Mudasir Hassan Bhat* & Prof. Md Abdus Salam** Abstract · Apart from the farm diversification, the process involves developing agro-based industries, infrastructure and institutions

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SIT Journal of Management Vol. 5. No. 2. December 2015. Pp. 73-84

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Diversification as a Strategy for Sustainable Agriculture Development in

India: Issues and Concerns

Mudasir Hassan Bhat* & Prof. Md Abdus Salam**

Abstract:

Agriculture development policies in India have undergone several changes with Green

Revolution and economic reforms being most significant. Although the development policies

have transformed the economy from a food deficient and import dependent to food self sufficient

and exporting economy to a large extent but these policies have simultaneously raised the

question of exploitation and degradation of natural resources, sustainability of agriculture and

regional disparity that triggered debate for redefining the agricultural policies. Diversification of

agriculture has been suggested as remedial measure, but India being highly diverse in climatic

conditions, where such diversification should be induced is a question of greater importance?

Also the food self sufficiency projections being viewed by many as lack of purchasing power

and yield stagnation in food grain production may have serious consequences for food security in

India. This paper attempts to examine various issues arising out of diversification and suggest the

appropriate approach, considering the various pre-requisite for diversification as a strategy for

sustainable agriculture development in India.

Key words: Diversification, Resource Utilization, Sustainability, Policies

Corresponding Author*

*Mudasir Hassan Bhat; Research Scholar, Dept of Economics, Aligarh Muslim University,

Aligarh email: [email protected]

**Prof. Md Abdus Salam; Professor, Dept of Economics, Aligarh Muslim University, Aligarh.

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Introduction:

Post Green Revolution; there has been strong pitch for diversification of agriculture world over

owing to rising per capita income, self sufficiency in food grain production and changing food

demand and consumption pattern etc. It is argued that in the era of globalization and

liberalization country should not be obsessed with the food security concerns as any eventual

shortfall in food grain production can be met with the imports. Instead countries should diversify

their agriculture to High value commodities whose demand is ever increasing at the global level.

The diversification strategy is based on sound rationale and there are many countries that have

successfully diversified their agriculture. However the nature of diversification has varied over

time and among countries. For a country like India, with diverse climatic conditions, less

developed infrastructure and markets, mass poverty and low income in rural areas, identifying

proper strategy for agriculture diversification concerning food security is very important. This

paper attempts to highlight various issues and concerns in diversification of Indian agriculture.

The first section outlines the concept and rationale for diversification as presented in literature.

The second section discuses the appropriate strategy for diversification considering the food

security scenario, productivity and agriculture development policies in India.

Concept of diversification:

At micro level the concept of Agriculture diversification from a narrow view point is the

response of the subsistence farmers to the growing demand of certain commodities, by producing

varieties of such commodities at the farm level. The increasing varieties produced at the farm

level may also be the response to reduce risks arising from climatic, seasonal and market factors

(Hayami, 1992). In initial phase the diversification is the addition of other crops and enterprise at

the farm level. The households shift away from traditional food self sufficiency goals to a more

profit and income oriented production where farm output responds to market signals. The

process leads to replacement of subsistence system with more specialized commercialized unit.

The farms specialize to cereal crops, horticultural crops, poultry, fisheries, livestock etc. due to

product specific requirements of technical knowledge and infrastructure investment. The

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integrated farming system of producing more than one product generally becomes infeasible. As

the level of commercialization increases the process develops into a mixed farming system with

increased specialization. The farm level production at this stage rapidly responds to inputs and

market prices. The specialization at the farm and regional level governed by the market forces

and relative comparative advantage is consistent with diversification at the sectoral level.

(Pingali et. al. 1995)

Agriculture diversification at the macro level is the structural transformation of the economy.

Apart from the farm diversification, the process involves developing agro-based industries,

infrastructure and institutions to transform the rural economy. The process broadens the income

sources of rural households and leads to significant reduction of workforce dependent on

agriculture (Gulati and Rich, Otsuka K. 1998). The diversification at macro level should not be

misinterpreted as necessarily diversification at farm or regional level. The diversification at

household and farm level may involve horizontal diversification towards new agricultural

commodities or vertical diversification into non-farm activities such as marketing, storage,

processing etc. At regional level diversification may involve specialization of regions into

agricultural activities of their relative comparative advantage. The specialization at regional level

is not inconsistent with the diversification at the macro-level. A country can diversify even if

regions specialize, but the specialization should be governed by the comparative advantage, not

by government policy interventions or market distortion. In a well diversified agricultural system

producers , households and regions gain sufficient flexibility to pursue their various objectives in

response to changing market and technological conditions (Taylor, 1992).

