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Feeding India: Vast Challenges, Vast Opportunities
By Kavery Ganguly, Ashok Gulati

INDIA ALREADY has the daunting challenge of feeding 1.2 billion people with limited land and water resources. Over the next 20 years or so, this challenge will be even more intense as the country's population is likely to grow to 1.6 billion, surpassing China's. Overall economic growth rates should remain robust, driven by the "demographic dividend" of a young population and increasing rates of savings and investment. Consequently, the pressure on food is going to mount tremendously, as an average Indian still spends roughly half of household expenditures on food.


Policy-makers in New Delhi are well aware of this challenge. Accordingly, numerous initiatives have been launched in recent years with the goal of providing long-term food security.


First, the trend in government investment in agriculture, which had been falling since the mid-1980s in real terms, has been reversed. A major increase in public investment in agriculture, primarily in irrigation schemes, has helped encourage private investment in agriculture also. As a result, over the last six to seven years, total investment in agriculture, which had been less than 10 percent of agricultural GDP a decade ago, more than doubled by 2010 (see Figure 1), the highest percentage in the last three decades.


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This investment seems to have given some resilience to Indian agriculture. For instance, even during the drought of 2009-10, which was the severest since 1972-73, growth in agricultural GDP, instead of falling into negative territory, as happened in the drought year of 2002-03, remained positive, albeit at a meager 0.4 percent.


Second, India launched a National Food Security Mission in 2007, committing about $1 billion to increase production of staples like rice, wheat, and legumes by about 20 million tons by 2012. In 2010, India also announced a second green revolution in eastern India. Although the amount committed to it in 2010 — 400 crore rupees ($90 million) — is relatively small, it is a step in the right direction. In the 2011 budget, more was committed for this purpose. The policy-makers in Delhi realize that it is high time to sow the seeds of a second green revolution in the eastern belt, which has abundant water supplies, but needs more investment in infrastructure. Also, excessive reliance on the western Punjab-Haryana belt, the seat of the first Indian green revolution, needs to be reduced, as the water table in that area is steadily declining.


Third, the area of oilseeds and legumes remains a daunting challenge. India's eating habits demand more edible oils and legumes, or pulses, than are currently being produced. In 2009-10, total imports of edible oils and pulses exceeded $8 billion. More than 50 percent of the edible oil that India consumes is imported, an expenditure that is much higher than that for cereals, largely because of rising demand due to higher incomes.


Unfortunately, the domestic yields of oilseeds and pulses remain very low, partly because there are few major improved varieties of these commodities, but also because they are grown largely in rain-fed environments that are prone to climate instability. Only 25 percent of oilseed areas and 15 percent of the areas sown to pulses are irrigated. Further, the incentive policy announced through the Minimum Support Prices (MSP) mechanism remains largely on paper as there is no effective procurement mechanism for these commodities. As a result, whenever production goes up, market prices fall below MSP levels, as happened even in an agriculturally advanced state like Punjab for sunflowers between 2008 and 2010.


The government has recently announced special programs for palm oil and pulses. But the allocations are too small to make any significant dent in the situation. They will continue to remain heavily dependent on the behavior of the monsoon, leaving volatility in Indian agriculture a major factor. Unless a focused and strategic framework is adopted, it does not appear that India will have a major solution to this dilemma in the near future.


Fourth, the real challenge of feeding a prosperous India is going to be in fruits and vegetables, milk and milk products, eggs, meat and fish. This is simply because these are the commodities whose demand is going to accelerate much faster than the demand for cereals. And these commodities are perishable, so it is not only that production needs to increase two to three times faster than cereals to cope with growing demand, but that the infrastructure needed to move these goods from farm to fork has to be fast-moving, with cold-storage facilities in between. Only with proper storage can the shelf life of these products be increased, saving on huge wastage, which is said currently to be around 25-30 percent of production.


The demand pressure on these commodities is already building, and food inflation for 2010-11, which hovered in the double digits, and once even crossed 20 percent, is being led by perishables. This should serve as a wake-up call for policy-makers to usher in policy changes that can unleash private sector investment in the supply chain for perishable food commodities.


CRISIS = OPPORTUNITY

Food grains will continue to be a large segment within Indian agriculture, accounting for more than 60 percent of planted land. Indians still get more than 60 percent of their calories from grains, and given the large masses of the poor in India, state intervention in this sector will remain large. Nevertheless, the need to raise productivity is opening vast business opportunities for the private sector. Hybrid maize has been a success story driven largely by the private sector. Seed companies have gained and so have the nation and its peasants. The overall production of maize has doubled in less than a decade, crossing 20 million tons in 2010-11. Demand from the poultry sector and industrial usage has sustained this change, and now India is even exporting about 3 million tons of maize annually. It can go a lot further if it starts replacing some of the paddy lands in Punjab, relieving pressure on the water table.


Similar business opportunities should arise in hybrid rice, and in oilseeds and pulses if the private sector can develop hybrids. The demand is there, and policy support will be forthcoming if the private sector has something useful to offer.


A more spectacular business story has been in the non-grain sector, i.e. pest-resistant Bt cotton (cotton genetically modified using the Bacillus thuringiensis bacterium). India doubled its cotton production in less than a decade to 33 million bales in 2010-11. It has become the second-largest producer and exporter of cotton, and this revolutionary change has been driven primarily by the private sector. Within eight years, the seed companies selling Bt multiplied from one or two in 2002-03 to more than 30; close to 90 percent of cotton in India today is Bt. It is explosive growth with intense competition, but it is becoming a bigger business by the day, supplying more cotton to the Indian textile sector and also exporting to countries like China.


Even bigger business opportunities are in perishables, ranging from fruits and vegetables, to milk and milk products, meat, fish and so on. Current supply lines are weak and fragmented, requiring massive investment in development and modernization to link producers to consumers through an organized retail chain. Although there are several policy hurdles in the way, over time they are likely to be streamlined.


The milk sector is a case in point. In 2002, regulations were changed to facilitate the entry of large milk companies into the country. India is now the largest producer of milk in the world, with more than 110 million tons produced annually. But less than 20 percent of that milk gets processed in the organized sector. For the next 20 years, this sector is going to demand billions of dollars in investment, and both cooperatives and the private sector will have to tap that potential. India's "Operation Flood" had already shown how a "white" revolution can be brought about through smallholders, and this model can work in the years to come, benefiting farmers as well as processors and consumers.


The fruit and vegetable segment is also ripe for major investment in everything from seeds to building modern supply lines that can connect producers with consumers. Private initiatives are coming in some niche markets for exports, but the demand is vastly greater for the domestic market.


Finally, an interesting policy change has seen India encourage food processing, which is still at a nascent stage. The Ministry of Food Processing is under the Agriculture Ministry and is likely to create much-needed synergies between agriculture and food processing. The private sector will have to play a pivotal role in this development also.


In short, those who want to be long-term players will find the Indian food market there waiting for them.


Ashok Gulati is the Chairman of the Commission for Agricultural Costs and Prices, Government of India, and Kavery Ganguly is Senior Research analyst at International Food Policy Research Institute. The views expressed here are their own.



Back to Issue
    Years of underinvestment by the government in India’s agricultural sector have been reversed, but the country still faces the Herculean task of ensuring adequate food supplies for its huge population. This offers the private sector enormous opportunities, argue agriculture and food policy experts Ashok Gulati and Kavery Ganguly.
    Published: March 2011 (Vol.6 No.1)
    About the author

    Kavery Ganguly is Senior Research analyst at International Food Policy Research Institute.

    Ashok Gulati is the Chairman of the Commission for Agricultural Costs and Prices, Government of India

    Download print PDF

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