crop or another product altogether. This change is expressed in terms of the migration coefficient. Crop migration that took place in terms of the variables of area and production as a result of the shift is measured through the above index.

CHAPTER II DIVERSIFICATION OF INDIAN AGRICULTURE

2.1 Nature and Pattern of Crop Diversification

This Chapter deals with conceptuEil (definition and scope), economic (food s e c u r i t y , e m p l o y m e n t - g e n e r a t i o n , u r b a n i z a t i o n , poverty alleviation), technological (farming systems and their effects on cropchoice/risk-aversion) and environmental sustainablllty (utilization of land and water resources) issues. The aim is to cleirify these issues in order to understand the potential and the constraints of DOA strategies and the range of policy interventions that are necessary to make this a viable strategy for resource-poor farmers. 2.1.1 Survey of literature on DOA reflects that there were distinct drivers in Asia in general and India in particular: Optimization of r e s o u r c e s in the context of i n a d e q u a t e / continually uncertain Irrigation and depleting soil wealth leading mostly to crop diversification in specific zones Government policies of public distribution system leading to shifts in consumption patterns from course cereals to fine and superfine cereals Changes in social fabric leading to shifts in consumption patterns thereby tempting farmers to diversify into varying product ranges particularly after the opening of agricultural markets across the country amd globe Growing urbanization and its impact on neighboring districts moving to commodity diversification. Concerns on poverty alleviation and employment generation tn the rural areas.

2.1.2 These have resulted in crop shifts from food to commercial and non-food crops; from un-remunerative crops to horticulture and aquaculture and within horticulture from long gestation fruit crops to vegetables and short duration fruit crops. 2.1.3 Some traditional complementary activities to agriculture in India like the livestock, poultry, and aquaculture have been treated

as diversification in some parts of the globe. At the global level, more t h a n 2.4 billion people are dependent on agriculture for their livelihoods. Majority of them are in the developing world with 500 million farm h o u s e h o l d s spread across South Asia engaged in agriculture-related activities in widely different economic a n d ecological environments. Despite the heterogeneity of farming systems and socio-economic conditions across the globe, similar processes have unfolded in several South Asian economies in recent years. Even in developed countries like the UK, more than 40 per cent of the total income generated from farm holdings is now from DOA r a t h e r t h a n food production. (Turner, 2003). By c o n t r a s t , US farmland is dominated by three principal crops - com, soybean and wheat - that account for 80 per cent of the cropped area of 240 million acres (USDA). 2.2 Definition and Concepts

2.2.1 DOA is a process t h a t h a s several dimensions. It can be viewed, narrowly, a s a larger mix of activities within agriculture involving crop substitution. Diversification can also involve "a shift of resources from one crop (or livestock) to a larger mix of crops and livestock, keeping in view the varying nature of risks and expected returns from each crop/livestock activity, and adjusting in such a way t h a t it leads to optimum portfolio of income" (Joshi, et al, 2003). DOA may also be viewed as "the diversion of resources previously committed to farming to other income-earning activity" (cited in Turner, 2004). This would mean a shift from farm to nonfarm activities. For countries such as India, DOA represents a shift from low value commodity mix to a high value commodity mix with increasing specialization. DOA, in its broadest sense, is "a d)niamic optimal mixture of farm production alternatives capitalizing on between-farm heterogeneity in terms' of resource availability and qualities." (Barghouti, et al., 2004). In the present economic context, DOA is demand-driven and the farmer's choice of crop is at the c e n t r e of DOA d y n a m i c s . The p r o c e s s of DOA is, therefore, summarized as "a change in product (enterprise) choice and input use decisions based on market forces and the principles of profit maximization." (Pingali and Rosengrant, 1995). 2.2.2 From a narrow point of view, DOA implies increasing the variety of agricultural commodities produced at the farm level. From this point of view. Southeast Asia was remarkably successful in DOA in the nineteenth and early twentieth centuries (Hayami, 1992) when in response to growing demand from the west for tropical products.

new lands were cultivated with cash crops such as sugar, coffee, tea, and rubber. DOA. at the farm level, may also be the response of subsistence farmers to reduce risks arising from climatic, biotic, or s e a s o n a l factors. The latter h a s b e e n found to be t h e typical response of subsistence farmers in Africa (Delgado 1997, and IFPRI 1998) and subsistence farmers in non-irrigated Asia. 2.2.3 A b r o a d e r point of view s u g g e s t s t h a t DOA is a p r o c e s s a c c o m p a n y i n g economic growth, c h a r a c t e r i z e d by a g r a d u a l movement out of subsistence food crops (mostly rice in Southeast Asia) to a diversified market-oriented production system, triggered by improved r u r a l i n f r a s t r u c t u r e , rapid technological c h a n g e in agricultural production, pcirticularly food staple production, and DOA in food d e m a n d p a t t e r n s (Rosegrant a n d Hazell 1999). DOA, therefore, involves more than merely growing crops other than rice. It is linked to increasing commercialization and to the structural transformation of the economy with a fall in the agricultural share of GDP. The process involves not only cropping but also new marketing and agro-food based industrial activities that expand the income sources of rural households and affect the overall rural economy. Eventually, the process of structural transformation of agriculture will lead to the exit of a significant proportion of the rural work force from agriculture, though not necessarily from rural areas. T h u s , r u r a l i n c o m e diversification e n c o m p a s s e s b o t h a g r i c u l t u r a l diversification and the stimulation of rural non-farm sources of Income (Goletti and Rich, 1998). This process is likely to witness ushering in rural entrepreneurship in the place of job seekers. 2.2.4 Given the wide-ranging impact of DOA strategies in terms of linkages with other sectors a n d potential for speeding u p r u r a l industrialization, a distinction can be made between horizontal and vertical DOA. Briefly stated, horizontal DOA refers to the production of different c r o p s / a new crop mix whereas vertical DOA refers to value added activities such as agro-processing. 2.2.5 DOA can occur at the micro, regional, and macro level (Taylor 1994). At the micro level, the individual household diversifies in order to broaden its sources of farm and non-farm income. At the regional level, regions pursue agricultural activities in which they have compEirative advantage. For both households and regions, DOA may involve specialization, as for example rain fed rice farmers becoming specialized tobacco growers or coffee producers. At the macro level, DOA Implies the structural change from agriculture into non-farm activities, either in rural or urban areas, or in rural towns (Otsuka 1998).

DOA can be viewed as a flexible form of development that induces "sustainable growth by encouraging sustainable production systems in line with t h e available r e s o u r c e s of f a r m e r s a n d microenvlronments of soil and land, capturing on the seasonal and regional availability of resources, and improving the nutritional balance of consumers.... It promotes synergies from complementary coexistence of multiple agricultural enterprises, including crop, livestock, fisheries, farm forestry, and horticulture." While these changes, in turn, induce a need to reexamine the role of DOA, DOA inevitably remains "an integral part of the process of structural change in the global agriculture systems." (Barghouti, et al, 2004). 2.3 Rationale for DOA in South Asia

2.3.1 Agriculture in South Asia generally, and in India in particular, has a vast proportion of their populations dependent on subsistence farming on shrinking plots of farmland marked by deterioration in t h e n a t u r a l r e s o u r c e b a s e . T h e h i g h yield i n p u t i n t e n s i v e technologies that characterized the Green Revolution took a heavy toU on land and water resources leading to "plateauing" of yields for major crops in some regions and s h a r p decline in productivity growth rates in others. Falling agricultural prices for cereal crops combined with the high costs of i n p u t s , r e d u c e d government interventions through price support policies and/or subsidies and an intensely competitive international trade regime have threatened the livelihoods of millions of farmers in the developing world. The slow growth of employment outside agriculture h a s made 970 million people living in rural areas in South Asia - 72 per cent of the total p o p u l a t i o n of 1344 million people - m o r e d e p e n d e n t on t h e agricultural sector. The per hectare density of population at 1.89 persons per h a is higher in South Asia t h a n in any other region while per capita availability of agricultural land is 0.16 ha. (FAO/ World Bank, 2001). The majority of farmers in the region are resource-poor with a low asset-base. 2.3.2 The only avaiilable options for raising incomes of farmers faced by steadily declining yields are Increases in area and cropping intensity. However, there are technological and environmental limits to both these options as investment in irrigation development slows down and unstable markets for agricultural output increase risk. 2.3.3 DOA offers opportunities for farmers in developing countries to move out of monoculture subsistence production systems dominated by rice/wheat and respond more flexibly to changing market demand 8

patterns by growing a variety of crops and expanding farm and nonfarm activities for better income-generation. With more than 40 per cent of the 1.2 billion poor people in the world living in South Asia, long-term strategies for sustainable agricultural production and allied activities are a development priority in most of the region. Diversion of agricultural activities for increased output value and expansion of off-farm income is a desirable strategy to i n c r e a s e s o u r c e s of livelihood. Given this context, DOA has been described as "the single most important source of poverty reduction for small farmers in South and South-East Asia" (FAO/World Bank, 2001). However, at present in developing countries, cereal food crops occupy 80 per cent area of the smallholder farms and only 20 per cent of the area is devoted for DOA (FAO, 2003). 2.3.4 DOA h a s been identified as the most effective strategy to release those who are locked in the "prison of hunger" and create viable opportunities for small and poor farmers to produce high v a l u e c a s h c r o p s for d o m e s t i c a n d e x p o r t markets (Shanmugasundaram, 2004). Factors operating at the micro-level such as the stagnation in cereal-based crop systems and lack of sustainability of the cereal-cereal rotation, high risk, low incomes, and the need for more efficient use of farm resources combined with the push factors at the macro-level (economic reforms, urbanization demand-driven production) have increased DOA into non-cereal crops in several developing countries in Asia, Africa and Latin America. Moving away from the cereal-cereal cropping system is also expected to b r e a k the insect and pathogen cycles a n d help improve t h e profitability of the systems. For example. Inclusion of leguminous vegetables improves income and at the same time also enriches the soil and productivity of succeeding cereals. Results of studies from various countries have shown that replacing cereals with vegetables can generate additional employment and income. (Shanmugasundaram, 2004). It h a s been noticed that increase in incomes o c c u r r e d in food security zones where diversification occurred in favour of (a) horticulture; (b) animal husbandry activities; and (c) aquaculture. 2.3.5 Turning to the South Asian region, which is of special interest to u s , t h e r e ar6 wide variations a c r o s s S o u t h Asia in t e r m s of economic development (with Maldives and Sri Lanka as the only middle income countries in the region), agro-climatic conditions, p u r s u i t and pace of economic reforms and overall a g r i c u l t u r a l performance. In recent years, several countries in the region have moved towards diversifying their agriculture to high-value agricultural

commodities as a result of changes in domestic economic policies as well as liberalization of foreign trade. A study based on the Simpson Index of Diversity (SID - measure of dispersion of commodities in a geographical region) h a s found t h a t agriculture in South Asia is slowly diversifying towards high-value commodities. (Joshi, et al 2003). DOA is more clearly evident in sub-sectors such as fruits and vegetables, livestock and fisheries in many of the countries in the subcontinent. Bangladesh, Bhutan and Nepal, however, show slower growth in DOA due to priority for food grain production with Bangladesh in particular specializing in rice production with over 75 per cent of cultivated area in the country under rice. 2.3.6 Much of the DOA evident in the South Asian region has come about through increases in area and cropping intensity rather than through crop substitution. (Joshi, et al 2 0 0 4 , p.2459). In East Asia, Thailand h a s diversified to a considerable extent for the export market (asparagus and fisheries/shrimps) t h o u g h it r e m a i n s one of the world's leading exporters of rice. Indonesia h a d , u n t i l the 1990s, given greater priority to selfsufficiency in food grains, as it had become the world's largest importer of rice in the 1970s. In Sri Lanka, there has been increase in DOA of paddy lands into production of fruits and vegetables (Wickramasinghe and Abeysekera). Tea lands are also identified as high potential a r e a s for growing pepper, c i n n a m o n a n d clove. Similarly, t h e r e is p r e s s u r e for a r e a u n d e r r u b b e r also to be diversified for growing other crops. With the increased emphasis on Export Agricultural Crops (EAC), these crops now account for about 60 per cent of agricultural land in Sri Lanka. 2.4 Key Drivers of DOA

2.4.1 Food Security The rationale for the promotion of DOA strategies is based on the pressing need to raise farmers' incomes and induce them to engage in more diverse farm activities given the slow employment growth in the non-agricultural sectors and non-remunerative prices for major agricultural commodities in recent years combined with the changing demand patterns and responses to trade liberalization. However, policies aimed at DOA have to be framed with caution in situations where ensuring food security remains a high priority in most of the developing countries. Dependence on volatile global markets for food grains can be disastrous in the long-term and self-sufficiency in this sector is a development goal that cannot be compromised. 10

Technological break-through in rice led to adaptation of shorter duration and superior varieties of rice. This has brought about food security in the once famine-stricken eastern region of India. The global demand for rice in 2030 - even at declining growth rates of 1.2 per cent in the first half (up to 2015) and 0.8 per cent in the second half - is expected to touch 800 million tonnes whereas peak production levels in recent years have been 200mt below that level (Pingali, 2004). The tremendous pressure that will be placed on food grain production systems in the major rice producing countries to meet this demand is a serious policy concern. More so, in countries where declining productivity growth rates have set in since t h e 1980s and, as has happened in India, the growth rate of food grains has fallen below the rate of growth of population during the 1990s. By 2035, India's population is expected to cross the 1.46billion mark and though per capita demand for cereals is expected to decline, the production levels will have to remain high to ensure self-sufficiency. China also faces similar problems in achieving adequate levels of domestic food grain production to feed its vast population without dependence on food imports. The restructuring of agricultural sectors in these countries has the immensely difficult task of balancing food security and DOA strategies. The spread of DOA creates the need for higher productivity in cereals as lands get diversified into non-cereal production. "In large countries such as India and China, with high domestic demand for cereals...investments in marginal environments are absolutely essential for e n s u r i n g food security even if t h e countries are integrated into the global economy." (Pingali, 2004) Expansion of cultivated area is a desirable goal b u t h a s serious limitations to pursue due to land reforms and related development issues; similarly a strong thrust towards irrigation development is necessary but need not result in optimum use which alone would contribute to higher yields; and therefore, more region-specific and technology-specific interventions are called for to minimize the threat to food security and e n s u r e viability of food grain p r o d u c t i o n systems. 2.4.2 Emplojonent Generation The case for DOA strategies is greatly strengthened by the favourable effects of s u c h strategies on employment growth. This h a s been widely commented upon in the literature as an added advantage for developing countries, apart from all the other advantages mentioned earlier s u c h a s increased incomes, poverty-reduction a n d more sustainable resource-use. 11

DOA leading to changes In the crop mix/crop-livestock mix/crop s u b s t i t u t i o n r e s u l t s in significantly high d e m a n d for labour, depending on the precise crop choice or combination. The expansion of a r e a u n d e r v e g e t a b l e s h a s a clearly o b s e r v e d i m p a c t on employment. In Guatemala, for example, as a result of DOA to increased vegetable production for export, employment increased by 45 per cent on participants' farms. (Barghouti, et al., 2004). It has been estimated that a one-hectare shift of cereal to vegetable in one season generates more than one year's full time emplo5nTient - the difference between cereals and vegetables was more t h a n 220 working days per hectare. According to one field study (G.S. Ram 1995) crop-wise estimates of employment based on mandays required per hectare suggest that under Indian conditions, crop production utilizes 8 0 to 100 m a n d a y s per h e c t a r e w h e r e a s p l a n t a t i o n , horticulture, sericulture use 3 to 7 times more labour. In general, high value crops increase labour r e q u i r e m e n t s at all stages of cultivation. This applies more strongly to a r e a s t h a t are being diverted from paddy cultivation as land preparation - including building drainage structures and breaking the paddy hardpan to ensure root penetration - involves more labour input, particularly if sowing of a non-rice crop takes place soon after the rice harvest (Ptngali, 2004). There is an increased requirement of supervision by the farmer in the case of high-value crops, which could prove to be a constraint to such DOA in certain contexts where such inputs may not be easily available. There is also an increase in off-farm employment as value addition through vertical DOA results in growth of ^gro-based industries in rural areas. The growth of employment would also depend on the linkages between the farm and non-farm sectors of the economy as also r u r a l - u r b a n l i n k a g e s . The l i n k s between DOA and r u r a l industriEilization result in an increase in rural non-farm employment where attempts are made to remove structural deficiencies develop physical infrastructure and shift the focus from production to postproduction activities (such as storage, transport, processing and m a r k e t i n g ) . Development of t h e r u r a l non-farm sector led to increases in non-farm employment in Taiwan and Malaysia in the 1960s, Thailand, Philippines and Indonesia in the 1970s and 1980s. (Goletti, 1999). China witnessed unprecedented employment in its rural non-farm sector after the economic reforms with more than 100 million people gaining employment in rural industries, though not all of this massive expansion was due to DOA alone. Neither increased diversification nor t h e general indicator of reduced c o n t r i b u t i o n of a g r i c u l t u r e to t h e GDP h a s r e s u l t e d in t h e 12

emplojrment intensity in this sector. It has been noticed that at the aggregate level the favourable and adverse effects of technological changes on human labour employment would nulliiy each other, and on b a l a n c e , t h e technology might become n e u t r a l in t e r m s of additional employment generation (G.S. Ram 1995). It is, however, established that employment growth through increased DOA activities results in a strong multiplier effect on the rural and wider economy. The production-consumption linkages in the context of agricultural DOA are also the subjects of study in a scenario where smallholders dominate Indian agriculture and majority of consumers live in rural a r e a s . (Joshi, et al, 2003) It was found t h a t there is a positive relationship between growth of horticultural commodities and the proportion of small holders. This indicates that DOA in favour of horticultural commodities is more confined with the small holders. S u c h a move of s m a l l farm h o l d e r s in favour of h i g h - v a l u e commodities is expected to enhance their income. 2.4.3 Crop Patterns and Farming Systems The advantages of DOA are immense in terms of ensuring more sustainable livelihoods for farmers, among other benefits. However, DOA strategies require flexibility in farmers' responses to market Incentives a n d / o r to the policy environment that determine cropchoice and get reflected in changing crop patterns. It needs to be remembered that however significant the advantages of DOA may be, not all crop lands can be easily converted to raising a different crop mix and different farming systems impose their own constraints on a t t e m p t s to diversify. Physical factors such as n a t u r a l resource endowments and agro-climatic conditions are crucial determinants of DOA p o t e n t i a l in different regions. F a r m i n g is carried o u t in c o n d i t i o n s t h a t a r e diverse in t e r m s of t e r r a i n / t o p o g r a p h y , remoteness, aridity and other agro-climatic conditions, access to resources etc. T h e r e a r e more t h a n 70 farming s y s t e m s t h r o u g h o u t t h e six developing regions of the world (FAO/World Bank, 2001). These include rice-based farming systems that together account for about 80 per cent of the agricultural area and 50 per cent of the total agricultural area in Asia. Pingali (2004) h a s analysed the specific problems facing DOA attempts in the rice-based farming system where low returns to rice cultivation are leading farmers to other farming options. In rain fed lowlands, residual moisture encourages growing of post-rice crops or pre-rice crops during the early wet 13

