Andhra Pradesh Priorities: Farmer Distress - Banik

1. Farmer Distress
Nilanjan Banik,
Bennett University,
Andhra Pradesh Priorities conference, Vijayawada 18-20, June 2018

2. Rationale for the study
• Large Dependence on Agricultural Sector
•58% of Indian earns their livelihood from the agriculture sector
•India has around 260 million people living in poverty and 80% of them live in
countryside.
• Agriculture and the Weather God
•Less than 35% of this land comes under irrigation.
•In India, 83% of the farmers are small and marginal farmers.
•The median annual wage for a farmer in India is around $290, which is barely
two months’ minimum wage in Mumbai.
• Interventions that would help
•Farm loan waivers
•Managing supply chain logistics
•Local Food Processing Units

3. 1st analyzed solution
Farm Loan Waiver: This intervention assumes a hypothetical
farmer loan waiver scheme that waives all formal loans of
individual with landholding size less than 2 ha.

4. Loan Waiver
• There is an immediate, one-time benefit to small and marginal
farmers.
• This value is INR 23300 crore, exactly equivalent to the cost of the
loan waiver.
• Only 15% of the marginal farmers (with less than 1 ha of landholding),
have access to formal credit, so a loan waiver helps them little
• Estimates suggest that farmers with larger land holdings will gain INR
733 crore, annually.

5. More about Farm Loan Waiver
• We estimate a cost of INR 23300 crore for the loan waiver.
• The estimated impact on livelihoods following thefarm loan waiver
and subsequent reduced lending,is a lossof INR 965 per year for
marginal farmers (< 1ha) and INR 2483 per year for small farmers (1-
2ha).
• The cost difference for loan rates between the formal and informal
sectors vary between 30-45%, annually.

6. Average formal credit allocation before and after bailout per
Household - AP
0
50
100
150
200
250
300
(0-1 Ha) (1-2 Ha) (2-4 Ha) (4-10 Ha) (10+ ha)
MARGINAL SMALL SEMIMEDIUM MEDIUM LARGE
FormalCredit,INR000s
Andhra Pradesh
Pre bailout formal credit per HH Post bailout formal credit per HH

7. Results: Profile of costs and benefits in AP (all figures in INR crore)
COSTS Year 1 Year 2 Year 3 Year 4 Year 5
Cost of bailout 23,263
Reduction in farm profits
for beneficiary farmers 801 801 801 801
Total Costs 23,263 801 801 801 801
BENEFITS
Receipt of waiver 23,263
Benefits of credit expansion
for non-beneficiary farmers 733
733 733 733
Total Benefits 23,263 733 733 733 733
Discount Benefits Costs BCR
3% 25,229 25,476 0.99
5% 24,629 24,860 0.99
8% 23,787 23,996 0.99

8. 2nd analyzed solution
This intervention assumes the cold chain infrastructure requirements as
estimated by The National Centre for Cold Chain Development (NCCD) are built
within the state of AP, as well as all supporting requirements like manpower,
maintenance and transportation.

9. Building more Cold Storage/Warehouse Facilities
• Inefficient supply chain management affects the small and marginal
farmers(land holding of less than 2 ha).
• To store their items in cold storage and warehouses, a farmer need to
book a minimum capacity of 50,000 quintals for their produce.
• In fact, the importance of access to cold storage and warehousing
become more pronounced for perishable produce such as fruits,
vegetables, and milk.
• Only 22.22% of marginal famers (with less than 1 ha of landholding size)
and 23.61% of small farmers (between 1 and 2 ha of landholding size)
grow any high value crops.

10. Building more Cold Storage/Warehouse Facilities
• According to an estimate prepared by ICAR-CIPHET study, around 18%
of the country’s food and vegetables are wasted annually because of
lack of proper storage.
• For milk, data shows the loss can be as high 40% and two-thirds of
this loss happens during storage.
• This study finds small and marginal farmers are likely to gain from
shifting to high value crops: the likelihood of a farmer being poor is 3–
7% less, if he grows high value crops.

11. -
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1 2 3 4 5 6 7 8 9 10
CroreINR
Intervention Year
Avoided wastage of milk, fruits and vegetables from cold chain
infrastructure in AP
Avoided milk wastage Avoided fruits and vegetable wastage

12. Cost and Benefit
• The current total storage requirement for storing milk, fruits and
vegetables stands at 744650 MT.
• About 90% of the storage requirement already exists within the state,
but the remaining infrastructure needs are almost non-existent.
• To fill this gap requires a one-off investment of INR 2686 crore, plus
additional investments over the following 9 years averaging
approximately 20% of this value per year to meet expected growth in
the horticulture and dairy sectors.

13. -
500
1,000
1,500
2,000
2,500
3,000
3,500
1 2 3 4 5 6 7 8 9 10
INRCrore Costs of Establishing Cold Chain in AP
Infrastructure Costs O+M Labour costs

14. Summary of cost benefit results (all figures in INR crore)
Discount Benefits Costs BCR Net Benefit
3% 113,199 12,654 8.9 100,545
5% 101,451 11,482 8.8 89,969
8% 86,884 10,026 8.7 76,858

15. 3rd analyzed solution
Local Food Processing Units

16. Food Processing Industry
• An important bridge connecting agriculture with manufacturing.
• Contributes 9% of manufacturing GDP, and 11% of agricultural GDP.
• 12.77% of employment generated in manufacturing, 13th largest
recipient of foreign fund and 13% of country’s export – all crucial for
government’s Make in India initiative.
• A fifth of the world’s irrigated land.
• World’s largest producer of milk, pulses, bananas, guavas, and
mangoes.

17. Food Processing Industry
• India has the potential to becoming one of the largest food processing
country in the world.
• Traditional age-old technology is used for processing food: for
instance, fermentation to produce pickles, papads, chutneys, etc.,
converting milk to cottage cheese and ghees.
• AP ranks first in India in the production of Mango, Papaya, Lemon,
Chili, Turmeric, and Tomato. It also ranks first in terms of egg
production, and has a strong presence in terms of meat and milk
products.
• AP ranks second in India in the production of paddy, ground nut and
maize.

18. Results
• The cost-benefit analysis for this intervention is based on results
obtained from two case studies from the neighbouring states in
Karnataka and Tamil Nadu.
• The benefit cost ratio for turmeric powder processing plant in Tamil
Nadu is 4.3. The internal Rate of Return was found to be greater than
60%, indicating financial viability.
• For poha (flattened rice), the benefit cost ratio for conventional units
is 1.27 whereas for modern units is 1.31.

19. Benefit to Cost Ratio from having more local Food Processing Units
Intervention BCR Benefits Costs Quality of Evidence
Local food
processing units
Approximate
range of 1.0 –
4.0
Depends on local
conditions and type of
processing
Depends on local
conditions and
type of processing
Medium