Diversification does not necessarily require individual farms or regions to diversify in all

enterprises. The individual farms or regions may specialize and yet be a part of a diversified

regional or national economy. The rationale underlying the diversification is that producers and

regions should pursue those enterprises for which they have greatest comparative advantage

relative to other producers and regions.

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Rationale for Diversification:

The literature on agriculture diversification has highlighted the following reasons for a case

towards agriculture diversification. The following section presents the analysis of these reasons

in context of agriculture development policy, food security and rural development in India.

Over the past few decades the high yielding varieties of food grains have increased the food self

sufficiency. At global level the productivity growth has resulted in decline of real prices and

income incentives for farmers to cultivate these crops (Pingali et.al. 2003). With increased

production and declining world pries the crops are just food security and income maintenance

crops than being income augmenting. The policy option arising out of this scenario is either to

subsidize the farmers for less income due to declining world prices, letting the farmer’s income

decline or farm diversification into agro-based and non-farm activities. Most of the countries in

these have chosen the farm diversification as a strategy for dealing with the situation (Taylor,

1992).

The economic growth and development is accompanied by a declining share of agriculture sector

in the economy. The declining share of agriculture to national income is to be accompanied by a

corresponding decline in share of agriculture labour force (Rosegrant et.al.1998). with the

economy being unable to absorb the labour force, resulting in widening gap between agriculture

and non agriculture income. Diversifying the agriculture and developing the agro based

industries and non-farm enterprises can help in smooth transition of the economy. The successful

rural transformation in china by developing rural enterprises and agro industries is given as an

example of rural development (Huang, 1997). The rapid growth of income, urbanization and

liberalization has changed the consumption demand pattern resulting in a shift away from staple

food towards high value commodities, fruits and animal products etc. having higher income

elasticity of demand. With globalization and liberalization there has been increased demand for

varied range of agriculture commodities providing new opportunities for farmers producing and

exporting to international markets.

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In a globalized trading system, excessive dependence on a few tradable commodities can pose

serious challenges in terms of price shocks, changes in international demand and advancements

in technology. The exporting country should have a strong comparative advantage or should

rapidly adapt to various changes in international demand which otherwise will put their

economic survival in danger. Diversification of economy and a broad export base will reduce the

vulnerability to such risks arising out of this changing international scenario. The monoculture

cultivating systems are perceived as threat to environment through excessive use of chemical

fertilizers, pesticides, loss of diversity and pressure on scarce resources. Agriculture

diversification through a sound multi-commodity system, crop rotation and inter-cropping can

reduce the environmental degradation. The diversification into live stock, forestry and agro allied

activities can help in soil organic matter and soil fertility (Taylor, 1992).

Diversification in context of agriculture development in India

The agriculture sector in India has undergone significant structural changes in past few decades.

The share of agriculture in GDP has decreased from 30 percent in 1990-91 to 14.5 percent in

2010-11 indicating a shift from the traditional agrarian economy towards a service dominated

one (Fig 1.1). The Green Revolution transformed the economy from a chronic food deficient to a

self sufficient economy. By the year 2000 there were mounting surplus of food grains. The per

capita availability of foodgrains increased as shown in fig1.2

Fig 1.1: Sectoral Composition of GDP Fig 1.2 Per Capita Availability of Cereals and Pulses

Source: DES, DAC.

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Whereas the decrease in contribution of agriculture sector in Gross Domestic Product is

indicative of structural transformation of the economy, moving away from agriculture sector.

There has not been a corresponding decline in labour force dependence on agriculture sector.

Still about 52% of the total workforce is still dependent on the farm sector for sustenance (NSS

66th Round). The declining share of agriculture to GDP and the continuing high pressure of

population has increased fragmentation of land holdings and decreasing availability of cultivated

land area per household. Further the growth in the agriculture sector has been widely fluctuating.