season. In irrigated lowland systems growing rice and rice-wheat, these crops would continue to be grown in the dry season. DOA to non-rice crops and horticultural crops such as vegetables would be possible in areas with market access and proximity to urban centres. The main conclusions of the study are that "irrigated environments, while p r o v i d i n g a n a b s o l u t e a d v a n t a g e {relative to o t h e r environments) in a rice-rice cropping pattern, may also have a comparative advantage in a rice-non-rice cropping pattern. The extent of comparative advantage for the irrigated lowlands in diy season diversification would depend on the physical constraints and the market opportunities for non-rice commodities.... the upland environments have both, an absolute, and a comparative advantage in non-rice commodities, as well as in a range of complementary livestock activities." (Pingali, 2004, p.6). Even where DOA strategies are successful, the achievements can come at the cost of some other development priority. The World index of livestock products has expanded by about 2 percent per annum during the last 22 years. Entire growth is attributed to that in the developing countries. (Singh, 2004). The thrust towards dairy development in India that contributed to the phenomenal increase in milk production - the White revolution - is now seen in terms of its impact on p a s t u r e l a n d s as increased fodder r e q u i r e m e n t s p u t pressure on the resource-base. (Shah, 2004). Significant growth in dairy and meat p r o d u c t s is more due to complementarity t h a n diversification. During the past fifty years, Gujarat's dairy economy, according to a study (Singh et al, 2004) h a s demonstrated that intensive use of water for growing feed and fodder for cattle as a precursor to intensification of dairying is threatening the limited w a t e r r e s o u r c e s of arid a n d semi-arid a r e a s . It is, therefore, i m p o r t a n t t h a t DOA strategies should not only be region and farming-system specific, but also ensure that such strategies address the widest possible range of economic and environmental concerns. 2.4.4 Land and Water Resources While DOA of rice lands has specific technological advantages and constraints, the same is true of other areas as well. Globally, the scenario is one of intensification of agricultural activity on shrinking farmlands and rapidly depleting water resources. DOA is dependent on the resource-base - soil quality, extent of soil nutrient depletion in post-Green Revolution tracts, irrigation sources, depth of the water table, management of surface and groundwater resources in a region, and other related factors that determine the choice of crops 14

to be grown. Increased yields and raising total factor productivity have become major objectives in a context of increased soil erosion, over-exploitation of groundwater resources and inefficiencies in wateruse in most agricultural regions of the country. The environmental costs of input-intensive technological breakthrough in yields in the 1960s and 1970s h a s led to a paradigm shift in preparing for a second Green Revolution t h a t is not only b a s e d on high yield technologies but also on long-term sustainability of a deteriorating natural resource base. (Raju, ed. 2001) A sustainable attempt at DOA needs to promote crop choice in favour of less water-intensive crops. The total consumptive use of water by crops is a r o u n d 6 6 0 b c m of which 5 5 per cent is by irrigated crops and the remaining by unirrigated crops. Rice, wheat and a n n u a l crops account for nearly 80 per cent of total u s e by irrigated crops compared to less than 20 per cent in the case of rain fed crops. (Vaidyanathan, 2 0 0 4 , p.2989). For DOA strategies, emphasis h a s to be on irrigation development (through Increased public investment, which slowed down markedly since the 1980s), more efficient water-use (through appropriate water pricing policies), s p r e a d of micro irrigation in a r e a s where h o r t i c u l t u r e c a n be e n c o u r a g e d , a n d overall, improved m e c h a n i s m s for w a t e r management and water-use (through participatory approaches at the village/farm level). Out of an approximate cultivated area of 152 m ha in India, about 100 m. ha., have a mean rainfall of only 35-40cms. It is these areas that call for wide-ranging interventions "to make gray areas green" through watershed development for raising yields of rain fed crops and widening of seed revolution to cover oilseeds, pulses, fruits and vegetables to stimulate growth in these areas. (Raman, 2000) 2.4.5 Risk-Aversion and Farmer's Decision Making Strategies to provide incentives to farmers to diversify into raising a different crop mix or "new" export-oriented crops have to address the fundamental problem affecting decision-making by the majority of resource-poor farmers - i.e., h i s / h e r inability to take risks. The majority of farmers are in rain fed or dry land areas where crop choice is severely constrained by lack of access to water. The low asset-base, shrinking size of land holdings, high cost and limited availability of quality inputs, low productivity, unremuneratlve prices for major crops, are some of the factors that have sharply eroded the risk-beiring ability of the small farmer. The failure of credit delivery from institutional sources has also contributed to the high levels of 15

indebtedness and the limited options facing the small farmer. This grim scenario applies in varjring degrees in most of South Asia, but h a s reached crisis proportions in India, particularly after neardrought conditions during 2000-04, worsened by the worst drought in 30 years in 2002-03, which affected all the major agricultural States in the country. Attempts to promote DOA have to first deal with the farmer's preference for traditional crops such as rice even where the agroclimatic conditions do not favour paddy cultivation. In India, the distortions in crop pattern arising from the bias in government's price and procurement policies towards rice and wheat have been observed t h r o u g h o u t t h e 1990s a n d have c o n t r i b u t e d to t h e deterioration of the soils in the few States where the MSP policies have been operational. "The MSP has not been made an effective tool for stabilizing producer prices for other crops and supporting the DOA." (Landes and Gulati, 2004, p.3615). Five States that contribute to the Food Corporation of India in large m e a s u r e bring more political than economic pressure on Government of India on the MSP and in a way; this distorts the production and distribution systems of rice and wheat in this country. This has also led to a false sense of security, inefficient use of resources in raising these crops more particularly among the medium and large farmers than the small and marginal farmers as the later groups do not have marketable surpluses. Crop DOA that aims to raise farmer's incomes through appropriate crop shifts a s s u m e s increased flexibility in farmers' responses to market signals and relative prices. However, crop-choice at the farm level is determined by several factors of which the farmer's risk perception is crucial in decision-making. Faced with a weak assetbase to start with, inadequate information, uncertain market outlook, limited reach of extension services, the tendency to cultivate "safe crops" results in risk-aversion. If DOA is to become a sustainable strategy, the relationship between DOA and risk behaviour needs to be understood in greater depth, particularly in the context of trade liberalisation where the volatility of global agricultural prices and sudden or unexpected changes in the relative profitability of different agricultural commodities are additional factors operating on the farmer's decision-making process. However, some studies have p o i n t e d o u t t h a t i n c r e a s e d DOA will r e d u c e v u l n e r a b i l i t y to commodity price volatility due to a wider range of o u t p u t s and thereby reduce risk for farmers to a certain extent (Barghoutl, et.al.2004) 16

Feasibility of crop substitution varies across farming systems. Each farming system p r e s e n t s different profiles for t h e wet and dry seasons leading to different possibilities for DOA. In areas dominated by rice cultivation, the feasibility (size of and access to markets, income-elasticity of demand for those crops, etc.), costs (relative to other crops) and duration (seasonal or long-term) of substituting other crops for rice become critical influences on crop choice. (Dorjee, et al, 2003). Often, the farmer experiences a situation where there is a major shift or rush towards DOA by several farmers in a pEirticular region, leading to over-supply of the commodity relative to demand, and a consequent fall in prices. Demand elasticity for the commodity can also influence risk behaviour to some extent. These reasons may account for reluctance of farmers to opt for DOA. The limited options available to the farmer in specific regions due to a combination of agro-economic, technological, and market-determined a n d o t h e r r e l a t e d factors have to be k e p t in m i n d while recommending DOA. 2.4.6 Role of Urbanization in DOA Though many studies have focused attention on driving forces in DOA such as declining profitability of traditional crops, changing demand patterns towards non-cereal foods and the need to improve livelihoods for resource-poor farmers, very few have looked at the specific role of the urbanization process in speeding up DOA. One such study has analyzed the role of changing pattern of urbanization in the country with the rise of urban and per-urban population, and the resulting spatial distribution of diversified production towards high-value products (Rao, 2004). Rao's study is a disaggregated one that focuses on district level changes in India in the production of HVCs (high-value commodities). He starts out with the estimate that by 2020 the developing countries of Africa, Asia and Latin America will be home to some 75 per cent of all u r b a n dwellers (CGIAR 2003). 2.4.7 Changing Consumer Demands As a consequence of urbanization, international migration, how the new definition of food security is emphasizing the balanced diet, increasing reach and effectiveness of global media and marketing systems, and increasingly adventurous consumption habits, t h e structure of consumers demand for food is changing. For exemiple, d u e to growing c o n c e r n s with dietary h e a l t h , t h e m a r k e t for nontraditional fruits and vegetables has expanded rapidly over recent 17

years, which will contribute to the improvement of the nutritionally balanced diet. These shifts in consumption patterns occur not only in industrialized countries but also in both urban and rural areas of developing countries (see Figure 1). Structural changes in demandassociated with a wider choice of foods available, exposure to a variety of dietary patterns of foreign cultures, a premium for foods requiring some p r e p a r a t i o n , more s e d e n t a r y o c c u p a t i o n s , and separation of food consumption from production-are also related to increasing demand for nonfood agricultural products (for example, cut flowers, plant- and animal-derived textiles, and new sources of natural energy such as ethanol). The consumption of food in India is estimated at approximately INR 4,000bn at 1993-94 prices (INR 7,250bn at 2001-02 prices) in the year 2001-02, growing at a CAGR of 7.8% (1996-2002). Urban food consumption h a s grown at 9 . 1 % annually and is estimated at INR l , 5 4 0 b n (1993-94 prices). Rural food consumption, on the other hand, h a s grown at 7% annually and is estimated at INR 2,550bn (1993-94 prices). Uttar Pradesh is the largest consumer market for food products followed vby Maharashtra, West Bengal, Bihar and Andhra Pradesh. Among the fastest growing markets are the North E a s t s t a t e s , Gujarat and Andhra Pradesh. The m a r k e t size for processed foods for year 2003-04 at current price is estimated at INR 5,300bn, which Is a b o u t 60% of total food c o n s u m p t i o n . However, primary processed product (which necessarily needs to be processed in most cases for consumption) accounts for as much as 62% of the processed foods consumed. Hence, value-added processed food consumption estimated at INR 2,000bn accounts only for 16% of total food consumption. (MOFPI 2004) E t h i c a l v a l u e s a r e i n c r e a s i n g l y i m p o r t a n t in t r a d e , s u c h a s p r o d u c t i o n with p r i s o n e r s a n d child labor. In r e s p o n s e , t h e governments are changing food regulations related to production and marketing systems to protect their consumers from bio-security r i s k s . P r o d u c e r s n e e d to a d j u s t p r o d u c t i o n , m a r k e t i n g , a n d certification s y s t e m s to a c c o m m o d a t e new safety a n d quality regulations relating to the trade of agricultural (particularly food) products, t h u s creating opportunities for the vertical value added diversification of agricultural commodities.

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Figure 1: Per capita consumption increase by food group, India, 1977-99 100
80 g u 60 40 20 0 Pulses

Q.

Cereals

JLl
Meat, Egg, Fish Food Group

Vegetables

Milk

Source: Joshi et al 2002

Meeting t h e s e new d e m a n d s r e q u i r e s a d d i t i o n a l c a p i t a l a n d sophisticated skills to produce, store, preserve, pack and distribute. Unless institutional innovations enable smallholder farmers to provide t h e s e skills, large resource-rich farmers may seize the diversification opportunities created by the demand shift at the expense of poorer farmers. Inducing pro-poor diversification requires an improvement in the access of small producers to information, markets, and institutions providing inputs and skills. The increased awareness of the impact of food on health through research, m a s s media, and strong cross-culture influences has resulted in greater emphasis not only on food quality reflected in improved nutrient balance of the diet but also on the attributes related to food safety. In the light of recent disease outbreaks, such as mad cow disease (also known as BSE) and foot-and-mouth disease, governments are increasingly concerned about setting entry barriers to prevent such outbreaks within their respective domestic economies. In the next Chapter, DOA with specific reference to India in the overall context and with reference to selected sub-sectors: Fruits & Vegetables and Aquaculture are analysed.

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CHAPTER III DIVERSIFICATION OF AGRICULTURE IN INDIA: STRATEGIC FIT

3.1 Introduction

India is t h e fourth largest economy in t h e world in t e r m s of Purchasing Power Parity (PPP). Per capita income is now $2,530. With 143 million hectares of cultivable land and about 650 million persons dependent on agriculture, India h a s one of the largest agricultural sectors in the world. However, the overall growth rate of the economy at 5.8 per cent since the early 1990s and projected growth rates of above 8 per cent for the next few years has deflected attention from declining growth rates in agricultural o u t p u t and rural employment. The primary task facing the agricultural sector is to e n s u r e food a n d nutritional security to a v a s t and growing population with food grain production targeted at 300mt over the next decade to meet demand for food and animal feed. The average annual growth rate of food grain production h a s fallen from 2.85 during 1980-90 to 1.66 during 1991-2001. Policy interventions, therefore, will have to be framed keeping food security and farmers' livelihoods as goals with the highest priority. The large numbers of r e s o u r c e - p o o r f a r m e r s who c o n s t i t u t e a b o u t 80 p e r c e n t of cultivators and the fact that rain fed/dry land agriculture accounts for almost two-thirds of cropped area makes the achievement of these goals a difficult task over the next two decades, unless cropspecific and region-specific strategies are designed. 3.2 WTO Agreement on Agriculture and its Impacts

3.2.1 The economic reforms, initiated in 1991, have not impacted agriculture as much as they did the industrial sector so far, though this might change soon. The WTO Agreement on Agriculture is also leading to the reshaping of domestic agricultural policy in response to the liberalization of world trade which came into force under the WTO framework in 1995 a n d is now effective for 148 m e m b e r countries including India. The provisions/reduction commitments of the multilateral trade regime are expected to have a wide-ranging i m p a c t o n t h e I n d i a n economy over t h e n e x t few y e a r s . The Agreement on Agriculture specifically deals with r e d u c t i o n in domestic support and export subsidies and increased mctrket access through reduction of tariffs. The TRIPS Agreement (on Trade-Related 21

Intellectual Property Rights) can affect the seed sector and patents for certain agricultural products. A liberalized trade regime under WTO has meant a policy thrust towards export-oriented agriculture, removal of restrictions on domestic trade and removal of controls on stocks of major agricultural commodities, with emphasis on price competitiveness in global markets and international quality standards for our agricultural products. 3.2.2 Post-Cancun (following the Fifth Ministerial Conference held in September, 2003), the Geneva agreement to pursue Doha agenda leaves the following important issues: Special and differential treatment remains an integral part of domestic support. In that the longer implementation periods and lower reduction coefficients would be subject matters of attention. Sensitivities of developing countries found a concrete expression in the Free Trade Agreements (FTA) during the past five years. There is a d e m a n d for "A Tiered Formula". Under t h i s formula, members having higher levels of trade-distorting domestic support will make greater overall reductions in order to achieve a harmonized result. Product-specific AMS will be capped at their respective average levels according to a methodology to be agreed. Review of Blue Box and Green Box subsidies while eUminating export subsidies and Export Credit Guarantee beyond 180 days. Eliminating Governments financing the State Trading Institutions and the underwriting of their losses. Framework for negotiation on Market Access involves tariff r e d u c t i o n to be m a d e from t h e b o u n d a r i e s . Special Agricultural Safeguards still remain a matter of negotiation. Similarly the representative period for calculation of subsidies would also r e m a i n a m a t t e r of f u r t h e r d i s c u s s i o n a n d agreement. Key Indicators of Indian Agriculture

3.3

Eighteen crops that currently occupy more than two-thirds of the total output Vcdue from the crop sector and more than a half of the
22

total output from agriculture are: food grains - rice, wheat, barley, jowar, sorghum, bajra {pearl millet), maize, ragi (finger millet), gram (chickpea); oilseeds - linseed, s e s a m u m , rapeseed & m u s t a r d , groundnut; other crops - sugarcane, tea, coffee, tobacco, cotton, and jute & mesta. Farm households are differentiated by size of land owned and/or operated, access to labour and credit markets, level of income, education and skiUs, among other indicators. There are also significant regional disparities in agricultural development, resulting partly, though not entirely, from differences in agro-cUmatic zones of the country, leading to variations in crop yields. More important, for purposes of policy formulation, there are differences in policy design and implementation across States as agriculture is a State subject under the Constitution. A brief summary of the agricultural sector in terms of key indicators is given below, as DOA strategies have to take into account the larger picture of the sector. 3.3.1 Land Holdings Land a s t h e primary a s s e t in a g r i c u l t u r e a n d d e t e r m i n e s t h e economic status of a rural household, its income, and overall access to economic opportunities in the farm sector. There are 106 million operational holdings in the country, of which small and marginal farmers (below 2 ha size class) account for a share of 78 per cent. Together, these holdings account for less than one-third of the total area u n d e r holdings of all size classes. In t h e a b s e n c e of farreaching land and tenancy reforms, the low asset-base of the small and marginal farmers, which limits access to credit-sources can prove to be a serious constraint to DOA efforts. 3.3.2 Resource Base The natural resource-base of the country is severely threatened by environmental damage. Inefficient input-use and environmentally harmful crop practices (such as excessive use of chemical fertilizers) have led to depletion in soil nutrients and quality, and wastage of ground and surface water resources. Rainfall/surface water run-off leads to a loss of over 8 m t of soil nutrients and about 175 m h a of land in the country (over 50 per cent of geographical area) suffer serious soil erosion. Water-logging and salinity in major irrigated areas, rapid spread of Well irrigation leading to declining water tables in some areas, reduction in area of pasture lands, increased deforestation and other factors have taken their toll of the resourcebase.
23

