“High value agriculture and market linkages in India” presented by Pratap S. Birthal, National Centre for Agricultural Economics and Policy Research (NCAP) and P. K. Joshi, IFPRI at the ReSAKSS-Asia Conference, Nov 14-16, 2011, in Kathmandu, Nepal.

1. High-value agriculture and
market linkages in India
Pratap S Birthal
National Centre for Agricultural Economics and Policy Research
(NCAP), New Delhi (India)
&
PK Joshi
International Food Policy Research Institute (IFPRI),
New Delhi (India)

2. Background
 Dominance of small landholders
◦ Two-thirds of the farm households operate less than or
equal to 1.0 ha of land. Their average farm size is 0.38
ha. Another one-fifth of the farm household operate
between 1-2ha with an average size of 1.38 ha. Their
share in land is only half of their share in farm
households.
 ???.......
Can such tiny pieces of land provide them adequate
livelihood and help escape poverty?
• Breakeven farm size to escape poverty:0.64ha (Planning
Commission, GOI).
• No further scope for land reforms.
Should some of the small farmers exit agriculture so as
to improve the average land holding size ?
• Limited access to RNF; Barriers to entry into RNF
Should they continue in agriculture and diversify their
production portfolio towards horticulture, dairying,
poultry and fisheries, which generate higher and regular
returns; and are labor-intensive?

3. Organization
Opportunities for diversification towards
high-value agriculture
 Consumption and demand
 Trends and contribution of high-value crops
to agricultural growth; and distributional
consequence
 Decomposition of growth by crop and source
Smallholder participation in production
Linking farmers to markets
 Institutional innovations
 Smallholder participation
 Conditions for success
 Scaling-up

4. Change in food basket between1983-2004
(per capita consumption)
-50
0
50
100
150
200
250
300percent
Rural Urban Overall
Share of foodgrains in food expenditure declined from 48 to 35%,
High-value food commodities increased from 30 to 40%

5. Demand for food to 2020
0
50
100
150
200
250
300
212
12
55
108
95
13
275
17
81
155
143
20
Milliontons
2004
2020

6. Trends in production of high-value
commodities
0
50
100
150
Milk Fruits Vegetables
32.1
20.9
37
53
27.4
70
80.4
45.4
104
107.4
68.5
132
Milliontons
0
1
2
3
4
5
6
7
Eggs Meat Fish
0.6
2.6
2.4
1.2
3.6
3.3
1.9
4
5.5
3
4.4
6.9
Milliontons
TE1980-81 TE1990-91
TE2000-01 TE2009-10

7. Diversification towards high-value
commodities
Within crop sub-sectorWithin agricultural sector
High-value commodities: 35% in 1982/83 to over 50% in 2008-09

8. Contribution of different crops to growth
% annual growth % share in growth
1980s 1990s 2000s 1980s 1990s 2000s
Rice 2.9 2.6 0.4 21.3 18.1 1.9
Wheat 2.3 4.6 1.9 10.4 19.0 6.8
Maize 0.6 3.4 5.9 0.6 2.0 3.1
Other cereals -2.0 -1.0 3.9 -2.6 -1.2 3.0
Pulses 4.0 1.5 3.5 8.5 2.3 5.2
Oilseeds 7.3 -0.3 5.3 25.6 -1.5 13.7
Fibre crops 2.4 2.1 10.0 3.9 2.5 11.3
Sugarcane 1.7 3.3 6.8 3.8 8.2 14.4
Beverages 4.8 4.8 0.0 2.0 2.1 0.0
Spices 6.2 6.1 3.8 4.6 7.7 3.9
Fruits 4.1 6.4 5.7 10.6 20.1 18.9
Vegetables 3.3 5.5 4.9 10.7 18.9 16.2

9. Sources of growth

10. Do smallholders benefit from diversification-led
growth?
Limited land and household food
security concerns
Lack access to quality inputs, improved
technology, information and credit
High production and price risks
Perishable, insect pests and diseases
Price volatility
Market constraints
high transportation and market costs associated with
small marketable surplus

11. Cropping pattern (%)
Small Medium Large
Fruits 1.18 1.41 0.93
Vegetables 3.53 2.02 1.02
Condiments and spices 1.04 1.22 1.01