During the Eighth plan period (1992–97) there was remarkable growth rate of 4.8 per cent (Fig

1.3). However, the growth momentum was not sustained. In the Ninth plan period (1997–2002)

and the Tenth plan period (2002–07) the agricultural growth rate came down to 2.5 percent and

2.4 percent respectively. In contrast to a slow growth rate of 2.4 percent in agriculture the annual

average growth rate of economy as a whole was 7.6 percent during the tenth plan period. Given

that more than half of work force is dependent on agriculture, the stagnation in this sector is a

matter of great concern. The slowdown in agriculture is currently threatening to stall poverty

reduction in India.

Fig. 1.3: Growth Rates: GDP (overall) and GDP (Agriculture & Allied Sectors)

Source: CSO.

Under the scenario of poor and unsatisfactory performance and slowdown in agriculture sector,

the fundamental question is how to accelerate the growth in agriculture.

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Given the declining area and stagnation in yield and demand, the potential to increase growth

through staples appears limited. It is argued that country should diversify agriculture to High

value commodities. The sustained growth in income and urbanization has resulted in a shift in

demand towards high-value agricultural commodities (HVA) (Ravi and Roy 2006). Moreover,

with globalization and liberalization there are new opportunities for the export of high-value

products whose demand is ever increasing at the global level. There has been increasing flow of

exports of high value food commodities such as fruits, vegetables, dairy, poultry, fish, and

processed food from developing to developed countries ( Diaz-Bonilla and Recca, 2000). The

high value food commodities are are labor-intensive and generate quick returns, the farmers can

utilize their surplus in production of these commodities and augment their incomes (Joshi et al.

2002; Barghouti et al. 2005; Weinberger and Lumpkin, 2005)

However, there are several challenges in the process of diversification towards high-value

agriculture. In diversifying towards the high-value that farmers have not grown before, the

farmers may lack necessary information and infrastructure, marketing opportunities, and the

technical knowhow and skills. There are specific input, quality requirements and standards in

exports of these commodities. There are risks associated with producing and marketing of these

commodities. Being perishable in nature the production of these commodities requires

investments in infrastructure, access to credit and developing of marketing facilities. Of course,

the large farmers may be in a better position to take such risks, the diversification by small

farmers by allocation land to commercial crops will increase the risk in terms of dependence on

market for food requirements. (Minot and Roy, 2006). However, the high-value commodities

being labour intensive, the smallholders generally having large family size, may be in a better

position in cultivating these crops.

In light of the given constraints and prospects, the section below analyzes the diversification of

Indian agriculture considering the food self sufficiency, international competitiveness,

investment and infrastructure in Indian agriculture.

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With the green revolution India became self sufficient in food production but the success of

modern technology based on high yielding varieties is limited to the irrigated areas of northern

India. viz-a-viz Punjab, Haryana and Western Uttar Pradesh. Given the nature of food grain

production and buffer stocks the food self sufficiency in India is vitally dependent on surplus

food production in Punjab- Haryana regions where green revolution was successful. These

regions contributed nearly fifty percent to buffer stocks. The contribution in case of wheat is as

high as 70% and 30% for rice. A large part of the country is still chronically deficient in food

grain production and yet to see the adoption of high yielding varieties. With diverse agro-

climatic conditions the country has immense potential for producing variety of commodities.

Table1: Contribution of Punjab-Haryana region to central pool of food grains

(Average. For T.E Ending 2009-10)

S

Source: GOI, Economic Survey 2009-10

The productivity comparisons of Punjab-Haryana regions in rice and wheat with others shows

that the regions productivity is nearly 200% more than others. Given this huge yield gap and

regions contribution to Nations food pool, it is clear that the region has huge relative comparative

advantage in production of rice and wheat. Comparing the yield of rice and wheat in Punjab

Haryana region and world yields, there is huge scope of increasing the yield of foodgrains

through research and extension on developing new high yielding varieties suitable for Indian

climatic conditions. Therefore diversification through diversion of land may prove disastrous for

nation food self-sufficiency.