3.3.3 Production Instabilities Agricultural production in India is carried out under conditions of high monsoon-dependence, leading to high-risk factor ind production instabilities. The seasonal production pattern has changed in recent years as the contribution of rabi output to the total output h a s increased and the gap between kharif and rabi output h a s been sharply reduced. Several problems however remain as agricultural production is spread over diverse regions. Over 40 percent of the irrigated potential created still remains to be exploited. This h a s affected choices of crops, production-levels and the overall rate of agricultural growth. 3.3.4 Poverty More than 70 per cent of the population live in rural areas. Many studies have pointed out that rapid reduction of poverty requires high levels of economic growth, particularly in agriculture through cost-reducing technologies and DOA, and sustained improvement in social sector indicators like health and literacy. (Radhakrishna, 2002). Inter-State variations confirm the fact t h a t , a p a r t from superior performance in health and literacy, States more successful in reducing poverty are also the ones with a higher rate of growth in agriculture. (P.Chidambaram, 1999). In India, the growth in the urban population is more t h a n 3 per cent annually and the forecasts are t h a t by 2030, the country's urban population wiU account for 41 per cent of total population (UN 2002). Higher economic growth and consequent rise in incomes resulting in change in tastes and preferences in both u r b a n and r u r a l a r e a s are t r a n s l a t i n g into higher d e m a n d for high-value commodities. Such a transformation is leading to changes in the p r o d u c t i o n portfolio from c e r e a l - b a s e d s y s t e m to h i g h - v a l u e commodities, such as vegetables, fruits, poultry, milk, mushrooms, fish, etc. (Rao, 2004) Rao's study confirms that as we move closer to u r b a n centers, agriculture is diversified towards HVCs because of their high perishability. On the contrary, as we move away from the urban centers, food grains dominate. Urban districts group have a higher share of HVCs compared to the u r b a n - s u r r o u n d e d and other districts group. Among the HVCs, vegetables and meat products have a higher share in urban districts c o m p a r e d to t h e o t h e r two g r o u p s . Milk p r o d u c t i o n is more w i d e s p r e a d d u e to excellent n e t w o r k of c o - o p e r a t i v e s a n d
24

infrastructure. Urban-surrounded districts with better road network have been able to diversify faster since they are able to meet the d e m a n d for HVCs in t h e u r b a n c e n t e r s . Even in r u r a l a r e a s , demand for HVCs will grow as incomes rise. However, supply side constraints will have to be addressed at a rapid pace to keep pace with demEind. This problem can be addressed more than adequately by improving crop related infrastructure close to rural areas, like the cold storages, refrigerated vans etc. Density of small farms is positively influencing HVCs. Small farmers would be the major beneficiaries of higher production of HVCs. It provides them an opportunity to diversify their income sources by p a r t i c i p a t i n g in t h e m a r k e t s for HVCs. T h e r e a r e , however, apprehensions that as processing are undertaken on a large-scaile to reap economies of scale, small farmers will be affected due to scattered production and stiff quality standards. Novel institutional arrangements and appropriate policies need to be formulated to help small farmers s u s t a i n p r o d u c t i o n of HVCs. C h i n e s e model of dovetailing small farms with the Town and Village Enterprises (TVEs) can perhaps provide a good solution without having to reinvent the wheel. There was a dramatic reduction in rural poverty from about one-third of the rural population in 1978 to about 8 percent in 1996.Employment in TVEs rose from 29.9mn Chinese in 1979 to 95.45mn in 1988 (C.H. Hanumantha Rao 2005). The major differences revealed in this study are on account of its focus on only DOA towards HVCs a n d not t h e entire a r r a y of commercial crops. For instance, earlier studies found that DOA was taking place mainly in low rainfall areas. But HVCs are finding niches in high rainfall areas too. However, both HVCs and other commercial crops were significantly and negatively associated with irrigation and high input use agriculture. This analysis has brought out regional variations tn HVCs across the country. It h a s implications on regional development as well a s planning. Farmers close to cities would stand to gain more from production of HVCs than those farther away. Investment strategies particularly related to infrastructure (roads, markets, cold chains) will have to match with the demand drivers and also supply side factors. This would have implications on public and private sector investment strategies.

25

Table 1: State-wise Distribution of Districts and Share of HVC's by Level of DOA

Sr. No.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

State Andhra Pradesh Assam Bihar Gujarat Haryana Himachal Pradesh Kamataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tainilnadu Uttar Pradesh West Bengal

Low 0 0 6 2 0

No. of districts Medium High

1 13 9 10 11 5 5 5 0 14 14 9 7 6 6 38 12 6 1 7 0 0 5 4 10 1 4 0 0 0 6 9 3

7 0 28 7 4 4 20 0 7 0

(TE 1998) Share of HVCs {%) Low Medium High 20.2 38.2 56.3 41.0 62.7 0.0 0.0 38.4 60.6 15.4 36.0 0.0 23.0 30.6 0.0 0.0 44.5 71.2 62.1 21.8 32.1
0.0 0.0

18.2 21.2 22.7 22.4 18.7

0.0

20.7
0.0

30.7 30.5 31.5 37.0 29.6 34.1 36.4 35.7

82.9 52.5 56.0

0.0 0.0 0.0

55.5 61.9 54.4

Source : K. Parthasarathy Rao, et al: "Agricultural Diversification in India and Role of Urbanization" (ICRISAT, NCAEPR and IFPRI, 2004)

Of the 306 districts analyzed in Rao's study (1998), the level of diversification h a s been high in less t h a n 20 per cent of t h e districts, with the largest number found in the States of Kerala and Uttar Pradesh. Madhya Pradesh and Rajasthan had the largest number of districts - 28 and 20 respectively - with a low level of diversification into High Value Commodities. Medium diversification has occurred in most of the districts in Uttar Pradesh, Maharashtra and Andhra Pradesh. 3.4 DOA Across the States

As a result of the liberalized trade environment, the shift in crop composition has moved in favoxor of non-food crops. From a 25.7 per cent share in cultivated area in the triennlum ending 1971-72, nonfood crops have claimed 35.1 per cent of area by 1999-2000. Changes in demand patterns are leading to declining demand for coarse cereals, and increased demand for fruits and vegetables, oils 26

and fats, and livestock products (including poultry and eggs). The major shift t h a t h a s b e e n occurring since early 1980s in t h e consumption baskets of all income groups including those below the poverty line h a s been termed "the silent revolution" (Joshi, et al, 2004) that is giving an impetus to DOA. The policy thrust is now towards promoting a "Rainbow revolution" encompassing the blue (aquaculture), green (crop production), white (milk) and yellow (edible oils) sub-sectors to revitalize the agriculture and allied activities sector. The DOA pattern that is emerging since 1980s shows variations across regions due to differences in agro-climatic conditions and socio-economic conditions. The southern States, particularly Kerala and Andhra Pradesh, witnessed significant shifts from food grain to non-food grain crops by the early 1990s - with almost 20 per cent increase in Gross Cropped Area under non-food crops between 197071 and 1990-91. (Satyasai and Viswanathan, 1997). The highest percentage change in area under non-food grains was witnessed in Haryana, Kerala, Rajasthan and Orissa. There has been a shift not only in area from food grain to non-food grain crops, b u t also, within non-food crops, shifts have been occurring in the crop-mix across regions. In several regions, there is a decline in area under millets and coarse cereals, and in favour of pulses a n d / o r oilseeds. Even in the case of oilseeds, some shifts have occurred away from traditional crops such as groundnut, towards non-traditional crops such as sunflower and soybean. There is also growth in new sectors such as horticulture, floriculture and mushroom cultivation, which are in response to growing demand for these products. Shifts in area have strongly favored oilseeds in some regions, fruits and vegetables in several States followed by spices and sugarcane. The changing pattern of DOA across States since 1970-71 showed increases in a r e a u n d e r g r o u n d n u t in A n d h r a P r a d e s h , K a r n a t a k a a n d Tamllnadu; coconut and rubber in Kerala; Soya bean and sunflower in Maharashtra; rapeseed/mustard in Gujarat; cotton in Rajasthan, Punjab and Haiyana and sugarcane in Uttar Pradesh. (Satyasai and Viswanathan, 1997). The shift from food crops to non-food crops has been highest in the southern and western States (due partly to the slow expansion of irrigation for water-intensive crops), while the northern States have moved more rice and wheat specialization (due to price support policies, which are a main contributory factor for this crop pattern). (Joshi, et al, 2003). Maize is gaining area in the south, driven by the d e m a n d for poultry feed; and pulses, oilseeds and fruits &
27

vegetables are also witnessing an area shift in their favour. Though the eastern region remains rice-based to a large extent and has seen less DOA t h a n t h e other regions, a major crop shift t o w a r d s vegetables h a s been witnessed in recent years with this region accounting for about 44 per cent of total area under vegetables in the country. (Joshi, et al, 2003) DOA in favour of livestock and horticulture was found to be more in rain-fed regions by-passed during the Green Revolution and the shift to non-cereal crops was more by small farmers in rain fed areas. The factors that are likely to influence crop shifts in future are: changes in cost of cultivation, price policy {for inputs and outputs), government procurement policies, availability and absorption of low cost/high-yielding technologies, availability of credit from institutional sources, demand p a t t e r n s in domestic and global markets, and export-promotion strategies, are among the key factors, apart from the macroeconomic environment and the pace of rural development (particularly in terms of physical and social infrastructure and poverty-reduction). Future crop shifts are going to be influenced by appropriate policies. The livestock sector both as independent and complementary sector contributes about 26 per cent to agricultural GDP in India and India is the largest producer of milk in the world. I take a brief look at these sub-sectors before turning to the specific Commodity Studies (Fruits & Vegetables and Aquaculture). 3.5 Role of the State

The changing role of the Government, both at the national and the State levels, since the initiation of market-friendly reforms in 1991, is one of the critical features of future agricultural policy-formulation and implementation, including the prospects for greater DOA. This role is changing from a proactive direct intervention to more indirect form of support and facilitation. The impact of this change will be felt at several levels. TTie decline in public investment since the mid1980s, has assumed alarming proportions in recent years from 30.9 per cent in 1995-96 (at 1993-94 prices) to 24.2 per cent in 2000-01. Information on regulation and facilitation of the Food Processing i n d u s t r y leads u s to conclude t h a t the Government is keen to upscale technologies In processing and accessing markets with solid efforts on capacity building, (see Annexure-I) 3.6 Livestock Products

World production of meat was 245 m t in 2002. Among developed countries, the share of USA alone was over 36 per cent, followed by
28

Canada, Australia and Denmark. The shares of Germany, Japan, UK a n d New Z e a l a n d h a v e w i t n e s s e d a d e c l i n e . A s i g n i f i c a n t development in world meat production was the dramatic increase in the share of developing countries, which increased from 35 per cent in 1981 to over 56 per cent in 2002. (Singh, 2004). Brazil is the largest producer of beef and veal with a share of over 12 per cent in world production. India h a s the largest cattle population in the world - with 57 per cent of world buffaloes, about 17 per cent of world goats and 16 per cent of world cattle (FAO, 2001). The country r a n k s third in the total meat production of developing countries and sixth in world production. India's meat production was 4.9 m t in 2002 in a world total of 2 4 5 mt. However, India's s h a r e in m e a t production of developing countries declined from 5.48 percent in 1981 to 2.0 percent in 2002. (Singh, 2004) The a n n u a l growth rate of India's meat production declined from 3.83 per cent during 1981-91 to 1.67 per cent d u r i n g t h e decade 1992-2002. India's s h a r e of m e a t production in the Asia-Pacific region has also declined (FAO). China has emerged as the world's largest meat producer with a production figure of 68 m t^in 2002. World exports of meat have doubled in value terms from $21753 m in 1981 to $45756 in 2002. Developed countries account for more t h a n 80 per cent of world exports. India's s h a r e in world m e a t exports has remained stagnant at less than 1 per cent. Some recent studies have found that the India's meat industry h a s performed more efficiently than the dairy industry in terms of better utilization of i n p u t s resulting in higher technical efficiency (Singh, 2004). However, per animal yield of livestock products in India remains very low in comparison to the world average, except in the case of hen eggTable 2 : Average Yields of Livestock Products 1992-2002
Sr.No Livestock Product 1 Bovine Meat (Hg/An) 2 Poultry Meat (O.lGr/An) 3 Pig Meat (Hg/An) 4 Hen Egg (100 mg) Mutton & Lamb 5 Milk total (Hg/An) 6 World 1990 14987
772

India 1178 9268

350

100434
155

117297
120

9403

8183

Note : HG = Hectogram, An=animal, Or = gram, mg = milligram Source : S.P.Singh: Post-WTO Era: Impact on Export Prospects of Livestock Products (NABARD, 2004)

29

The prospects for increasing exports of livestock products from developing countries are severely hampered by the distortions in world trade and international prices arising from the production and export subsidies paid out by the developed countries which are major agricultural producers and exporters. The WTO-related issues wQl be dealt with in greater detail in the final Chapter of this paper. 3.7 Milk

Expansion of the dairy sector has a positive impact on emplo5mient and is, therefore, an important policy intervention for DOA. It is estimated that, on an average, a milch animal in India provides annual employment ranging from 90 to 150 days depending upon the breed and region (Sharma, 2002 cited in Singh, 2004). World production of milk expanded from 469mt in 1981 to 598mt in 2002 and the share of developing countries in world production increased from 25 per cent to over 40 per cent during the same period. (Singh, 2004). However, only 5 to 6 per cent of milk produced is traded, mainly in the form of skimmed and whole milk powder, butter, butter oil and cheese. India is the lEirgest producer of milk in the world with a production of 86.3mt in 2002 - a two and a half fold increase from 34.3mt in 1981. The major milk-producing States in the country are Uttar Pradesh, Punjab, Rajasthan, Madhya Pradesh, Gujarat and Maharashtra. TTiese six States alone account for almost 60 per cent of the country's total milk production. And have witnessed high growth in milk p r o d u e t i o n since 1 9 9 0 - 9 1 . (Union Ministry of Agriculture). Table 3 : State-wise Production of Milk in India
Sr. No. 1 2 3 4 5 6 7 8 9 10 ' State Andhra Pradesh Gujarat Haiyana Kamataka Madhya Pradesh Maharashtra Punjab Rajasthan Tamllnadu Uttar Pradesh All-India 1990-91 30.10 35.25 32.00 23.89 47.00 37.35 51.42 43.39 33.75 96.92 556.86 1995-96 42.61 46.08 41.00 31.84 51.25 49.91 64.24 52.00 37.91 118.76 661.88 (Lakh Tonnes) 2001-02 51.45 55.73 49.76 53.57 60.24 N.A 83.75 63.30 46.29 165.06 N.A.

Source : Ministry of Agriculture, GOI

30

India's share in world milk production increased from over 7 per cent to 14.4 per cent during the period 1981-2002. (Singh, 2004). However, growth r a t e s of milk production in other developing countries such as China, Thailand, Pakistan, Republic of Korea, and Indonesia have been higher. Since liberalisation, India's position in world trade in dairy products has changed from a net importer to a net exporter and the country's dairy exports have been growing at a fast rate. India's share in the world exports of dairy products has increased from 0.04 per cent in 1981 to 0.27 in 2001. The major markets for India's dairy exports are Bangladesh, Oman, Egypt, USA and Germany and these five countries accounted for 60 per cent of India's exports of dairy products in 2001-02. (CMIE, 2002). Indian dairy industry has been found to be fairly cost-competitive (at $20 per tonne) as India is the fourth lowest-cost producer in the world after New Zealand, Australia and Argentina (Singhal, 2003). Skimmed Milk Powder (SMP) is the major dairy export from India and to prevent crash in prices that occurred during 1997-99, a tariff rate quota (TRQ) h a s been imposed on SMP imports since 19992000. 3.8 Fruits & Vegetables

The c h a n g e s , d o m e s t i c a n d global, b r o u g h t a b o u t by t h e s e developments and the changes in demeind patterns for agricultural products have major implications for a commodities study in DOA. Rising incomes are leading to changes in the consumption basket w i t h r e d u c e d c o n s u m p t i o n of c o a r s e c e r e a l s a n d i n c r e a s e d consumption of high value products such as milk, eggs, meat and poultry, fruit a n d vegetables. India h a s t h e l a r g e s t livestock population in the world and is one of the world's leading producers of milk. The country is also the second largest producer in t h e world, after China, of fruits and vegetables. These advantages can be better utilized to increase per capita consumption of high value p r o d u c t s d o m e s t i c a l l y a n d also c a t e r to r i s i n g d e m a n d in international markets. Among the sub-sectors with Immense potential for Commodities study in DOA are the fast-growing Fruits & Vegetables sub-sector and Aquaculture. The global demand for the products of both these sectors is on the increase and quite likely to sustain in the context of increased consumption of these p r o d u c t s s p u r r e d by h e a l t h 31

consciousness and higher incomes. Given the predominance of rain fed a r e a s in the country and constraints on water availability, growing Fruits & Vegetables (F&V) can speed up the adoption of m i c r o - i r r i g a t i o n t e c h n o l o g i e s a n d lead to m o r e s u s t a i n a b l e a g r i c u l t u r e . For r e s o u r c e - p o o r farmers, DOA into fruits a n d vegetables can lead to higher incomes, lower vulnerability to risk factors and more options in crop choice. Development of the F&V s u b - s e c t o r can, therefore, promote several development goals: diversification of crop production, more sustainable crop practices through more efficient input-use, development of rain fed areas and spread of micro irrigation technologies, lower risk of output price fluctuations, higher incomes, more rural-urban linkages, and broadbased development of rural areas. Income elasticity of these crops is directly related to crop-related infrastructure within the proximity of crop zones in addition to adopting HACCP. 3.9 Area and Production