12. How efficient are smallholders?

13. Contribution of smallholders, 2003

14. Small farmers and livestock

15. Households
<500L
35%
500-1000L
27%
1000-2000L
23%
>2000L
15%
Small farmers in marketed-oriented dairy
65
19
11
6
59
20
13
8
55
21
16
9
43
21
19
18
0%
20%
40%
60%
80%
100%
<500 500-1000 1000-2000 >2000
Marginal Small Medium Large

16. Smallholders in the market place
 Open markets…(long supply chain; high marketing
and transaction costs)
 Direct marketing (Apani mandi; Raythu bazar)
 Cooperative—dairy (NDDB) : grapes (Mahagrapes)
fruits and vegetables (HOPCOMS )
 Producers’ associations: MDFVL (fruits and
vegetables); Agrocell (Basmati rice)
 New Marketing Act in 2003
 Contract farming: for almost all crops/commodities-
Nestle; Dynamix Dairy Industries; Venkateshwara Hatcheries;
Suguna Hatcheries; Bharati field fresh; ITC; Frito Lay; Chuapal
fresh; Appachi cotton; Aditya Birla; Retail Ltd. Heritage;
Reliance fresh; Namdhari fresh; Global green; MCain
 Apprehensions
 Monopsony and monopoly
 Exclusion of smallholders
 Low volume, high transaction costs of contracting to firms
 Inability to comply with quality and food safety standards

17.  60-90% reduction in marketing and transaction costs (Birthal
et al, 2005; Birthal et al. 2008, Singh and Singla 2010)
 Lower production cost
 Timely access to quality inputs (Birthal et al. 2005; Ramaswamy et
al. 2006, Singh and Singla 2010)
 Access to infrastructure and improved technology
(Mahagrapes, Nestle) (Birthal et al. ,2005; Roy et al. 2008)
 Alleviate liquidity constraint (broilers)
 Insurance against risk : reduction in production and market
risk (broilers 88%): (Birthal et al. 2005; Ramaswamy et al. 2006)
 Marginally higher yield, price premium (Birthal et al. 2005;
Singh and Singla 2010).
 Higher and stable income
 Scaling up: poultry and dairying
What is the evidence on impact?

18. Scaling up in dairying: Nestle
0
10
20
30
40
50
60
70
80
90
100
1980 1990 2001 2005
Milksuppliers(000)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Milksupply/suppler(ton/annum)
Nestle

19.  Dairy - Nestle’ model of contract farming in Punjab
 ≤ 5 kg milk/day=42%, ≤ 5 in-milk animals =56%
 Dairy cooperatives in Punjab: 55% small and landless
 All crops in Punjab: 15% small farmers (Kumar 2006)
 Broilers in Andhra Pradesh
 ≤5000 chicks 32%
 50% households were small farmers and landless
 Vegetables
 Haryana and Delhi (≤ 2ha)=37%
 Gherkin in Karnataka =51% (Erappa 2006)
Contracts with smallholders spread risk, more of
family labor low-cost producers, easy to
enforce terms and conditions
Evidence on smallholder participation?

20. Conditions for success
 Assured offtake of produce
 Reduction in marketing and transaction costs
 Transparent pricing (market-linked, fixed
income)
 Timely supply of inputs and services; and
technical guidance
 Timely payments
 Incentives for efficiency and quality, sharing of
benefits of higher prices
 Effective communication/supervision
 Mutual trust
 Mechanisms for involvement of smallholders
Producers' association, intermediate contracts

21. Conclusions
Diversification into higher-value
commodities is a sustainable source of
agricultural growth
Despite scale limitations smallholders do
participate in high-value agriculture, and
are more efficient, hence is a potential
pathway for smallholders to enhance their
income and escape poverty
Farmers benefit from emerging market
institutions like contract farming

22. Implications for scaling up
 Investment in infrastructure (roads, communications,
storage) that generate widespread public benefits, reduce
marketing and transaction costs and induce private
sector participation in high-value agriculture and
agribusiness
 Strengthen institutions (credit, insurance, extension)
encourage farmers to diversify
 Facilitate SHGs/producers associations/cooperatives to
deal with agribusiness firms
 Enforce Model Marking Act 2003 to pave way for direct
transaction between producers and agribusiness firms
Contract not con contact farming
Transparency in contract agreements
Evolve grades and standards
Mechanisms to include smallholders
Mechanisms for dispute settlement

23. ThankYOU