Region Wheat Rice Wheat and Rice

Punjab-Haryan 143.17

(72.56)

96.88

33.30

240.05

49.17

Rest of India 54.14

(27.44)

194.06

(66.70)

248.20

(50.83)

Total 197.31

(100.0)

290.94

(100.0)

488.25

(100.00)

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Table 2: Yield Gap between Haryana- Punjab and Other States

Source: GOI, Economic Survey 2009-10

Maintaining food self-sufficiency is necessary for food security. More important is the fact that

given the huge size of India’s food requirements, its dependence on imports will push up the

global prices and cost of imported food. The domestic producers and consumers will be exposed

to world market prices that fluctuate widely and regular imports will have depressing effect on

domestic producers (Institute for development, 2011).

Given the diverse agro-climatic conditions, India has huge potential for diversification. But

potential has been constrained by the lack of infrastructure and appropriate policy. The excessive

reliance on green revolution areas resulted in the neglect of other regions and their potential

could not be realized. Post reforms, the growth in the agriculture has been mainly dependent on

support prices and input subsidies. The support price led growth policy option has not only

increased the subsidy burden on government but also is not sustainable and exaggerated figures

of value of agriculture output. The research shows that the impact of investments in rural

infrastructure and agriculture R&D on poverty reduction is much more than that of input

subsidies (Sheggen Fan et al., 2008). The investments can accelerate and sustain a long term

growth in agriculture than subsidies. The diversification has been constrained by the lack of

investment in both public and private sector. The success of diversification depends on

availability and access of enterprise specific technology, investment in infrastructure,

development of markets and competitive advantage in terms of productivity, costs and

international quality standards and investment in research and development. The investment in

States Rice yield

kg/Hect.

Wheat yield

kg/Hect.

Punjab- Haryana 3832 4202

Uttar Pradesh 1991 2608

M.P & Chattisgrah 1193 1712

Bihar & Jharkahnd 1202 1673

Maharashtra 1685 1357

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agriculture has been the single most important factor in reducing poverty and attaining food self-

sufficiency. The declining trend in investment on research and development need to be reversed.

There is need for development of HYV and necessary infrastructure to meet the challenges of

liberalization in terms of cheap imports. These are the prerequisite for successful

commercialization and diversification as the failure of institutions and markets could be more

damaging and adjustment process more painful for the poor farmers.

Given the nature of these investments and private sector not coming forward, state has to take

active role in investments for successful transformation of economy. The comparative advantage

of the country in diverse agro-climatic conditions could be harnessed through development of

rural infrastructure institutions, markets, credit and fiscal setup that encourage diversification.

The diversification towards HVC has potential for income augmentation, employment

generation, poverty alleviation and export promotion (Braun, 1995 Pingali and Rosegrant 1995,

Vyas 1996). However, the export led growth of farm income is based on international

competitiveness of products. International competitiveness requires investment in infrastructure,

development of markets and institutions, improved technology and human resources. All these

are considered as a part of diversification policy. Therefore government should play active role

in developing rural infrastructure, markets and institutions. The nature of such goods being

public, the private sector is not induced to invest in it. The development of rural infrastructure

can effectively reduce the cost of production and marketing and make exports more competitive

in international markets. The future course would be the policy to diversify towards agricultural

non-farm activities to enhance income. With the development of non-farm activities, much of the

labour force could be moved from agriculture to agro based industries leading to successful rural

development, as has been the case of successful rural transformation in china (Huang, 1997).

With diversification into live stock the farmers can make efficient use of forages, crop residues,

manure for improving soil organic matter and fertility The diversification strategy based on

above principles will broaden the export base and can reduce the vulnerability of price shocks,

rapid changes in demand and supply at international level.

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Conclusion:

The food self sufficiency and hence the food security in India is essentially dependent on the

surplus food grain production in areas of successful Green Revolution. The productivity

comparison shows that these areas have the relative comparative advantage in production of

foodgrains especially wheat and rice. Diversification by reallocation of land away from food

crops would have serious consequences for food self-sufficiency in India. Therefore

Diversification in these areas would be more propounded in non-farm activities. Given the

diverse agro-climatic conditions, there is immense potential for diversification in India. The

government should devise a region based strategy for diversification especially in rain-fed areas.

Diversification is seriously constrained by lack of development in rural infrastructure, markets

and institutions. The development of rural infrastructure can effectively reduce the cost of

production and marketing and make exports more competitive in international markets.

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Documents

Mudasir Hassan Bhat* & Prof. Md Abdus Salam** Abstract · Apart from the farm diversification, the process involves developing agro-based industries, infrastructure and institutions