The share of area under fruits and vegetables is less than 5 per cent in most of the developing countries, though it is much higher above 30 per cent - in some of the East Asian countries. DOA through emphasis on the fruit and vegetable sub-sector is a strategy with immense potential over the medium-term due to the increased profitability of high value crops. India is well positioned to develop this sector and take advantage of the changing pattern of domestic and international demand. (Raju, 2003). The total fruit and vegetable production in the world grew from 0.81 blUlon metric tons in 1990 to 1.26 billion tons in 2002. The total areas harvested increased from 72 million ha in 1990 to 97 million ha of which 50 million h a were fruits while 47 million ha were under vegetables. Vegetables contribute about 62 per cent of the t o n n a g e . Nearly 6 3 per c e n t of world a r e a u n d e r fruits a n d vegetables is in Asia, of which China (30 per cent) and India (10 per cent) have the major share (FAO, 2003). India h a s a 13 per cent s h a r e In t h e world's production of vegetables a n d is a leading producer of cauliflower, peas, onion, cabbage, tomato, brinjal and potato. Global production of fruits and vegetables follows the same p a t t e r n a s t h e a r e a . The per c a p i t a availability of fruits a n d vegetables in the world increased from 155 to 193 kg in 2002. Due to differences in agro-climatic conditions across countries and given the seasonality of many horticultural crops despite persistent d e m a n d existing r o u n d t h e y e a r in global m a r k e t s , t h e r e are
32

immense opportunities for countries with production advantages to enter global horticultural trade. India is the world's second largest producer for fruits and vegetables after China accounting for about 8 p e r c e n t of t h e world's total fruit a n d v e g e t a b l e s p r o d u c t i o n . However, per capita availability is only about 80gms per day, which is almost half of the balanced diet requirement. Post-harvest losses are estimated at 20-22 percent of the total production of fruits. The diverse agro climatic zones the country make it possible to grow almost all varieties of fruits and vegetables in India. The TIFAC study h a s dealt in details the current s t a t u s in post harvesting technologies including processing and packaging for export markets for eight major varieties of fruits in India. These are mango, banana, citrus fruits, apple, guava, papaya, pineapple and grapes. The fruit production in India has recorded a growth rate of 3.9%, whereas the fruit-processing sector h a s grown at about 20% per annum. However, the growth rates have been extensively higher for frozen fruits & vegetables (121%) and dehydrated fruits & vegetables (24%). There exist over 4000 fruit processing units in India with an aggregate capacity of more than 1.2mn MT (less than 4% of total fruits produced). It is estimated that around 20% of the production of processed fruits is m e a n t for exports, the rest caters to the defence, institutional sectors and household consumption. Mango and mango-based products constitute 50% of exports. Manual harvesting is widely practiced for fruits due to a b u n d a n t supply of surplus agricultural labour. The fresh fruits are mostly harvested by hand or hand tools, sorting and grading of fruits are done on a very limited scale a n d t h a t too are b a s e d on visual Inspection only. Limited pre-cooling facilities are available for grapes, strawberries etc. only for export purpose. India's farmers suffer from an aversion to fruit growing as this requires high initial investment and long gestation period. Poor quality of seeds and other planting material available affect the yield of fruits and thereby returns to the farmers. For low educational level coupled with poor technical training/extension facilities available to the farmers, adoption of new technologies has always been a problem area. These result in nonuniform quality of fruits produced in India. Quality s t a n d a r d s , particularly those relating to starch content, pesticide residues, shelf life, etc., vary from c o u n t r y to country. P r o d u c e r s catering to particular markets m u s t reorient their cultural practices should ensure compliance of the requirements right from production to s t o r a g e , p r e a n d p o s t h a r v e s t i n g a n d effective v a l u e c h a i n management.
33

3.10 Vegetables - 2020 India is the second largest producer of vegetables in the world (ranks next to China) and accounts for about 15% of the world's production of vegetables. The current production level is over 71 million MT and the total area u n d e r vegetable cultivation is around 6.2 million hectares, which is about 3% of the total area under cultivation in the country. TIFAC study has focused on 12 select vegetables, which account for about 65% of the total production in India. It is estimated that a r o u n d 2 0 - 2 5 % of t h e total vegetables is lost due to poor post harvesting practices. Less than 2% of the total vegetables produced in the country is commercially processed as compared to 70% in Brazil amd 65% in USA. Around 0.15mn MT of vegetables is sold as processed products. India exported 68,500 MT of processed vegetables worth Rs.l60 crore in 1 9 9 3 . E x p o r t of p r o c e s s e d v e g e t a b l e s h a s r e g i s t e r e d a compounded Einnual growth rate of 16% in volume and 25% in value in recent times. Onions account for about 9 3 % (in volume) of the total export of fresh vegetables from India. The other major items of export are potato, tomato, brinjal, beans, carrots, chilies, capsicum etc. The major export markets are Gulf Countries, UK, Sri Lanka, Malaysia and Siagapore. Though India ranks second in the vegetable production in the world, the average jrleld for various vegetables are low compared to those experienced in other countries of the world. Land ceiUng has been a major deterrent for large-scale cultivation of fruits and vegetables especially in the organised sector. The small captive orchards are insufficient to meet the requirements of the fruit processing industry. In case of vegetables, potato, tomato, onion, cabbage and cauliflower account for around 60% of the total vegetable production in the country. Vegetables are typically grown in India in field conditions, the concept is opposed to the cultivation of vegetables in green h o u s e s as practiced in developed countries for high yields. The vegetables sector also suffers from lack of availability of good quality p l a n t i n g m a t e r i a l a n d low u s e of hybrid s e e d s . Poor farm management and m a n u a l harvesting practices also apply to the vegetables cultivation. (TIFAC 2004)

34

Horticultural crops are grown in India on 11 m ha (less than 10 per cent of total cultivated area) and production of fruits and vegetables is around 148 m tones. This marks a sizeable increase in area from 8.46 m ha in 1991-92 and a significant increase in production from 85.36 m t to during the same period. The Fruits & Vegetables subsector h a s shown the highest rate of growth in output in recent years compared to food grains, pulses and oilseeds Table 4 : Area and Output of Fruits and Vegetables
(Area Lakh Hectares, Output Lakh Metric Tonnes) Fruits Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2K 2000-01 Area 28.74 32.06 31.84 43.10 33.57 35.79 37.02 37.27 38.00 39.40 Output 268.32 329.55 372.55 386.03 415.07 404.58 432.63 440.42 450.00 498.00 Vegetables Area 55.93 50.45 48.76 50.13 53.35 55.15 56.07 58.66 59.90 62.40 Output 585.32 638.06 657.87 672.86 715.94 750.74 726.83 875.36 908.30 985.00 Area 84.67 82.51 80.60 93.23 86.92 90.94 93.09 95.93 97.90 101.80 Total Output 853.64 967.61 1030.42 1058.89 1131.01 1220.44 1159.46 1315.78 1358.30 1483.00

(Source : National Horticidtural Board/Ministry oj Agriculture)

The production of fruits and vegetables - including high-value products such as baby com, lettuce, asparagus, broccoU, mushrooms - is claiming a growing share of area in several States in the country as fanners have begun increasingly to shift to horticultural crops. There is growing demand in emerging markets for exotic horticultural produce in which several regions in India have a comparative advantage due to favourable agro-climatic conditions. Several States in the country have recorded large increases in area u n d e r fruits during the 1990s. Andhra Pradesh, Uttar Pradesh, M a h a r a s h t r a a n d K a r n a t a k a a r e t h e l e a d i n g S t a t e s in fruit production. Gujarat, with a relatively limited area under fruits, h a s recorded large increases in production t h r o u g h o u t t h e period. Tamilnadu h a s also seen a fast growth in fruit production by the end of the 1990s. 35

Area under vegetables also witnessed a meirked increase during the 1990s. In 2000-01, production of vegetables in the country touched 98.50m t compared to 58.53mt In 1991-92. West Bengal, Uttar Pradesh, Orissa, and Bihar are the leading States In the country in terms of vegetables production, followed by Tamllnadu, Kamataka and Andhra Pradesh. These States have maintained their position throughout the late 1990s. ' Table 5 : State-wise Area and Output of Fruits in India
State Andhra Pradesh Bihar Gujarat Kamataka Maharashtra Tamilnadu U.P. (Plain) All India (Area in Lakh Hectares, Output in Lakh M.T.) 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 Area Output Area Output Area Output Area Output Area Output Area Output 3.45 50.23 3.72 51.62 3.91 54.7 4.07 56.58 4.15 58.99 3.79 59.00 2.82 1.04 2.42 3.22
1.8

35.83 22.44 41.97 51.13 36.21 30.1

2.79 1.14 2.59 3.67 1.86 3.08

33.78 24.48 45.11 50.99 48.19 28.71

386

2.86
1.5

2.76 3.11 1.86

3.1

60.45 20.68 4.73 47.99 48.19 30.09

2.93 1.38 2.99

27.52 18.2 51.34

1.59 3.15
3.8

37.55 22.68 54.46 64.73 36.84 42.93

3.04 1.63 3.15 4.36 2.14 3.05

79.7 22.04 54.46 75.22 54.48 30.98

3.73 63.33 2.21 3.19 38.63 40.45

2.34 3.29

3.02

31.84 372.55 43.1

33.57 415.07 35.8 404.58 37.02 432.6

37.3 440.4

(Source : National Horticultural Board)

Table 6 : State-wise Area and Output of Vegetables in India

State Andhra Pradesh Bihar liamataka Orissa Tamil nadu Tripura U.P. (Plain) West Bengal All \ India (Area Lakh Hectares, Output, Lakh M.T.) 1994-95 1996-97 1997-98 1993-94 1995-96 1998-99 Area Output Area Output Area Output Area Output Area Output Area Output 2.52 2.49 35.41 1.54 14.2 1.54 23.41 1.54 24.44 1.94 18.95 1.8 9.14 2.61 7.75 1.71 0.32 6.24
4.7

136.1 50.35 79.83 43.89 32.09 103.6 48.59

8.08
2.9

117.3 8.57 122.85 6.02 56.68 2.93 57.05 3.12 78.96 43.98 8.77 1.75 87.06 43.98 8.69 1.64

82.36 49.79 87.46 39.9

6.04 2.95 8.83 1.77

82.66 49.45 95.57 40.85 3.59 86.23

6.17
3.1

94.18 49.45 100.9 57.04 2.33 126.8 163.7 875.4

8.01 1.75 0.32 7.43

4.9

8.84 2.07 0.18 6.41

11

32.09 0.32 35.85 0.32 3.58 0.32 119.1 7.76 130.83 6.48 124.47 6.38 53.4
5.1

53.91

8.32 136.71 10.34 150.2

48.76 657.87 50.13 672.9 53.35 715.94 55.2 750.74 56.07 726.8

58.7

(Source : National Horticultural Board)

36

The four States Avith the largest shares in the country's total fruit production in 2000-01 were Maharashtra, Tamilnadu, Kamataka and Andhra Pradesh. These States together accounted for almost 60 per cent of the total. Uttar Pradesh and West Bengal contributed almost a third of the country's vegetable production in that year. (Indian Horticulture Database, ICAR, 2002). The demand for fruits and vegetables is expected to rise from 150m t at the end of the Ninth Plan period to 265m t per annum at the end of the Tenth Plan period (2007). The aim is to achieve a growth r a t e of 6-7 per c e n t per a n n u m a n d g e n e r a t e e m p l o y m e n t of ISOOmn mandays. India is the world's leading producer for fruits s u c h as mango, bananas, acid limes and sapota. With an 11 per cent share in the world's total output of fruits. (National Horticultural Board, Ministry of Agriculture). Bananas accounted for almost 40 per cent of total output in 2000-01, followed by mangoes and citrus fruits. Along with guava and apple, these five fruits account for about 75 per cent of the fruit production in the country. India is also strengthening its presence in the global market for grapes and is now focusing on pomegranates also for export. An a r e a of 3 0 , 0 0 0 acreis h a s b e e n b r o u g h t u n d e r p o m e g r a n a t e cultivation to c a t e r to i n c r e a s e d d e m a n d in foreign m a r k e t s , particularly in EU countries. 3.11 Bxports

India's agricultural exports account for about 12.3 per cent of the country's total annual exports, a slight decline from 13.5 per cent share in 2001-02. Agricultural exports include products t h a t are facing shrinking markets a n d / o r declining international prices for commodities such as tea and other plantation crops, as well as oil meal, skimmed milk powder and marine products which have better potential if international quality standards are adhered to. For fruits and vegetables, India's share in world exports has been stagnaint at a low level of 1 per cent since 1995.

37

Table 7 : India's Share in World Exports of Fruits and Vegetables Year 1970 1975 1980 1985 1990 1995 1998 1999 2000 2001 World Exports 1471 10104 24018 23606 50225 70640 71852 71799 67887 70126 Indian Exports 17 154 259 332 400 682 712 689 856 826 (US $ MUllon) % Share 12 . 15 . 11 . 14 . 0.8 10 . 10 . 10 . 13 . 12 .

Source: International Trade Statistics Year Book, 1999 However, the share of horticultural products in India's agricultural exports has been steadily Increasing in recent years. The emerging markets Eire in the Gulf and west Asia that account for more than 8 per cent of APEDA's agro-exports (2001). DOA with due attention to crop planning, and international demand trends, can promote export growth. World trade in horticultural products is estimated at US$ 44 billion and demand for fruits and vegetables. In fresh and processed form, is expected to grow steadily over the next decade. Greater awareness in developed countries of the importance of fruits cind vegetables in the diet for nutrition and disease-prevention are leading to increased consumption of these products. Value-added products can make this high-growth subsector adequately respond to growing consumer demand. However, India's share in world exports of fruits ind vegetables has declined from 1.5 per cent in 1975 to 1.0 at the end of the 1990s, though in value terms, ftnit and vegetable exports have increased from $154 m to $712 m during the same period. The major exporters of fruits to the USA - the world's largest market - are Brazil, Mexico, Philippines and New Zealand. Brazil dominates the world market for oranges and orange juice with an 80 per cent share of frozen concentrated orange juice in world exports. 3.12 India's Export Initiatives

The Exim Policy (2001-02) provided for the setting up of Agri-Export Zones (AEZs) to promote product-specific development for cultivation
38

and export in geographically contiguous areas, as identified by State Governments. Some of the AEZs identified so far include those for chilies, mangoes and grapes in Andhra Pradesh; basmati rice in Haryana; grapes and wines in Maharashtra; pineapples in Assam and West Bengal and litchi in Uttaranchal, among many others in regions spread throughout the country. There is a growing meirket for exotic horticultural produce, such as special types of salad lettuce and similar products. The market is largely demeind-drlven and producers aiming at global markets need to be aware of fast-changing consumer preferences and quality benchmarks. 3.13 Future Outlook

Several policy initiatives have been taken for the development of the horticulture sector. The central outlay on the Horticulture sector increased from Rs. 1,454 crore in the Ninth Plan (1997-2002) to Rs.2, 105 crore in the Tenth Plan (2002-2007). The Prime Minister announced a National Horticultural Mission with the objective of doubling horticulture production by 2010. (Economic Survey, 200304). The centrally sponsored scheme on Technology Mission for integrated development of horticulture was extended to Himachal Pradesh, J a m m u and Kashmir, and Uttaranchal in 2003-04. Promotion of CDA calls for more research and development of lowcost technologies for increasing production and productivity of fruits a n d v e g e t a b l e s . D u r i n g t h e p a s t two d e c a d e s , i n t e r n a t i o n a l agricultural research centers like Asian Vegetable Research and Development Centre (AVRDC), The World Vegetable Center, t h e National Agricultural Research institutions and the private sector have developed numerous improved technologies that can overcome both biotic and abiotic stresses which limit the production of fruits and vegetables. For example, heat tolerant and bacterial wilt and tomato yellow leaf curl virus resistant tomatoes have been released officially from AVRDC developed m a t e r i a l s . Where t o m a t o e s previously could not be grown during the hot, humid summer, now farmers can grow them with less difficulty. Similarly, heat tolerant, downy mildew resistant Chinese cabbage can be grown during hot summer. Raising chiUi seedlings under protected net conditions help to produce healthy chilli seedlings free of viruses and the onset of virus infection is considerably delayed a n d t h e productivity is increased. Grafting of tomato seedlings on to eggplant rootstocks has been found to improve the flooding tolerance and when combined 39

with shelters, which protect from: heavy rains, the productivity of tomatoes is enhanced. (Shanmugasundaram, 2004) The Agreement on Sanitary and Phyto-Sanltary (SPS) Measures under the WTO framework calls for stringent quality standards for export products based on the highest international standards (set by Codex Alimentarius Commission and similar bodies). The key issues, which could affect consumer d e m a n d - and hence exports - in domestic a n d global m a r k e t s relate to bacterial contamination, pesticide residues, food additives and bio-technological interventions In production. With increasing awareness among consumers about bio-safety and long-term health concerns. Information pertaining to these issues needs to be made available to the farmers to ensure m a r k e t a b i l i t y a n d b e t t e r export p r o s p e c t s for a g r i c u l t u r a l / h o r t i c u l t u r a l p r o d u c t s - s e e Annexure-II for HACCP (The role of information technology in enabling farmers to diversify crop and offfarm production and exploit the potential of global trade will be dealt with later in the paper). 3.14 Agro-Processing

With greater DOA In crop production, the agro-processing sector receives a major impetus. Agro-processing industry contributes significantly not only to the value chain but also achieves other development objectives such as promoting rural-urban linkages and speeding u p rural industrialization, raising farmers' incomes and contributing to growth in exports. The potential for developing agroprocessing In our agriculture is immense. Less than 2 per cent of our horticultural production - mainly fruit and vegetables - gets processed, compared to 70 per cent in USA, 78 per cent in the Philippines, 83 per cent in Malaysia and 30 per cent iil Thailand. For agro-products as a whole including not only horticulture but also milk and dairy products, less than 5 per cent are processed. (Donati, 2 0 0 4 ) . The s e t t i n g u p of r u r a l - b a s e d I n d u s t r i e s for processing agricultural commodities can reduce wastage in posth a r v e s t o p e r a t i o n s a n d r a i s e v a l u e a d d i t i o n in a g r i c u l t u r a l production. At present, there are more than 1,000 food-processing units in the country. Lack of proper infrastructure in terms of transport, cold storage network, power supply, and appropriate technologies are the major problems hindering the growth of the sector despite the potential of this high value sector.
40

Packaging plays a major role in t h e growth of t h e p r o c e s s i n g industry. The p r e s e n t trend in domestic and global m a r k e t s is towards flexible packaging compared to the rigid packaging used in t h e p a s t . Metals u s e d in tin c a n s a r e now c o n s i d e r e d m o r e environment-friendly as compared to plastic and other commonly used packaging materials. Some of the metal containers used in the processing industry in India - also known as "green cans" - meet the quality standards of the EU as they are biodegradable, magnetically sensed and can be fully recycled. (Bhatia, 2004). Food processing is "trapped in an inefficient supply chain" (Bakshi, 2004) and this gets reflected in the end price that the consumer pays. The sector faces multiple laws, s t a n d a r d s and enforcement a g e n c i e s w i t h r e g u l a t i o n s t h a t a r e often c o n t r a d i c t o r y a n d overlapping. There is need for a single law and a more simplified regulatory framework. The uncoordinated policies of the Union and State Governments in the area of taxation are also affecting the growth of the food-processing sector. Income tax concessions, and income tax holidays for five y e a r s are largely nullified by t h e increasing rates of sales taxation in some of the major agricultural States. ATO-DLO, Netherlands, a consulting firm commissioned by t h e Tamilnadu Government suggested a slew of measures of making fruits and vegetables sector a dynamic drive of growth of its rural economy. The problems identified by the firm are not unique to the State of Tamilnadu and the proactive approach of Tamilnadu State in this regard merits a mention for possible adaptation by other States that are similarly placed. The following items will also be considered as fixed a s s e t s in addition to the fixed assets already defined :i. Green house structure ii. Irrigation and Fertigation equipment iii. Cold room, grading /packing room and mobile refrigerated truck /equipment. iv. Mother planting material in Tissue Culture units & nurseries Soles Tax Sales tax as applicable to fresh fruits and vegetables will apply to packed fresh fruits and vegetables whether branded or otherwise. 41

