1. Policy Reforms in Agriculture: How to move forward? Ashok Gulati Director in Asia IRADe Sixth Foundation Day, Sept. 16, 2008 India International Centre

2. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 2 The concerns I.Low growth in agl, low incomes, distress, widening rural-urban gap... II.Food security: stagnating grain production, wheat and rice yields leveling off in green revolution area, specter of increasing imports… III.What is the best way forward?

3. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 3 Looking at past to guess the future: Agricultural GDP Growth Rates: 1985/86 to 2007/08 (Trend growth rate is 3% p.a.) Source: Calculations based on Agricultural Statistics at a Glance (various years)

4. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 4 Looking at neighbors…. India & Asia-7 (Bangla., Pak., China, Indo., Phil., Thai., Viet.) (* without 2002-03)

5. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 5 Looking across States within India (Avg. annual growth rate in Agl.& allied GDP 2002-03 to 2006-07*) *Data for Chattisgarh, Gujarat, Karnataka, Maharashtra and West Bengal are up to 2005-06.

6. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 6 Why are the agri. growth rates low? Low investments in R&D and rural infrastructure (roads, irrigation, markets, etc.), public and private Rising subsidies on fertilizer, power and water leading to huge inefficiency Value chains fragmented, leading to low incentives and high risks

7. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 7 Returns on investments and subsidies…in terms of growth of agl. GDP (Fan, Gulati, Thorat, 2008) 1960s-70s 1980s 1990s Returns in Agricultural GDP (Rs per Re. Spending) Roads19.998.897.66 Education14.667.585.46 Irrigation Investment84.714.37 Irrigation Subsidies5.222.252.47 Fertilizer Subsidies1.791.940.85 Power Subsidies12.062.251.19 Credit Subsidies18.7734.26 Agricultural R&D8.657.939.5

8. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 8 Technology and markets together can turbo charge… Technology generation and adoption critical… But it can not solve the problem without assured markets (roads…) Example: Case of cotton ( production more than doubled from 14 m. bales to 30 m. bales during 2002-07, record exports 5.4 m. bales in 2006-07; all driven by Bt and good prices through exports….)

9. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 9 Can allocating more money to R&D solve the problem? Only marginally in the current form of R&D system The existing system of R&D (ICAR and SAUs) needs a massive dose of Institutional Reforms Incentives, autonomy, re-organization, PPP (case of large vacant vacancies of scientists; large under-utilization of funds with NAIP)

10. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 10 How safe is our Food Security? Source: Economic Survey, various issues Buffer norm

11. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 11 Key Elements of Government Strategy in XI Plan National Food Security Mission (NFSM): Allocation roughly Rs 5000 crores; additional production 20 m.tons by 2011-12 (10, 8 and 2 m. tons of rice, wheat & pulses respectively) Irrigation : Additional 11 million ha through Bharat Nirman programme. Much of it will come through surface irrigation. Agriculture package (Krishi Vikas Yojna) : Rs 25,000 crores ($6 billion plus); Details????

12. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 12 Will grain and irrigation-centric strategy deliver? NFSM in its current form is a very weak program document Needs a champion with clarity in strategy towards Eastern India (Bihar a sleeping giant… ( may need about Rs 15,000 crores, get resources by reforming fertilizer subsidy, Mycorrhiza a potential technology to reduce urea subsidy bill..) But can a grain led strategy pull up the overall growth and incomes in agriculture? (Not consistent with the experience in south and south-east Asia, especially China.)

13. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 13 Changing Asian Platter: Diversification and “westernization” of diets Average Annual Growth in per capita consumption (1991-2005) in Selected 8 Countries in South and South East Asia Notes: Grains include cereals and pulses, Consumption measured as grams/capita/day, the 8 countries include Bangladesh, China, India, Indonesia, Pakistan, Philippines, Thailand and Viet Nam. Source: FAOSTAT, © FAO Statistics Division 2007, 30 July 2007

14. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 14 China: Growth Performance within Agriculture (1978-2004) Commodities Production (in million tons) Growth Rates (% per annum) 1978198419942004 1978-19841985-1993 1994-2004 Cereals273365.9396.5413.2 4.272.31 0.41 Root Crops164.2148.2156.4181.1 -1.462.411.48 Pulses6.56.45.05.3 -0.33-3.320.66 Fruits7.811.637.383.2 5.7411.61 8.37 Vegetables56.587.2188.4423.4 6.387.79 8.43 Meat11.118.644.774.3 7.658.615.21 Milk2.84.48.727.0 6.546.96 12.02 Fish13.923.053.40.0 7.438.325.90 Marine3.2 7.60.0 0.049.825.45 Source; FAOSTAT Database

15. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 15 Source: NAS 2007, CSO. India: Increasing share of high value in Agriculture Value of Output

16. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 16 Structural shift towards HVA ….. HVA being highly perishable in nature is inherently more risky (production and market risks are higher than in staples). Success in HVA will require a different vision of the policy maker, different types of investments, and even different institutions to make it go. The next revolution in agriculture is going to be demand led with a dominant role of the private sector.

17. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 17 For HVA, switch gears from farming to agri- system.. Input Suppliers Farmers Wholesalers, Logistic & Warehouse Suppliers Agro Processors Retailers modern & kirana stores Agri-System: consolidating top but fragmenting bottom

18. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 18 How to make it work? Backward linkages with Cluster approach at the farmer level … Market Information (incl. food safety) Retailers & Agro processors Input delivery & Extension services Credit & Insurance Farmers’ clusters

19. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 19 Key Levers of policy change: reforming the three “I”s Raise investments in Agl. R&D, roads, and irrigation along with institutional reforms (rationalize subsidies to get resources) Streamline incentives : from “getting the prices right” to “getting the markets right” (de-link support price from procurement price, APMC, ECA, etc.) Institutional reforms (e.g., food security complex (PDS/FCI); land lease market, credit markets, etc.)

20. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 20 How do we judge: which way to go?? Solving the “Rubik cube” puzzle Innovative Institutions and Organizations Linking smallholders to Modern Value Chains Mapping and Designing Institutions for CISS C-Competitiveness I-Inclusiveness S-Sustainability S-Scalability