Pollution clearance charges E x e m p t i o n will be g r a n t e d from p a y m e n t of t h e c h a r g e s of Rs. 10,000/- (Rupees ten thousand only) per a n n u m levied by the Tamilnadu Pollution Control Board for clearance of setting up of the units. Industry Status

The following industries involved in the production of fruits and vegetables shall be given Industry status for the purpose of availing of concessions/incentives/subsidies at par with the industrial units. Fruit & Vegetable processing including dehydration, irradiation, distillation and fermentation, etc. value added centres including grading, sorting and cleaning, individual quick freezing (IQF) and preservation, etc. of fruit and vegetable in fresh form for export / domestic market. Cold chain, cold storage systems used for transport and storage of agro based products Processing of aromatic, herbal, medicinal plants and their oils and sericulture

Tissue culture units and nurseries involved In the propagation of mother planting materials for the production of fruits and vegetables Hybrid seeds production for Fruit & Vegetable Government Institutions will be requested to extend priority to give financial assistance for the projects: Depending on viability, priority will be given in granting financial assistance to purchase refrigerated trucks for carrying the fruits and vegetables from the farm to processing units, marketing centres / sea & air-ports for export etc. President Abdul Kalam's vision of Indian Agriculture provides a strategic fit for DOA In the context of ethnic, cultural diversities and rich natural resources of the economy. The introduction of the Second Green Revolution with training to farmers and technology will increase the agriculture production to
42

360mt by 2020. Improved storage and distribution and reduced wastage by post harvest management strategy will enable every citizen to get food, eliminating poverty. Table 8 : Agro-Food Fruit and Vegetables
Present Vol: 33 and 71 million tons Business: Rs.lOOOOcr/yr and Rs.l5000cr/yr Losses: 6250 cr/yr Related Industries: Rs.2500cr/yr - Chilling - Packaging - Value Addition Core Technologies Cold Chains Packaging ProcessingAseptic Packaging CA/MA Containers Weighing & Sensing Equipment Year 2020 Vol: 90 and 150 million tons Business: Rs.27000cr/yr and Rs.32000cr/yr Losses: 5900 cr/yr Related Industries: Rs.25200cr/ja- Chilling - Packaging - Value Addition

Table 9 : Agro-Food Cereals

Present Vol: 200 million tonnes Business: 90000cr/3T and Losses: 9000cr/}aRelated Industries : Rs.9000cr/yr - Packaging - Value Addition Core Technologies Pest/Rodent Control Handling Equipment Electronic Sensors (Moisture etc.,) Storage Packaging Year 2020 Vol: 360 million tonnes Business: 150000cr/yr and Losses: 3000cr/yr Related Industries : Rs. 86100cr/yr

Excerpted from : "Envisioning an Empowered Nation: Technology for Transformation" - A.P.J. Abdul Kalam with A. Stvanthanu Pillai

Societal

3.15

Aquaculture

Aquatic products will continue to be heavily traded. Producers in the developing world will eat less of their own product, whether they harvest natural or cultural stocks. The processing chain will become more i m p o r t a n t and internationalized a s a r e s u l t of t h e often conflicting demands for keeping costs down, creating employment, maintaining product quality and sanitary standards, and protecting h u m a n h e a l t h . Over t h e n e x t twenty-five y e a r s , t h e a q u a t i c environment will feel increasing effects from terrestrial activities, h a b i t a t alteration and climatic change. (Meryl Williams, 1996). Aquaculture development also h a s a favourable impact on small farmers as 90 per cent of aqua farms in the country are less than 2
43

hectares in size with 6 per cent of farms between 2 and 4 h a and only 4 per cent of farms above 4 ha. (Singhal, 2003). Both these sub-sectors are likely to experience high growth rates In the future, if a p p r o p r i a t e policies are p u t in place to remove t h e existing constraints and promote faster growth. Aquaculture is also a fast-growing sub-sector with immense potential to provide sustainable livelihoods for resource-poor farmers. Rising c o n s u m p t i o n d e m a n d for inland a n d m a r i n e fish p r o d u c t s in domestic and global markets is likely to ensure a rising production curve to meet growing demand, provided appropriate policies are put in place to address the problems facing the sector and encourage growth of aquaculture in a framework that is environment- friendly and minimizes risk for small farmers. The fisheries sector is growing at a fast pace in m a n y of the developing countries. Over 85 per cent of the world's fish farming is located in the developing countries compared with meat production, which is concentrated in the developed countries. The growth of this sector through development of inlsind and marine fish farming can contribute to livelihood security in regions with natural resource advEintages. World production of fish was about 117 m t in 1998. (FAO). India has an 8,000 km coastilne and ranks third in world fish production (with a share of 4.5 per cent) and first in inland fish production. According to the World Watch Institute, the conversion rate of grain to protein in fish production (2 kg grain for 1 kg live meat) as compared to meat production (7 kg grain for 1 kg live meat) h a s c o n t r i b u t e d to t h e rapid expansion of fish farming a s a more sustainable option that reduces the demand for increased food grain production. (Singhal, 2003). Total fish production in India (marine and inland) increased from 41.57 lakh metric tonnes in 1991-92 to 56.56 lakh tonnes in 200001. Seven States alone accounted for almost 80 per cent of India's fish production in 2001-01. These States are: West Bengal (20 per c e n t s h a r e ) , Kerala, Gujarat, A n d h r a P r a d e s h , M a h a r a s h t r a , Tamllnadu and Kamataka. With a coastline of over 8,000kms, India is Well-placed to develop the fisheries sector. However, India's share in world fish trade is less than 2 per cent in value terms. DOA into a q u a c u l t u r e h a s high potential in m a n y developing countries. World aquaculture production increased by 11 per cent
44

per a n n u m from 13 m t in 1990 to over 31 m t by the end of the d e c a d e . C h i n a a c c o u n t s for m o r e t h a n t w o - t h i r d s of global aquaculture production while India h a s a 6 per cent share a n d r a n k s t h i r d in freshwater p r a w n p r o d u c t i o n after C h i n a a n d Vietnam. (FAO. 2001). The area under aquaculture in India has increased from 68,227 ha. in 1991-92 to 1,41,591 ha in 1997-98. There has been no change in the gross cropped area. In States like West Bengal, Orissa, Andhra Pradesh, Tamilnadu, rice lands took the toll. Mixed farming h a s come to stay in several districts in these States to cultivate fresh w a t e r fish. In A n d h r a P r a d e s h d i s t r i c t s n o t a b l e for s u c h diversification are E a s t a n d west Godavart Districts, K r i s h n a 9marginally) and Nellore In 2001-02, India's production of shrimps was 1,27,170 tons with Aquaculture farms covering an area of 1.94 lakh h a . About 12 lakh h a of land are proposed to be b r o u g h t under aquaculture. A n d h r a P r a d e s h l e a d s with a l m o s t half t h e total a r e a u n d e r aquaculture followed by west Bengal, Kerala and Orissa. The States with the highest potential area are west Bengal, Gujarat (which h a s the longest coastline among Indian States at l,600kms) and Andhra Pradesh. Andhra Pradesh h a s seen phenomenal growth in a r e a under aquaculture since 1991-92 compared with all other States from 8,100 ha at the beginning of the period to 66,290 h a in 199798. The highest growth in Andhra Pradesh's aquaculture sector occurred during the period 1993-94 to 1995-96. Table 10 : State-wise Area Under Aquaculture
(Hectares) State West BengEil Orissa A.P. Tamilnadu Pondlcherry Kerala Kamataka Goa Maharashtra Gujarat TOTAL Potential Area 4,05,000 31.600 1,50,000 56,000 800 65,000 8,000 18,500 80,000 3,76,000 11,90,900 199192 7,417 8,100 480 199293 7,760 9,500 530 199394 34,150 8,150 19,500 1,050 199495 34.400 8,500 34,500 2,000
-

199596 34,660 11.000 50,000 2.879 37 14,657 3,500 650 716 884

199697 42,605 11,332 60,249 640 22 14,658 3,500 650 929 997

199798 42,525 11,332 66,290 670 22 14,595 3,540 650 970 997

33,918 34,050

13.145 2.542 525 1,869 231

13,400 2,570 550 1,980 360

13.860 2,600 575 2180 475

14.100 3,500 600 2,400 700

68.227 7 0 , 7 0 0

8 2 , 5 4 0 1,00,700 1.18,983 1.35,582 1,41,591

Source ; Vikas Singhah IruUan Agriculture, Vol n (Indian Economic Data Research Centre, New DeM, 2003) p. 705.

45

The leading States for the production of cultured shrimp in the country are West Bengal, Andhra Pradesh and Kerala. These three States alone contribute to the bulk of cultured shrimp produced more than 80 per cent - in 1997-98 (Table) However, while shrimp production has declined in both Kerala and West Bengal since the mid-1990s (with a huge decline of more t h a n S.OOOmt in West Bengal), Andhra Pradesh h a s registered a dramatic increase in production of cultured shrimp, from less than lO.OOOmt in 1991-92 to over 34,000mt in 1997-98. Table 11 : State-wise Production of Cultured Shrimp in India
(M.T)

State West Bengal Orissa A.P. Tamllnadu Pondicherry Kerala Kamataka Goa Maharashtra Gujarat Total

1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 13.800 3,800 9.700 700 9500 1,100 300 930 170 40,000 16,300 4,300 12,800 1,100 9,750 1,150 350 1,050 200 47,000 16,500 3,300 26,000 2,000 11,500 1,500 400 300 500 62,000 25,000 4,800 34,000 3,000 12,000 2,500 450 400 700 82,850 23,445 6,000 27,140 1,092 10 9,000 2,050 550 740 546 70,573 19,949 6,805 30,577 1,129 27 8,225 2,300 580 523 572 70,696 15,121 5,000 34,075 1,197 20 7,290 2,640 590 700 235 66,868

Source : MPEDA

Development of Freshwater Aquaculture Is a policy thrust area at the national level through the Fish Farmers Development Agencies (FFDAs). There is a network of 422 FFDAs covering all the potential districts in the country. In 2000-01, about 36,394 hectare of area was brought under freshwater aquaculture and 17,485 farmers Ire trained in improved aquaculture practices. On the same lines, 39 Brackish water Fish Farmers Development Agencies (BFDAs) have been formed In the country's coastal districts. By 2001-02, the area u n d e r brackish water aquaculture in these coastal districts was 25,805 hectares. (Singhal, 2003) The world's major producers and exporters of marine products dominated by shrimps and prawns - are ThEiiland, China, Indonesia a n d Vietnam. The sector h a s high export potential and marine exports account for a significant share of foreign exchange earnings
46

for the country. Shrimp, black tiger prawns and scampi are in great demand in international markets, though prices fluctuate in response to over-production or stock withdrawals by major consumers like Japan, or drought in major exporting countries like India and other supply-side factors. In 2000-01, the production of shrimp through aquaculture reached an all-time high of 97,100 tonnes, but fell the following year to 75,826 tonnes from an area: of 1.94 lakh ha. Availability of rice bran, which is dependent on paddy output, is a key ingredient in aqua feed. Scarcity of rice bran, therefore, is one of the causes of declining aquaculture products in drought years. India's exports of marine products have increased significantly during the 1990s, both in terms of volume and value. Quantity of exports increased three-fold between 1990-91 and 2001-02. Table 12 : India's Exports of Marine Products (Quantity in M.T.; Value in Rs. Crores; Unit Value in Rs/Kg)
Year 1990-91 1995-96 1998-99 1999-2K 2000-01 2001-02 Quantity 1,39,419 2,96,277 3,02,934 3,43,031 4,40,473 4,24,470 Value 893.37 3,501.11 4626.87 5,116.67 6,443.89 5,957.00 Unit Value 64.41 118.17 152.73 149.16 146.29 140.34

Source : MPEDA J a p a n is the world's largest consumer of marine products. In 200102, JapEin accounted for over 30 per cent of India's seafood exports - a decline of 10 per cent compared with the previous year. US accounted for almost 24 per cent of such exports followed by the EU with about 19 per cent. The most serious problem facing marine exports are the sanitary and phyto-sanitary norms imposed by the importing developed countries. EU is one of the largest importers of seafood but less than one-third of India's seafood factories meet EU s t a n d a r d s {Singhal, 2003). White spot disease h a s also affected seafood exports in certain seasons. There is immense scope for value addition in this sector. Apart from increased consumption of marine products as food, there are also medical uses for collagen from fish parts and parts of the prawn shell. Research and development can focus on t h e s e a r e a s to promote further development of the aquaculture sub-sector.
47

CHAPTER IV DIVERSIFICATION OF AGRICULTURE IN ANDHRA PRADESH

4.1 Rationale for Choosing Fruits, Vegetables and Aquaculture in AP as a case in Point:

A study of DOA restricted to a few commodities in a selected region of the country - in terms of the emerging p a t t e r n of DOA, the factors leading to the observed crop shifts and the policies to address the problems, as also to exploit the potential- is a useful exercise to guide the future policies. Choice of the State is governed by the following considerations: This is one of the States that first fell in line with the Reform agenda of the Centre. But such reforms drew flak d e s p i t e t h e s t a t i s t i c a l r e d u c t i o n in poverty figures engineered through DWCRA and VELUGU, and such other rural development initiatives. The State took to Micro-irrigation before it fell down on the basis of its successful experiment in Chittoor Distirct on Israeli model that in turn led to diversification of crops into vegetables and fruits. Neighboring Bangalore city in Kamataka State provided the market. But this was the district where tomatoes were sold at ten paise a kilo in distress in the wake of q u a n t u m jumps in production. State had to intervene to support the price. In the case of Visakhapatnam, aquaculture is a major sub-sector in DOA that grew pEirallel to fruits and vegetables. The selection of this district, therefore, is due to its importance in the growth of both the sub-sectors, which are the focus of this paper. In this Chapter, we take a closer look at the changes in crop patterns at the State and district level in Andhra Pradesh. Andhra Pradesh is the fifth largest State in the country in terms of area (2,75,000 sq kms) and population (75,727,541 million persons in 2001). The State has a rural population of over 55.22 million persons who constitute 73 per cent of the total population. The total number of inhabited villages in the State was 26,586 in 2001. There are 23 districts in the State covering three regions - Coastal Andhra (9 districts), Telangana (10 districts) and Rayalaseema (4 districts). These three regions have significant differences in terms of agro-climatic regions with Coastal Andhra (the most fertile of the three regions) and a few districts in Telangana having favorable conditions for most major crops, while Rayalaseema (in the rain
49

shadow area) and remaining districts of Telangana are more droughtprone. 4.2 Agricultural Profile of Andhra Pradesh

Andhra Pradesh h a s a geographical area of 27.4 m hectares of which the Total Cropped Area (including flsh culture) is 13.6 m ha. Net Sown Area is 11.2 m ha. (Statistical Abstract, 2001). Out of 13.4 m h a total area under all crops in the State, the area under food crops h a s increased from 8.79 m h a in 1996-97 to 9.29 m ha in 2000-01. Over the two-decade period (triennium ending 1979-82 and 19982001), the Gross Sown Area in the State registered an increase of 5.24 per cent or 0.6 m ha. However, there were regional variations, as Coastal Andhra witnessed a 9.8 per cent increase in GSA, with slow growth in Rayalaseema a n d a virtual s t a g n a t i o n in t h i s indicator in Telangana region. (Report on Crop Shifts, GOAP, 2002). The Gross Irrigated Area, on the other hand, increased by over 68 per cent in Telangana during thq observed period, and around 25 per cent in Coastal Andhra, with Rayalaseema in third place. The total numbers of workers engaged in the agricultural sector in Andhra Pradesh was 19.52 million persons of whom more than half (11.62 million) were agricultural labourers and 7.89 million were cultivators. Andhra Pradesh is one of the States with the largest proportion of agricultural labourers in the country. The State had a total number of 10.60 million operational holdings (1995-96) of which, 80 per cent were below 2 ha. More than 59 per cent of holdings in the State were less than 1 ha. 4.3 Crop Shifts in Andhra Pradesh

The last two decades have witnessed significant crop shifts in terms of a r e a while t h e production and productivity performance of different crops have also changed to a substantial extent. The WTO Support Cell, Government of Andhra Pradesh in 2002, undertook a detailed study of the crop shifts that have taken place in all the 23 districts of Andhra Pradesh over the last two decades. This Chapter is based on the findings of this Report. The data relates to the period between triennium ending 1979-82 and the triennium ending 1998-2001. The focus is on observed changes at the regional and district levels in t e r m s of increase or reduction of area u n d e r principal crops with special reference to fruits and vegetables. 50

4.4

Intra-State Crop Shifts

Andhra Pradesh is among the four largest rice producing States in the country. At the State level, the area under rice recorded a 16 per cent increase since triennium 1981-82 with a 44 per cent increase In productivity leading to a growth in production of 67 per cent. For the State as a whole, the growth in area ^under non-food crops was 57 per cent. Table 13 : Crop Shifts in Andhra Pradesh (Area) (000 hectares)
Sr.No. Crop
1 2 3 4 5 6

1979-82 8925.6 1412.6 1904.1 301.9 9738.8 2788.7 12426.9

1998-01 7394.5 1710.4 2579.9 826.9 9005.1 4388.4 13394.1

% Change -17.15 21.08 35.49 173.90 -7.53 57.36 7.78

Total Food Grains Total pulses Total oil seeds Total Fruits & Vegetables Total Food Crops Total Non Food Total GCA

Source : Report on Crop Shifts in Andhra Pradesh (WTO Support Cell, Government of Andhra Pradesh. 2002, Table 4.4) Among food grains, the dominance of paddy remains with a growth in area of almost 50 per cent over the past two decades. The most significant increases in area (48 per cent), production (181 per cent) and productivity (90 per cent) were in the case of maize, which emerged ahead of most other crops in terms of these indicators. Increased demand for poultry feed by a fast-growing poultry sector in the State was one of the reasons for the increased o u t p u t of maize. All the three major millets - jowar, bajra, and ragi - lost substantial areas to the extent of 68 per cent, 75 per cent and 61 per cent respectively. For minor millets, the decline in area was more substantial, a fall of 86 per cent in both area and production. The total area under cereals and millets in the State decreased by 43 per cent, though production increased by 43 per cent and there was a 73 per cent increase in productivity of this sub-group. Pulses gained area as area shift towards pulses was to the extent of 21 per cent with 102 per cent increase in productivity leading to a 51

144 per cent increase in production. Among pulses, Bengal gram achieved the largest increases in area, production and productivity, followed by red gram and black gram. Most other pulses lost area with horse gram losing as m u c h as 70 per cent of its area and green gram (10 per cent). A major shift in area in the State was in the case of oilseeds, which gained additional area of 35 per cent. The area under groundnut expanded by 62 per cent during the two-decade period though production increased by 58 per cent only. Sunflower, which had a small share of area in the first TE, saw almost 90 per cent increase in area and 178 per cent increase in yield. The area under castor witnessed a slower expansion of only 16 per cent compared to other oilseed crops. Among commercial crops, the area u n d e r cotton increased significantly by 158 per c e n t a n d i t s o u t p u t t r e b l e d while productivity gains were of the order of 78 per cent. The expansion of a r e a s u n d e r chilies, for which A n d h r a P r a d e s h is t h e leading producer in the country, was by 37 per cent with major gains in both productivity ind production. Sugarcane also witnessed an area expansion of about 31 per cent, with a small increase of 21 per cent in productivity leading to an output increase of 59 per cent. The shift in area towards Fruits and vegetables was significant with an increase in area of 174 per cent. Promoting the expansion of this sub-sector is high on the policy agenda with the setting up of Agro Export Zones (AEZ) to facilitate production of fruits and vegetables that face growing demand in domestic and international markets. Pomegranate cultivation is now being encouraged in the State in response to the demand from EU countries, which presently import about 45 to 75 tonnes of pomegranates annually. More than 30,000 acres have been brought under pomegranate cultivation in the State in recent years. 4.5 Regional/District Level Crop Shifts

The regional picture for Andhra Pradesh shows t h a t the largest increase in area under non-food crops since 1979-82 has been in Rayalaseema. (76 per cent), followed by Telangana (about 72 per cent). Increase in area under non-food crops was least in Coastal Andhra (21 per cent) though the percentage changes since 1979-82 was double the growth of area under food crops. 52

Table 14 : Area Shifts in Andhra Pradesh by Region

('000 hectares) Crop 197982 3441.7 479.3 376.0 193.5 3828.7 886.3 4615.0 199801 3412.0 805.0 351.6 475.4 4233.7 1078.0 5311.7 % Change -0.86 67.95 -6.49 145.68 10.58 21.63 15.10 197982 1530.6 148.3 891.4 73.0 1734.4 1071.7 2806.0 199801 761.7 221.0 1541.0 185.0 1102.7 1885.0 2987.7 % change -50.24 49.02 72.87 153.42 -36.42 75.89 6.48 197982 3953.3 785.0 636.7 35.4 4175.7 830.7 5005.9 199801 Telangana 3220.8 684.4 687.3 166.5 3668.7 1425.4 5094.7 -18.53 -12.82 7.95 370.34 -12.14 71.59 1.77 % change

Coastal Andhra Total Food Grains Total, pulses Total oil seeds Total Fruit &Veg Total Food Crops Total Non Food Total GCA

Rayalseema

Source : Report on Crop Shifts in Andhra Pradesh (WTO Support Cell. Government of Andhra Pradesh, 2002. Tables 4.1. 4.2. and 4.3)

Several districts across all the regions in the State have witnessed a shift from food crops to non-food crops, though the extent of the shift is least in Coastal Andhra. There has been a decline in most districts of the State in the area under major and minor millets. The shift in area from millets has been in favour of pulses in some districts, and towards oilseeds in others. Cotton h a s increased its area share in some of the districts in Telangeina. There is evidence of some degree of DOA as area under fruits and vegetables has shown a marked increase in almost all districts in the State. Area under rice appears to have remained fairly stable during the whole period, with a s u b s t a n t i a l increase in a r e a u n d e r rice in some of t h e districts in Coastal Andhra and Telangana. Crop shifts occurred in all three regions over the last two decades. In Coastal Andhra, the main rice-growing region of the State, rice gained area in almost all the districts, with the increase ranging from 10 per cent to 30 per cent. Area under major millets witnessed a sharp decline with jowar recording the largest decline. In most of the districts in the coastal region, there was an increase of area under pulses. In terms of DOA towards fruits & vegetables, there was a clear shift in favour of these crops in most of the districts. The largest increases in area u n d e r fruits & vegetables was in 53

Vizianagaram, V i s a k h a p a t n a m , E a s t Godavari, west Godavari, ICrishna and Guntur where area under these crops has increased by more than 100 per cent. In Visakhapatnam, which is one of the districts selected for a more detailed study in this paper, the area under fruits & vegetables increased from 0.19 lakh ha to 0.60 lakh ha over twenty years. The present area under fruits and vegetables represents a little less t h a n one-half of the total area under the principal crop - rice - in the district. Rayalaseema region has witnessed the most clearly evident shift in area towards non-food crops compared to the other regions with a dramatic increase in area under non-food crops in three out of four districts (with Chittoor district as the exception) ranging from 70 per cent to 127 per cent. In most of the districts there was a decline in area under millets and pulses (except in Kurnool district where p u l s e s a r e a increased) a n d a m a r k e d shift t o w a r d s oilseeds, particularly groundnut, which doubled its area in Anantapur and increased its area significantly in the remaining districts. The area under fruits & vegetables showed a two-fold to four-fold increase in all four districts. Telangana region h a s exhibited more district-specific variations in crop patterns compared to the other two regions. Overall, there was a Significant shift towards non-food crops. Oilseeds and cotton were the most favoured crops in many of the districts that witnessed crop shifts. The area under fruits & vegetables should a marked increase in almost all the districts, though the area u n d e r these crops showed wide variations in the base period (i.e. 1979-81). Khammam d i s t r i c t r e c o r d e d t h e l a r g e s t i n c r e a s e in a r e a u n d e r fruits & vegetables - from 0.061akh ha to 0.451akh ha during the twenty-year period. The area under specific fruits and vegetables shows variations across districts. In 2001, area Krishna district had the largest area under mangoes (about 20 per cent share). Along with Chittoor, these two districts accounted for more than one-third of the area in the State under mangoes. (Statistical Abstract, 2001). For citrus fruits, Nellore was the leading district, followed by Anantapur. Other major fruit growing districts were Ranga Reddy for guava, Cuddapah for papaya and Guntur and Prakasam for sapota. For vegetables, Ranga Reddy had the largest share in area under this crop, while Visakhapatnam was the leading district for beans, and Kurnool, Ranga Reddy and Chittoor had the largest shares in the State's area under tomatoes. 54

Figure 2 : Trends in Area and Production of Rice in AP

A P of Rice
14000 12000 H 10000
Q.

8000 4 6000 -

<

CO
I

in
I

1^

1^ CO

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00

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Year - Production

-Area

To u n d e r s t a n d t h e crop shifts t h a t are taking place in A n d h r a Pradesh in recent decades, we first look at food grain production in the State. The trends in area and production are summarized in the Tables for Rice, and Jowar. Figiure 3 : Trends in Area and Production of Jowar in AP
AP of Jowar 3000 2500-

i CO

hCM

i i in

r-

i en
00

i i i i i i i i i i i i i i i i i i i i 1CO i n CD TCO i n 0 0 C 0 0 0 0 0 0 0 C C 3 5 C 3 > 0 > < J J O

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O C M - * C O O O O C M ' * C O O O O o o c o o o o o o o c j ) C j ) c n c n ( 3 5 0

Year -Area - Production

There h a s been a significant growth of agricultural performance in terms of food grains production since 1970 in A. P. The growth rate performance shows that area grew at a slower pace (even negative) than yield and production of food grains. The compound a n n u a l growth rate (CAGR) of food grains production w a s 1.98 percent
55

whereas CAGR of area and yield was -0.82 percent and 2.83 percent r e s p e c t i v e l y d u r i n g 1 9 7 1 - 0 0 . The y e a r s 1 9 7 1 - 8 0 show t h a t production grew at very faster rate - i.e. 4.03 percent per annum supported by higher growth rate of yield, though there was slow growth of area. During the period 1981-90, growth rate of food grains is mainly supported by growth rate of yield rather t h a n growth rate of area. During 1981-90, growth rate of food grains was lower mainly because of negative growth of area. In other words, though area declined to 1.75 per cent, the production increased at a rate of 1.24 per cent because of 3.04 per cent rate of growth of yield. The following Tables show the growth rates for area, production and yield of Total Cereals as well as the growth rates for Individual subcategories of cereals. Table 15 : Growth Rates For Area, Production and Yield of Total Cereals Year
1971-80 1981-90 1991-99 1971-99 Area 0.054 -1.75** 0.49 -0.82

Production
4.03* 1.24 1.97 1.98*

Yield 3.97* 3.04** 1.47 2.83

* indicates 1 percent and ** indicates 5 percent level of significance. Growth rate obtained by fitting the standard form Y = abt to the time series of the area and tts components by Ordinary Least Square (OLS) Table 16 : Growth Rates for Individual sub-categories of Cereals
Year Rice Wheat Coarse Cereals 2.15 -4.93* 1.60 -1.38* Total Cereals 3.82** 1.09 2.14 1.84* Total Pulses 0.23 3.96* -0.84 3.42* Total Food grains 4.03** 1.24 1.97 1.98*

1971-80 1981-90 1991-99 1971-99

4.54* 2.77 2.27 2.87

-0.38 -5.65 -1.02 -3.01*

* Indicates 1 percent and ** Indicates 5 percent level of significance.

56

The growth rate of cereals has been mostly at par with that of food grains in AP throughout the green revolution period. It declined from 3.82 percent in 1971-80 to 1.09 percent in 1981-90 and Increased to 2.14 percent in 1991-00. This is mostly because of significant contribution in yield growth. The growth rate of rice is quite high, that is, 4.54 per cent during 1971-80 as it was the beginning of the green revolution, where the growth of area played a crucial role along w i t h c o n s u m p t i o n of fertilizer a n d o t h e r forms of mechanization. However, the scenario was slightly different for pulses. From an acute s t a g n a n t p h a s e in the early part of green revolution, the situation improved to a significant growth rate because of high growth rate of cash crops during 1981-90. Table 17 : Growth Rates for Area, Production, Yield etc., in Andhra Pradesh
Region Area Production 2.76* -0.817* 2.21* 1.98* Yield Fertilizer Consumption 8.09* 9.56* 9.35* 8.15* Rainfall Net Irrigated Area 0.76* 0.60** 2.81* 1.32*

Coastal Rayalseema Telengana A.P

0.45* -3.13 -1.21* -0.82*

2.29* 2.38* 3.45* 2.83*

0.68*** -0.77 0.51 0.31

indicates 1 percent, ** indicates 5 percent and *** indicates 10 percent level of significance

As it is evident the growth of production of food grain is mainly supported by the growth of yields, though there was a negative growth in terms of area of food grains. Except in the Coastal region, the other two regions show negative growth of area through out the green revolution period. The trend growth r a t e of food g r a i n s production in Andhra Pradesh is 1.98 per cent during 1971-00, whereas it is highest at 2.76 per cent in the Coastal region and lowest -0.82% in Rayalseema region. Though there h a s been an impressive development in irrigation facilities, still the importance of rainfall cannot be ignored. The trend growth rate of rainfall is 0.31 per cent during 1971-00 in AP. The growth of yield rate is mainly dependent on fertilizer consumption and net irrigated area. The growth rate of fertilizer consumption is at a higher rate of more than 8 per cent in all regions along with a significant positive growth rate of net irrigated area in AP during 1971-00. 57

4.6

District Level Diversification

The potential for diversification depends critically on structural factors such as resource endowments, rainfall, extent of irrigated area as well as supply side factors such as proximity to urban/periurban markets. Figure 4 : Diversification of Agriculture and Resource Endowments (Schematic)
X

a o
w

1 SUBSISTENCE agriculture: low and erratic rainfall; poor infrastructure: low Irrigation; low population density. Diversification is a risk mitigation strategy

I
5

Market oriented diversification towards commercial crops/high value crops. Driven by demand for high value commodities. Supply side factors favourable to diversification.

3 SPECIALISED AGRICULTURE: 2 Agro-climatically better endowed High levels of irrigation; inputs; region. Lack of adequate infrasmechanization: low income/martructure. Access to input and outket risk. Low relative profitability put markets constrained. Low adoof substitute enterprises ption of improved technologies.
Low Resource endowments, inputs, infrastructure Rao (2004) High

S o u r c e ; P.Parthasarathy

The extent of diversification varies a c r o s s districts in A n d h r a Pradesh. The 23 districts in the State can be classified into four categories - those that are low, medium, high and not influenced. Adilabad is the only district in the low category. The districts in the m e d i u m category are E a s t Godavari, K a r i m n a g a r , W a r a n g a l , Nizamabad, Khammami, Vizianagaram, Srlkakulam, Mahabubnagar, Guntur, Prakasam, Nellore, West Godavari and Kumool. The high c a t e g o r y d i s t r i c t s a r e R a n g a Reddy, Medak, Nalgonda, Visakhapatnam, Chittoor and Krishna. Cuddapah, Anantapur and Hyderabad are districts that have not been influenced. Figure 5 : Extent of Diversification in Andhra Pradesh
Low: Adilabad Medium: East Godavari, Karimnagar, Warangal, Nizamabad, Khammam, Vizianagaram, Srikakulam, Mahaboobnagar, Guntur, Prakasam, Nellore, west Godavari, Kurnool Not influenced: Cuddapah, Anantapur and Hyderabad High: Ranga Reddy, Medak, Nalgonda. Visakhapatnam, Chittoor and Krishna

58

4.7

Migration Coefficient [ip]

It is the coefficient with the help of which we can able to know the nature and extent of shift or diversification in crops. In other words, in the present context, it shows the degree of association between the area and production of two different crops and later about the shift. Migration Vegetable Coefficient and Coarse of Area Cereals: and Production of Fruits 6l

Table 18 : Migration Coefficient between Coarse Cereals'^ and Fruits and Vegetables from 1993-94 to 1998-99
Details about Parameters Area F & V Prod F & V Area Coarse Cereal -0.86 -0.94 Prod Coarse Cereal -0.058 0.353

* : Jowar, Bajra, Maize, Ragl, Small Millets

When area under coarse cereals came down, production of fruits and vegetables correspondingly went up as reflected in the negative migration coefficient of 0.94. Hence negative Migration Coefficient {<p) b e t w e e n a r e a of coarse c e r e a l s a n d p r o d u c t i o n of fruits a n d vegetables led to a positive substitution effect in terms of production of fruits and vegetables. 4.8 Fruits and Vegetables

In Andhra Pradesh, the fruits & vegetables sub-sector has shown tremendous growth in the last two decades, as area under Fruits and Vegetables h a s grown by one and a half times during this period In the regions of Coastal Andhra and Rayalaseema and by more than three times in Telangana Region. (Report on Crop Shifts, 2002). Further, the second green revolution likely to usher in ere long simultaneous with blue revolution would also significantly provide opportunities for DOA of coastal tracts and areas of fresh water aqua culture. 4.9 Selected Districts

Visakhapatnam is the third largest district by geographical area in Coastal Andhra with an area of 11 lakh hectares, after Prakasam (17.14 lakh ha) and Nellore (13.16 lakh ha) districts. However, its 59

net sown area - 3.48 lakh h a - is lower than most other districts In the region an. almost half of the net sown area in G u n t u r and Prakasam whlfch are the districts with the highest NSA of over 6 lakh ha each. More than three-fourths of the area in Vlsakhapatnam district (84 per cent) is under food crops. Of this area, over 46 per cent is under food grains, barely 6 per cent under pulses and over 30 per cent under other food crops. The net irrigated area in the district is 1.21 lakh ha and area irrigated more than once is over 36,000 ha. A major change in the crop pattern in the district since 1979 is an 8.4 per cent decline in the area under food grains. This is mainly due to huge declines in area (66 to over 80 per cent) under major millets - jowar and bajra. The area under rice has registered a 24 per cent increase over the last two decades. The area under pulses has also declined considerably (by almost 15 per cent) while oilseeds have seen a 5 per cent expansion tn area. The area under fruits and vegetables has recorded the largest increase from less than 20,000 ha in 1979-82 TE to over 60,000 ha in 1998-01 TE. Mangoes and cashew n u t s are the principal fruits and vegetables grown in the district in terms of area. Chittoor Chittoor is the smallest district in Rayalaseema with a geographical area of 14.98 lakh ha while Anantapur, the largest district in the region has a geographical area of 19.13 lakh ha. The net sown area in Chittoor (4.32 lakh ha) is less than half compared to Anantapur district. The area under food crops (2.47 lakh ha) is slightly higher than the area under non-food crops (2.34 lakh ha). Chittoor ranks second in the region In terms of net irrigated area (1.63 lakh ha) and has the largest area irrigated more than once compared to other districts in Rayalaseema. Significant area shifts have been recorded in Chittoor district over the last two decades. Following the trend witnessed in several districts of the State, the area under major^and minor millets has fallen by as much as 80 to 90 per cent in the district. The area under rice has declined by 32 per cent and for pulses the area loss has been about 34 per cent. OUseeds area has remained stable while the area u n d e r sugarcane h a s doubled in the district during the observed period.

60

The area under fruits and vegetables increased from 24,000 h a to 56,000 ha during the period between 1979 and 2 0 0 1 . This is the second largest increase in area under fruits and vegetables in the region after Kumool. Table 19 : Area Under Principal Fruits & Vegetables in Visakhapatnam and Chittoor Districts (2000-01)
(In hectares) Sr. No.
1 2 3 4 5 6 7 8 9

Area under Principal Fruits & Vegetables Mangoes Citrus Fruits, Oranges Mosambi, others Grapes Guava Papaya Sapota Cashewnut Gourds Bendi Brinjal Greens Cabbage Peas Beans Tomatoes

Visakhapatnam 19,586
95 195 28

Chittoor 45,079
282 28 74 23 23 126 21 463

Andhra Pradesh 3,06,384 82,837 1580 10,310 2,864 5,000 1,45,315 9.333 24,099 22,217 6,693 1,566
154

29,540
228 832

10 11 12 13 14 15

1926
454 87 -

1,663
93 6 -

3876 1843

1,032 10,447

10,790 79.819

Source: Statistical Abstract, 2002 (Directorate of Economics & Statistics, Government of Andhra Pradesh)

The growth of the fruits and vegetables sub-sector in Visakhapatnam district is dependent to a great degree on the availability of low-cost post-harvest technologies and infrastructure development in terms of cold storage facilities, refrigerated transport and other key links in the supply chain. The perishability of horticultural produce calls for appropriate methods of storage and transportation to minimize the high levels of wastage between the farms and the market outlets. There sire only a limited number of cold storage units in the district and several had to close down due to several reasons. Location of the unit, installed capacity, accessibility to farmers growing these crops and uninterrupted power supply are some of the factors that can affect the functioning of such units. 61

4.10

Agro-Processing

A n d h r a P r a d e s h is t h e second largest p r o d u c e r of fruits a n d vegetables in the country. However, only two per cent of the produce is processed. The two most important value added products are mango fruit pulp and mango pickles. The mango plantations are concentrated in the three districts of Vijayawada, Chlttoor and Hyderabad. (Mahendra Dev and Rao, 2004). An Agri-Export Zone (AEZ) has been set up for the canning units in Chlttoor district. The majority of these units are for mango processing while a few are for vegetables. Availability of water and power are the key inputs for these canning units and Chlttoor district is deficient in these inputs. In Chlttoor district (Kuppam), gherkin is one of the exotic vegetables that is being grown in a big way to cater to demand in international markets for processed gherkin. 4.11 Aquaculture

Over the years, the average productivity of aquaculture in India showed a q u a n t u m leap from less t h a n 5 0 0 k g s / h a a y e a r to 2 0 0 0 k g / h a a year through adoption of cost-effective technologies. India emerged as the second largest shrimp exporter in the world after Thailand in 2002. Shrimp production increased at a compound growth r a t e of 3.8 p e r c e n t between 1978-79 a n d 2 0 0 1 - 0 2 in quantum and 13.5 percent in value. Aquaculture represents a Rs.50 billion industry in India. The State-wise production of cultured shrimp in India shows'that the States dominating such production are Andhra Pradesh, Kerala and West Bengal. While production has declined in Kerala and shown a moderate Increase in West Bengal, Andhra Pradesh h a s witnessed a phenomenal Increase in shrimp production from 9,700 mt in 1991-92 to over 34,000 mt in 1997-98. Aquaculture growth is, however, constrained by Increasing aquatic pollution from various industries such as distilleries, rayon, rubber, paper and pulp, textiles, tanneries, chemicals, fertilizers and thermal plants. Andhra Pradesh has 4 lakh h ^ of freshwater bodies and 1.50 lakh ha of brackish water area. (Dev and Rao, 2004). The production of inland and marine fish and shrimp from both inland and marine sdurces is about 7 lakh tonnes and Is projected to increase to 9 lakh t o n n e s by 2006-07. Inland fish and freshwater prawn 'are expected to see the fastest rates of growth due to increased demand for these products. The State ranks first in coastal aquaculture and also in freshwater prawn production in the country. These s u b 62

sectors have high potential for value added production, which can be exploited in future. Post 1994-95, shrimp culture was hit by white dot disease. The recovery of production and exports in the year 2003-04 was hit by anti-dumping duties imposed by the USA and rejects by J a p a n and EU on grounds of low processing quality. (FACTS for YOU, Feb 2004) Visakhapatnam ranks second in the State after Nellore in marine fish production (though Nellore recorded a fall in production since the previous year). These two districts account for about 45 per cent of the total marine production in the State, followed by Srikakulam and East Godavari districts. The production of marine fish in Guntur district doubled in 2000^01 and this was the highest growth in the State in marine fish production, followed by Visakhapatnam. For inland fish production, the leading districts were west Godavari and Krishna, which together accounted for almost half the inland fish production in the State. S h r i m p s a n d scampi constitute the fast growing s u b - s e c t o r s in aquaculture with growing demand in international markets. The area under these products in Andhra Pradesh increased from 4 lakh ha in 1 9 9 9 - 2 0 0 0 to 5 l a k h h a in t h e following y e a r . S c a m p i is considered the most suitable species for freshwater aquaculture. Table 2 0 : Marine Fish Production by Districts in A.P. (in tonnes)
S. No. 1 2 3 4 5 6 7 8 9 District Srikakulam Vizianagaram Visaldiapatnam East Godavari West Godavari Krishna Guntur Prakasam Nellore Total 1999-2000 25,289 10,012 29,509 23,530 2.633 11.553 8,391 8,842 46.723 1.66.482 2000-01 26,514 9,783 35,535 27,541 3,165 11.972 16,854 8,003 43.134 1.82.503

Source : Commissioner of Fisheries, AP.

63

The port facilities available in Visakhapatnam district are a major factor influencing the development of the aquaculture sector in terms of export potential. There are plans to modernize and expand the existing port facilities to handle larger volumes more efficiently. The role of infrastructure development in promoting DOA is evident in these case studies. Both Visakhapatnam and Chittoor districts have been targeted for policy interventions to improve their potential as growth centres for diversified products. Among the measures contemplated are restricting the shrimp crop to one year with restriction on shrimp production to 50000 per hectare. Andhra Pradesh Government h a s drafted a legislation t h a t will empower the DepEirtment of Fisheries to take punitive action agEiinst those who sell infected mother prawns. 4.12 Migration Coefficient

Table 21 : Migration Coefficient of Area and Production of Rice and Aquaculture and Production of Shrimp: (1992-2000)
Details about Parameters Area of Aquaculture Prod of Shrimp Area of Rice Area of rice 0.07 -0.2043 1.00 Prod of Shrimps 0.82 1.00 0.161

Reduction in the area of rice led to increase in the production of shrimp in the State leading to the conclusion that in the erstwhile rice intensive areas, shifts took place in favour of aquaculture. Migration coefficient is highly positive (0.82) between area of aquaculture and production of shrimps. (Shrimp is name associated with brackish water while prawn is associated with fresh water and both are identical aqua species) These two districts reflected higher incomes due to diversification during the last ten years both through State initiative and private effort coupled with better market access and this is responsible for the farmers not getting into the desperate act of suicides in these districts.

64

CHAPTER V SUGGESTED POLICY INTERVENTIONS FOR DIVERSIFICATION

In the emerging domestic and global economic environment, several c h a n g e s are in progress in the way food o u t p u t is p r o d u c e d , distributed a n d c o n s u m e d . Essentially, DOA involves a policy intervention to facilitate transition from depletive monocultural production systems to diversified or rotational systems with high resource-use efficiencies and significantly less pollution. (Barghouti, et al 2004). Region-specific DOA should be an economically viable option for resource-poor farmers and should lead to minimization of risks faced in the pre-diversification. These goals ^ a v e to be achieved in a framework that ensures high productivity, profitability through reduced transaction costs and long-term sustainability of agriculture with increasing marketable surpluses and provision of supportive infrastructure. The scope and spatial/regional coverage of DOA will vary, depending on a number of factors. The starting point for policies aimed at promoting DOA is the natural resource-base that h a s to form the basis for sustainable agricultural production. 5.1 Sustainability of Natural Resource Base

5.1.1 Since crop production depends primarily on water availability, a n inquiry into crop DOA needs to t r a c k / m a p the c h a n g e s in irrigation development. Assured access to water is a related aspect of successful DOA. The global water crisis that is projected to reach alarming proportions in the next two decades has already emerged in several regions. The impact of water scarcity on DOA calls for suitable policies to be put in place for water pricing and water-use. Farm level water management and greater water use efficiency are central to reshaping agricultural production and crop patterns. In dry land areas, the spread of micro irrigation techniques can be useful in increasing crop options for farmers where water availability is low. "If rights to basic resources (such as land and water) are poorly secured and enforced, then resources may remain locked in rnefiicient uses.... In particular, secure and tradable water rights for irrigation will provide Incentives for economizing water u s e by inducing water users to consider the full opportunity costs of water." (Barghouti, et.al, 2004). 65

5.1.2 Rain fed e c o s y s t e m s r e q u i r e p r o m o t i o n of dry l a n d technologies for resource-poor farmers and farming system research needs to be oriented towards the development of location-specific technologies in the rain fed areas. (Raman, 2000). Given the slow growth in irrigation through major and medium projects, micro irrigation t e c h n i q u e s (through drip and sprinklers) are gaining importance. The dry land tracts, which account for almost two-thirds of the cultivable area in the country, require special attention in terms of the recommended crops to be grown under conditions of water scarcity. Conservation of eco-systems through sustainable agricultural practices - such as organic farming, conjunctive use of water resources, greater efficiency in water-use and other measures - h a s now become a n urgent policy priority to prevent further degradation and conserve the existing natural resource-base. 5.1.3 Farmers' Federations should play a critical role in surveying t h e DOA o p p o r t u n i t i e s at t h e c o m m u n i t y level. Information, extension, farmers training, and the attention of the private sector are then directed toward those opportunities; selection of appropriate enterprise(s) is left to farmers. District level farmers' associations or specific a c t i o n g r o u p s t h a t engage p r o f e s s i o n a l s in building peripatetic teams carry greater credibility to provide the required resources and training for appropriate selection of enterprisesespecially to smallholder farmers cultivating in less favorable areas and landless poor people. Vikas Vahinis of NABARD may have to move strategically in this direction. 5.2 Infrastructure

5.2.1 Next in importance to land and water resources, are policy interventions to develop physical infrastructure, mainly roads and communication network, to link rural areas with the rest of the economy. Investment in infrastructure is crucial to ensure market access as proximity to markets (semi-rural or urban) can provide an impetus to CDA attempts. 5.2.2 Assured markets and good road network could stimulate CDA in favor of high value crops as they help maximize profits and minimize uncertainty in the output prices. They also enable farmers to exploit the potential benefits of cultivating high-value crops. Small f a r m e r s a r e d i s a d v a n t a g e d in t h e i r inability to benefit from e c o n o m i e s of s c a l e . E n c o u r a g i n g a p p r o p r i a t e i n s t i t u t i o n a l arrangements for better markets through cooperative companies or contract farming would go a long way in strengthening farm^firm
66

linkages. The success of CDA as noticeable from the impacts of urbanization lies in the effective supply chain management from the farm-gate to export house. 5.2.3 In broad terms, four important policy areas emerge in India's reform a g e n d a : i) Grain p r o d u c e r price policy: d i s t o r t i o n s in production in certain regions of the country resulting from high MSP for rice a n d wheat need correction; 11) Removal of export r e s t r a i n t s : p o t e n t i a l l y positive i m p a c t s on i n v e s t m e n t s a n d competitiveness though price policy needs effective mechanisms to connect domestic and world prices; ill) Protection of oUseeds and oUs: welfare implications of changes in oil import policy to be kept in mind while aiming to develop a more efficient, vertically Integrated domestic processing industry; and Iv) Market and regulatory reform: mainly aim to liberalize domestic agricultural markets (Landes and Gulati, 2004). 5.3 New Technologies, R & D

5.3.1 The trend of declining share of area and the rising share of yield during the post-green revolution through the decade of 1990s points to the need for focused research on low-cost high-sustainable yield-increasing technologies. Biotechnologlcal interventions to raise jaelds by developing pest and disease-resistant varieties of seeds with greater nutritive value and ability to withstand low-moisture soil conditions now have the potential to bring about a second Green Revolution, provided bio-safety, health and ecological concerns are suitably addressed. 5.3.2 Improved technologies in fruits and vegetables are urgently needed. In India, for example, small growers are looking for seeds of gherkins that can be successfully grown for export. But there is very little research on that crop since it is not a traditional crop. The information on seed source is also limited. Seed a n d p l a n t i n g material and Improved planting and growing methods are very much needed. The vegetable seed Industry in developing countries needs investment now. The entrepreneurs are entering into this lucrative vegetable seed industry. Similarly farmers need attractive varieties of fruit trees. Seed companies are placing the emphasis on hybrid seeds of vegetables and grafted planting materials in fruit trees. Both public and private sectors need to collaborate to help the small farmers. Improved vegetable and fruit crop management technologies that can increase the yield and quality of the produce need to be aggressively promoted to the small farmers. Similarly, farmers should
67

be made aware of the IPM technology and pesticide residue Issues. Policies should facilitate access to avoid pesticide residue and ensure safety of the product. Indigenous vegetables and fruits as "niche" p r o d u c t s need to be identified and actively promoted. "Niche" p r o d u c t s are those, either traditional or modern, which remain o u t s i d e t h e m a i n s t r e a m of t r a d e b u t have u n t a p p e d m a r k e t potential. The potential of the commodity can be further enhanced through locally known practice of processing for value addition. Postharvest losses can be minimized through cold storage facilities, proper grading, sorting, and packaging the produce. Strengthening the supply chain from farm to consumer is a policy priority for diversification a n d value addition efforts to be productive and sustainable. Urgent steps need to be taken to correct the colossal wastage of one-third of horticultural production in the country. 5.3.3 Policy interventions for promotion of h o r t i c u l t u r a l crops promotion are needed to increase shelf life and ensure "delayed ripening". The key agents leading to ripening have been identified and after ten years of research, it is now technologically possible to m a n i p u l a t e t h e genes a n d p r o d u c e slow-ripening genetically engineered vegetables (for example, tomatoes such as Flavor, Savor a n d E n d l e s s S u m m e r have b e e n p r o d u c e d t h r o u g h s u c h technologies). India needs to develop and promote the use of such technologies in order to exploit the potential advantages of being the world's second largest producer of fruits and vegetables. 5.3.4 New technologies can be effective only if there are better linkages between research, extension and farmers. This is more urgent given the low productivity of our major agricultural crops when compared with other States in the country, and far more, by the international average. At present, extension services are grossly Inadequate to cover the vast number of farms in the country; it is estimated that there are around 67,000 extension workers in rain fed cireas for over 133 million farmers. The emphasis globally is now on farmer-oriented participatory a p p r o a c h e s to Research a n d Extension s u c h a s : Farming Systems Research a n d Extension (FSR&E) and On-Farm Client-Oriented Research (OFCOR) and other similar initiatives. NABARD should work in close coordination with the ICAR outfits to carry extension with credit. It could also bring out a publication wherein the addresses of the RSdD Labs, contact persons, phond and e-mail addresses, and the costs associated wtth the tests to be conducted, state-wise are recorded to serve as reference to the farmers.
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5.4

Institutional

5.4.1 It is h o p e d t h a t t h e r e c e n t l y r e c o n s t i t u t e d N a t i o n a l Commission on Agriculture would take up field studies to support the policy measures it is expected to unfold. 5.4.2 The Technology Mission/Task Force to address sub-sectorspecific p r o b l e m s can i n c r e a s e t h e effectiveness of policy interventions, which need to be crop and region-specific. 5.4.3 The main problems facing farmers attempting to change their crop mix is the non-availability of certified quality s e e d from Government agencies. For almost all major crops there is a shortage of seeds in the sowing season and the problem needs to be tackled in a more urgent manner. High yielding varieties of seeds that are disease and pest-resistant would need to be made easily available to resource poor farmers. 5.4.4 Contract Farming is a strategy that is being Increasingly favoured to help re-orient the agricultural sector towards export-led growth although a specific regulatory body to e n s u r e t h a t t h e Interests of the producing farmers are not jeopardized would need to be put in place. Existing Laws governing contracts and arbitration and the rules governing their implementation would require a fresh look on an urgent basis as the strategy h a s a prospect of making fast in-roads. 5.5 Regulatory Overhang

5.5.1 Entire value chain in Agriculture has to look to the following Ministries for efifectivising each link in the chain. Ministry Ministry Ministry Ministry Ministry Ministry Ministry Ministry Ministry of of of of of of of of of Agriculture Food Processing Agro and Rural Industries Chemicals and Fertilizers Water Resources Small-Scale industries Science and Technology (for Biotechnology initiatives) Rural Development Environment & Forests 69

 Ministry of Commerce & Industry. Ministry of Health Ministry of Shipping and Transport Related State Ministries 5.5.2 The overriding Ministry of Finance and t h e 'facilitating' Planning Commission notwithstanding, the Ministerial and bureaucratic overhang is unique to our country, which is responsible for the high transaction cost to the user population. 5.5.3 Therefore, the regulatory overhang in India with more than twelve Union Ministries, corresponding State Ministries, laws framed by t h e Union G o v e r n m e n t with r u l e s framed by t h e S t a t e Governments for implementing them, still seventy-odd food control orders governing the production and trade of those commodities and crops into which the farmers would like to diversify, the farmer, rural industry and farm trade are virtually strangulated. While there is an awakening in respect of these areas, the speed of reforms and actions in these areas deserve an urgent attention. 5.5.4 It is time that the farmer is enabled to look at one singfie body for redress of his grievances. A nucleus of regulatory body more to serve as a FACILITATION CENTRE than as a controlling mechanism could be formed if the number of Ministries could not be reduced due to political expediency. 5.6 Credit

5.6.1 Developing rural enterprise nucleus estates in the production hinterlands to remove the problems in supply chain management for effective commodity diversification would lead to convergence of various poverty alleviation initiatives on one hand and to improving CDA initiatives. 5.6.2 The role of secure land rights has been emphasized in several studies as a prerequisite to DOA. (Dorjee, et. al, 2003; Ptngali, 2004; Barghouti, et.al. 2004, among others). The problem of insecure access to land is widespread in South Asia where land reforms with few exceptions like Taiwan and Korea, have failed to give farmers a secure asset base. This has become the root cause of poverty and growing indebtedness of small and marginal farmers, given the lack of tenancy reforms, structure of rural labour markets, the seasonal nature of employment in agriculture and the slow pace of non-farm
70

and urban employment growth. Secure leind rights can facilitate CDA as they create incentives for farmers and increase the farmer's ability to access financing from institutional sources for crop inputs. (WDR, 2002) 5.6.3 Credit reform is a policy a r e a t h a t d e m a n d s i m m e d i a t e attention. CDA strategies targeted for resource-poor farmers require increased flow of institutional credit and a new framework for rural lending. In the absence of data on credit flow for various crops and products State-wise and district-wise over the last decade, it has not been possible to establish any correlation between the flow of credit as an influential p a r a m e t e r for CDA. F u r t h e r , primary lending institutions' recourse to NABAFID for refinancing the agricultural credit diminished in the post-reform period and along with it, its advisory role. The agrarian crisis that has been brewing in the last two decades, exacerbated by the deficient monsoon of the last four years and the worst drought of 2002-03, has focused policy attention on t h e need for r e s t r u c t u r i n g r u r a l credit. There is a need to Improve n o t only t h e q u a n t u m of priority s e c t o r l e n d i n g to agriculture, but also revamp the credit delivery mechanisms to reach the small farmers in a more effective way. The system of project appraisal followed by banks to offer credit has been inadequate. 5.6.4 Data inadequacies prevented the author from establishing any correlation between the flow of credit and CDA though there is no denying the fact that easy and quick flow of credit in time would h a v e a c c e l e r a t e d t h e p a c e of CDA. 1 r e c a l l w h a t a h i g h l y k n o w l e d g e a b l e civil s e r v a n t t u r n e d B a n k r e g u l a t o r , B u r r a Venkatappaiah mentioned: "with green revolution becoming greener and greener let not bankers faces become redder and redder." He gave a clarion call for credit to farm sector to move along with Bank-engineered extension services to ensure greenness in lendtngs. Having turned the full circle to a near pre-nationalization s t a t u s , despite all the structural reforms In the banking sector in the postnationalization and the post-reform sector, commercial, cooperative a n d r u r a l b a n k s should quickly re-engineer their initiatives to aggressive innovations. 5.6.5 Given the huge investments needed for CDA at the National and State levels, unless the small farmers are enabled to make use of the opportunities In the emerging economic environment through easy access to timely and adequate credit, the CDA strategy Avlll be difficult to Implement. In the context of total computerization of the Banking industry targeted, NABARD may devise a MIS that would 71

help the policy makers to make such changes as are expedient in credit and crop insurance areas. 5.6.6 The studies referred to in this paper and the district level s t u d y bring out the fact t h a t urbanization plays a key role in promoting Commodity Diversification. Changes in the consumption b a s k e t with rising u r b a n incomes, r u r a l - u r b a n linkages, better t r a n s p o r t a n d communication facilities and proximity to u r b a n m a r k e t s provide a s t r o n g i m p e t u s for CDA. This fact h a s implications for policy formulation. 5.7 Alberta Model

5.7.1 In C a n a d a A g r i c u l t u r a l T o u r i s m h e l p e d s u s t a i n a b l e investments in commodity diversification. District Headquarters on t h e fast track of urbanization are the right destinations for the strategy suggested below. As rightly mentioned by the Food and Agriculture Ministry, Canada, one need not reinvent the wheel. But the strategy h a s to be adapted to the requirements of our country/ State. 5.7.2 Metro cities and District headquarters have large housing complexes and multi-storied residential mansions with more than 50 families residing. Average consumption of fruits cind vegetables per week provide a tremendous opportunity for direct marketing by farmers. Commodity diversification mapping should be done in the peripheral rural hinterlands. In the mapped areas, farmers should be advised w h a t t h e m a r k e t w a n t s so t h a t they would p r o d u c e accordingly within t h e following t h r e e m o n t h s - s i x m o n t h s t h e vegetables and greens required. Near the farm gates 'pack and pick' kiosks can be built which also house fast food centres. The Kiosk will have a small weighing machine and packing machine on selfservice b a s i s . The farmers on c a s h basis could sell farm fresh vegetables a n d fruits for about 100 - 200 families at good profit margin. Week-end holidaying can be done by the urban rich who are tired of the din and bustle of the cities and towns during the week and carry vegetables and fruits at a far lesser price t h a n would become available in their local markets, while returning. If these Kiosks are located near a good lake or famous religious s h r i n e / C h u r c h / M o s q u e , the merrier. Gradually, t h e s e spots have t h e potential of developing into Agro-Tourist Centres/farmer-centric markets.

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5.8

Organic Fanning

5.8.1 To meet the demand for sife vegetables another opportunity is organic farming. Through the Agricultural and Processing Products Export Development Authority (APEDA) in India a n d National Program for Organic Production (NPOP) the mechanism for organic certification is in place. 5.9 Role of Information Technology and Farmers' Advisory Centres

5.9.1 Policy attention so far h a s not adequately concentrated on cropping patterns and the priority of ensuring that crops are grown throughout the State in accordance with resource-endowments/agroclimatic conditions, price trends, consumption demand in fastchanging markets and production constrEilnts. Which crop is to be grown and for how many seasons are major choices t h a t have a bearing on the livelihood and economic condition of the farmer. The farmer h a s to be guided with regard to this basic issue of choice of crop. 5.9.2 There is an urgent need for farmers to be made more aware of the full implications of these changes and to be better prepared to face the resulting uncertainty. The shift in the type of supportive interventions by the State - subsidies and other direct intervention measures - combined with the opening u p the economy to global market forces will necessitate major adjustments by farmers to the emerging s i t u a t i o n . How f a r m e r s cope with t h e s e a n d o t h e r macroeconomic developments will determine t h e future of t h e agricultural sector in the State. 5.9.3 The farmer is the key player in the agricultural sector. The individual decisions of millions of farmers spread across the State the majority of whom are resource-poor - together result in the fliial outcome with regard to agricultural activity. To enable the farmer to make the most efficient choices, the fundamental requirement is information. He has to have access to relevant, updated, concise information relating to crops, availability of quality seed, credit, markets, price trends, global developments, policy changes ind R & D results. 5.9.4 He needs information on a whole range of processes affecting crop cultivation and value addition. He needs to be aware of the required quality standards of the output he produces (including the
73

WTO-compatible Codex and Sanitary and Phyto-Sanitary norms), the maximum permissible levels of pesticide use, efficient water-use, post-harvest technologies, agro-processing, packaging, branding, value-chain management and a whole range of farm practices which can raise productivity and competitiveness. (Raju 2004) 5.9.5 Environmental issues cannot be separated from agriculture. The u s e of water resources is central to agricultural production; farmers need Information about water-saying farm practices. The severe decline in water tables in several p a r t s of the State, the slowdown in expansion of irrigated area and global climatic changes t h a t are influencing the weather systems making drought more frequent, make water-use efficiency at the farm level a high priority. More information about the use of sprinkler and drip irrigation and the strategies adopted by other countries in water-scarce situations can be of immense use for our farmers. 5.9.6 Therefore, the farmer should know what the markets want, how much the markets could absorb and at what price and under w h a t conditions. The setting u p of a n Advisory Cell to supply Agricultural Services to farmers is an intervention that can go a long way in providing the information inputs that the farmer requires in order to perform his agricultural operations in the fast-changing economic environment. 5.9.7 The Cell could function with the assistance of well-trained extension workers and also through electronic means. The extension workers need not be agricultural g r a d u a t e s b u t they could be g r a d u a t e u n e m p l o y e d y o u t h familiar with t h e local a r e a a n d practices. They can be given training kits and specially designed modules for their effective interaction with farmers. 5.9.8 Electronically accessed services can be made available at mandal-level kiosks and run by the Farmers' Associations. These can also be sponsored by corporates. Future agricultural policy will focus more on diversification with emphasis on horticultural crops, and also on livestock and fisheries. These are areas where information can be a vital input, making farmers aware of all the related issues they need to know before entering these sub-sectors. It h a s now become necessary to render these services to farmers through single stop facilitation. There m u s t be many of the likes of e-chowpals managed by the farmers' associations levying farmer-decided and yet system-tolerating user charges.
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5.9.9 However, there Is a regulatory overhang In India with more than twelve Union Ministries, corresponding State Ministries, laws framed by the Union Government with rules framed by the State Governments for Implementing them, still seventy-odd food control orders governing the production and trade of those commodities and crops Into which the farmers would like to diversify, the farmer, rural Industry and farm trade are virtually strangulated. While there Is an awakening in respect of these areas, the speed of reforms and actions In these areas deserve an urgent attention. 5.9.10 In fine, sustained agricultural growth of 4 percent per annum Is a necessary b e n c h m a r k for the overall economic growth of 8 percent p.a. increase in productivity and diversification to high value crops, commodities inclusive of livestock, fisheries and a q u a are contingent upon the following: 1. Increased efficiency of irrigation systems; 2. Increased access within the domestic a g r i c u l t u r a l m a r k e t s - t o w n a n d village-by v i r t u e of which, wider r a n g e of agricultural commodities are traded. The former would again be possible when (a) farmer-managed systems and technologies are put in place; land rights are properly recorded and delivered (Raju, 2002); (3) Flow of information to farmers improves through easily accessible ITES; and (4) Farmers diversify into high value crops supported by connectivity to nucleus rural enterprises.

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ANNEXURB - I Initiatives of the Ministry of Food Processing, Government of India

The measures taken as a result of these policy initiatives included liberalisation of import of technology and foreign technology tie-ups, reduction in duties on import of capital goods required for food processing industries and permission for equity participation and hiring of foreign consultants to facilitate flow of investment as well as managerial capabilities. All food processing industries, barring those manufacturing beer, potable alcohol and wine, have been deUcensed. Automatic approval for foreign investment up to 5 1 % has b e e n i n t r o d u c e d practically in all s e c t o r s for food p r o c e s s i n g industries, except a few items reserved specifically for the small-scale sector. The production of milk products, however, is still guided by the Milk and Milk Products Order which is m e a n t essentially to e n s u r e a n even spread of these industries, depending u p o n the availability of milk. These policy initiatives seem to have started paying dividends. The n u m b e r of fruit and vegetable processing u n i t s in the organised sector h a s risen from a little over 3,900 to nearly 4,700 between 1991 and 1998. The installed capacity has doubled - from 9,50,000 tonnes to 19,10,000 tonnes. This a m o u n t s to a whopping 2 2 % average annual growth in production. TTie technologies adopted for processing of fruit and vegetables now range from traditional sun drying to sophisticated and state-of-theart techniques of juice concentration and freeze drying. Many units are engaged in the production of ready-to-serve beverages and other convenience foods, which now have a growing domestic demand. Canning of fruits and fruit products has also become fairly common and is being undertaken by even smaller and tiny industrial units dotting the countryside. Many household-scale pickle manufacturers have expEinded into relatively medium and large-scale units, adopting modem technologies for filling and packaging, though continuing to u s e t h e t r a d i t i o n a l , t i m e - t e s t e d m e t h o d s a n d r e c i p e s for t h e production of these culinary delights. The s a m e is t r u e of t h e producers of a veiriely of traditional and some not-so-traditional types of jams, jellies, syrups and squashes.

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To ensure proper quality of processed foods, the enforcement of the Food Products Order (FPO) 1955, has been made much more strict t h a n in the past. This Order regulates product specifications and hygienic conditions in manufacturing these products. The quality aspect is being spruced u p also because the phyto-sanitary and hygiene norms are gradually becoming important in international t r a d e . Some of t h e s t a n d a r d s laid down by t h e g o v e r n m e n t ' s notification on quality of food stuff are more stringent than those of European countries. C o n s e q u e n t l y , I n d i a h a s m a n a g e d to get a foothold in t h e international market of processed fruit and vegetables. These exports have, in fact, been growing by a good 30% annually during the past few years. The bulk of the exports consist of dried and preserved vegetables, mango-pulp, pickles and chutneys and other miscellaneous processed horticultural products. WhUe in quantitative terms, these exports have gone up from 1,20,521 tonnes in 1993-94, to 1,93,509 tonnes by 1995-96. in terms of value they have risen from Rs. 2,685 million to Rs. 4,915.9 million in the same period. At this level, the exports constitute nearly 2 1 % of the country's total production of fruit and vegetable. The Export Inspection Act provides for pre-shipment inspection of export consignments by the Union Ministry of Food Processing I n d u s t r i e s . Only a few export a n d t r a d i n g h o u s e s of r e p u t e , recognised by the commerce ministry, are exempted by pre-shipment inspection. This measure h a s indeed helped in creation of quality consciousness among the exporters of processed fhiit and vegetables. However, constant upgrading of technology, through need-based R&D support, is vital for sustaining the export boom. This is being done by the Mysore-based Central Food Technology Research Institute (CFTRI) and several other institutions. Most of the agricultural universities, too, have food technology departments, which not only conduct research but also undertake training in food technology. There are some separate institutes dealing with the post-harvest technology of cereals. A special food engineering centre has been set up at the CFTRI for three specific purposes : To undertake techno-economic assessment of process, product and plant designs and their optimisation through pilot plant and other engineering studies.
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 To assist in test-marketing of new products by serving as a production centre during the implementation stages of the project and product modifications to suit market response: and To train operators, technologists and engineers in plant operation, maintenance and trouble-shooting in process plants. Assistance also has been provided to the CFTRI for setting up an analytical and quality control laboratory for fruit and vegetables products.

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Annexure-II HAZARD ANALYSIS CRITICAL CONTROL POINT (HACCP)

Generic steps applicable to all commodity groups Under HACCP. the following generic steps are applicable to all commodity groups, irrespective of the trading partners and products: 1. Processing plants and responsible for developing their own HACCP based programme. The programme includes all the details on CCP for each production line along with addressing the programme prerequisites (e.g. sanitation programme, pest control, etc) to e n s u r e food safety. The p r o g r a m m e for implementation on a production line in a plant should be individually tailored to specific commodity and establishment requirements. 2. Competent authorities would a s s e s s these HACCP based p r o g r a m m e s a n d a s s i s t p l a n t s to m e e t food safety requirements during the development and implementation of t h i s programme. Once an e s t a b l i s h m e n t ' s HACCP based programme is deemed acceptable by authorities, it could be implemented. 3. I n d u s t r y plant personnel are responsible for controlling, monitoring and keeping accurate records for each CCP and e n s u r i n g t h a t proper procedures a n d controls have been followed. Plant management reviews plant records to identify deviations, discrepancies or problems and take required corrective action. 4. Competent authorities should review plant records, assess corrective action, observe on-line processing at critical control points, take samples as considered appropriate, and verify that the overall HACCP plan is effective. (Vijay Sardana, 2003) Extension of Good Aquaculture Practices at Shrimp Farms Until now, hazard analysis critical control point (HACCP) systems for managing and documenting processes to assure food safety have been the responsibility of food processors, not producers of raw food
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materials. The worldview of raw ingredients, though, h a s changed tremendously over the last few years. C o n s u m e r s are worried a b o u t genetically modified o r g a n i s m s , antibiotic r e s i d u e s , mad cow d i s e a s e s , a n d controlled by food producers, not processors. Seafood buyers and consumers increasingly want the same kinds of a s s u r a n c e from shrimp farms they get with HACCP at packing p l a n t s - a n d t h e m o s t efficient way to give it to t h e m is by implementing HACCP at the production level. Seed Reception

Seed Acclimation

Pond Stocking

Growout
(Feeding FertlllzaUon Chemicals)

Water Exchange

Harvest

Transport HACCP programs begin with a definition and organisation of farm production steps in a flow chart.

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Since HACCP is a food safety a s s u r a n c e methodology, s h r i m p farmers must focus their attention on those aspects of production that are considered risks to consumer health and welfare. Actions Once the hazard analysis is completed for every critical step in the flow chart, the farm HACCP team must establish critical limits for each critical control point and procedures for monitoring, corrective actions, record keeping and verification. Critical Limits A critical limit is a point beyond which either the product acceptable or action m u s t be taken to bring the product acceptable tolerances. Reasonable limits allow farmers to prevent hazards or provide opportunities to mitigate risks production. Monitoring Procedures Monitoring procedures are vitsil at this point. The HACCP team m u s t identify procedures and documentation that confirms the preventative measures or critical control is actually carried out. Monitoring should be easy and cost-efficient, and depends on both the preventive measures and monitoring frequencies involved. These can be different for every critical limit, and may include analysis or simple visual examination. The HACCP team must also identify who will monitor the preventative measures Corrective Actions For times when a critical limit is surpassed during production, the HACCP team should develop corrective actions to bring the shrimp back within acceptable limits. Corrective actions are like fire drills the detail actions to be taken and who should take them, so no time is lost when trouble comes. Basic Principles of HACCP Following Eire the seven basic principles, which are essential for the development of an HACCP plan:
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is not within either during

Identification of hazards that may be present from harvest through ultimate consumption and preventive measures for controlling them; Determination of critical control points (CCP) required to control the identified hazards; Establishment of critical limits t h a t m u s t be met at each critical control point; Appropriate monitoring procedures for CCP; E s t a b l i s h m e n t of deviation procedures at critical control points; Procedures for verification that an HACCP plan is working; and Documentation records concerning all procedures and records appropriate to principles (1) through (6)

From marketing point of view, important trading partners of India, s u c h a s A u s t r a l i a , New Z e a l a n d , t h e E u r o p e a n E c o n o m i c Community, USA and many others use the principles embodied in the HACCP approach. It is also important to note that with the HACCP approach, the food industry would be responsible for the implementation and monitoring of food safety programmes, which are developed by industry tailored to its own needs according to well-defined parameters.

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NOTES AND REFERENCES Data on c o n s u m p t i o n h a s been faulted on the survey-based e s t i m a t e s b y t h e N S S o n t h e g r o u n d s of f r e q u e n c y i n s a m p l e collection by u s i n g a different survey Interviewing different h o u s e h o l d s . Still t h e a u t h o r h a s relied on t h i s d a t a for w a n t of a m o r e a u t h e n t i c a t e d a n d reliable d a t a b a s e s o n C o n s u m p t i o n for a c o n t i n u o u s p e r i o d . (See S u r j i t S. B h a l l a , " I m a g i n e , T h e r e ' s No Poverty" (2003), Institute of International Economics, Penguin Books India Limited, New Delhi, p 122.

REFERENCES
1. 2. 3. "Coping with Global Change: Vulnerability and Adaptation in Indian Agriculture" (The Energy and Resources Institute, New Delhi, 2003). "Pattern of DOA in India: A Study of Andhra Pradesh" (SER Division, Planning Conunission, Government of India). Adel A. Kader (ed) (2002) : Post-Harvest Technology of Horticultural Crops (University of California, Agricultural and Natural Resources Publication 3311). ATO-DLO Report quoted in GOTN Report. Barghoutl, Shawkl, Kane, Samuel, Sorby, Kristlna and All, Mubarik (2004): "DOA for the Poor: Guidelines for Practitioners" (World Bank/ ARD Discussion Paper 1, March) CGIAR (Consultative Group of International Agricultural Research, 2002, Urban Harvest. CGIAR Systemwide Initiative on Urban and Perl-urban Agriculture, (http//www.cipotato.org/urhanharvest/ about_UA.htm) Chidambaram P. 1999: "On Spending Wisely". L.K.Jha Memorial Lecture, Administrative Steiff College of India, Hyderabad Dorjee Klnlay, Broca Sumiter and Pingali. Prabhy 2003: "DOA in South Asian Agriculture: Trends and Constraints," E^A Working Paper No.03-15, July. Dorjee K, Broca S, and Pingali P. 2002. Agricultural Diversification in South Asia. A paper prepared for the Collaborative MOA (RGOB) - NCAP - IFPRI Workshop on "Agricultural.Diversification in South Asia", 21-23 November 2002, Olathang Hotel. Paro, Bhutan. Golettl, Francesco 1999: "DOA and Rural Industrialisation as a Strategy for Rural Income Generation and Poverty Reduction in Indochina and Myanmar (IFPRI Research Paper No 30, July) 85

4. 5.

6.

7. 8.

9.

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Author
Dr. B. Yerram Raju is Managing Director, Sandilya Consultants (Pvt) Ltd., Hyderabad and adjunct Professor, Gitam I n s t i t u t e of Foreign Trade, Visakhapatnam. He has nearly three decades of executive experience with the State Bank of India and a decade's experience in academics and consulting with LBS National Academy of Administration, Mussoorie and Administrative Staff College of India, Hyderabad.