Time to concentrate more on agriculture

12 MARCH 2011

As if the global financial crisis, the slowdown in global economic growth, the unrest in Africa/Middle East and the consequent shooting up of crude oil prices weren't enough for mankind to deal with, nature unleashed her fury. A devastating earthquake, measuring 8.9 on the Richter scale, followed by a tsunami, wreaked havoc and destruction in North Eastern Japan. The economic costs are yet to be evaluated, but will be significant. Oil refineries have caught fire (which may, ironically, benefit companies with refineries, such as RIL, in India), auto plants closed alongwith a whole host of plants necessary for the Japanese 'just in time' supply chain, nuclear power plants shut (there is a danger of a blowout, as cooling plants are not working without electricity, to cool the plant) and Japanese ports damaged. Perhaps Japan would review its anti immigration policy; it would need young workers to clear the debris and rebuild torn cities. It needs to permit more immigrants as its own population is aging and its famous creativity dying (firms like Sony haven't produced a big winner for a long time).

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Ultimately repair will be done, however.

The more enduring challenge would be on how to feed the world, who's population is to rise from 7 to 9 billion by 2050, which would require a 70% increase in food production between 2006 to 2050 (see Survey on Food in the Economist dated February 26).

The overthrow of the regime in Tunisia started, after all, because of high prices of bread, and high food inflation is the cause of concern for rulers everywhere.

There are quite a few interesting observations from the survey. As economies improve (such as China's and India's are doing) there is a migration of population from farms to cities. City dwellers consume more meat and less cereals than farm dwellers so FAO estimates that the calorific consumption of cereals by the world will fall from 56% of total calories consumed to 46%, and that meat production would have to double.

Now that creates a problem of water management, since producing 1 kg of meat takes 16,000 litres of water whilst 1 kg of cereal takes 1200. At a recent FICCI AGM in Delhi, Sukhbir Singh Badal, the erudite Deputy Chief Minister of Punjab, pointed out how the water table in Punjab, which provides 60-70% of India's wheat, has been falling. He pointed out that though the world was worried about the consequences to the oil market if there was unrest in Saudi Arabia, the world's largest producer of it, nobody spoke about the consequences to global food markets if Punjab was unable to supply wheat to feed 70% of India's population. It would cause havoc in global foodgrain prices.

There are technologies, such as use of drip irrigation, to reduce wastage of water - normal methods of irrigation results in a wastage of 30% of water. Israel, which has mastered the art of conservation of resources, has a level of 10% and, if other countries emulated this, there would not be a water problem.

Not that the world does not produce enough food for 7 billion people - it does! However, due to bad roads and poor storage in most countries, between 30-35% of fruits and vegetables are destroyed in transit. Lack of silo storage facilities results in grain being eaten by rodents. Then there are stupid policies by some Governments, such as the US, which mandate the use of ethanol.

The US has mandated that 30% of fuel consumption should be bio fuels, essentially ethanol. Now ethanol is made from maize and is a highly inefficient use of it. For every unit of energy input into the making of ethanol, the energy output is 1.5 units. Compare that to the ethanol, made from sugar, in Brazil, where the input:output ratio is 1:8. If the US were to do away with the law on ethanol, it would increase edible maize supply by 14%. It can't, thanks to the subsidies given to maize farmers and their political clout. Subsidies, once initiated, are hard to unwind.

The Finance Minister has taken some sensible steps in his Budget, to encourage the setting up of cold storage chains, and moving forward to bring in organised retail. Organised retail, which uses packaged food, reduces wastage and also invests in cold storage chains.

Sadly, public investment in agriculture in India is abysmal. According to a study by Sanjay Kaul, MD of NCMSL, delivered a talk at Observer Research Foundation, it is only 0.6% of GDP! It needs to be at least 2%. The low investment is strange, given that over 60% of India's population is dependent on agriculture, yet get less than 15% of national income.

Where will the money come from? Of the Rs 55,000 spent on food subsidy, Kaul estimates 36% to be siphoned off and 21% spent on above poverty line people undeserving of it. If this is remedied, Rs 32,000 crores can be saved. Why isn't Nandan Nilekeni, asked to give direct subsidies for fertilisers as well as for petro products, also being asked to include food?

Other large areas of potential improvement in food supply is proper livestock breeding, advances in plant genetics and better seeds. Investors should look carefully at opportunities in these areas, since social and political compulsions will force political leaders to invest more in food security.

Political leaders should also look at their priorities. It is horribly ironic that, on the one hand, Hasan Ali, charged with tax evasion which, if brought to book, could singlehandedly solve India's fiscal deficit, got let off on bail, primarily because the Enforcement Directorate had not done their homework whilst on the other, Dr Binayak Sen, lauded by several Nobel Laureates as a dedicated, courageous, selfless worker who strove for the poor, gets a life sentence for sedition. Do we not have our priorities inverted? Now, if others accused of serious crime, such as CWC or telecom spectrum scandal, similarly go scot free, the public would surely express their ire in the only way they can - at the hustings.

The market took a hit after the Japan tsunami and ended the week down 312 on the sensex, which closed at 18174, whilst the Nifty dropped 93, to end at 5445. The sensex was unable to go above 18,500 because of the tsunami. It would seem investors would take time to rebuild courage to invest, so the market would likely move sideways for some time.

J Mulraj is a stock market columnist and observer of long standing. His weekly column on stock markets has run for over 27 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is Conference Head - India, for Euromoney. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stock markets yet being a reader of his columns. His other interests include reading, both fiction and non-fiction, bridge, snooker and chess.

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8 Responses to "Time to concentrate more on agriculture"

Anand Kashid

Jan 3, 2012

Capital formation in agriculture is neglected by Govt. Even the private investment in agriculture is very slow and low.The rate at which land , water and other natural resources being diverted for urbanization are not being looked into. One day definitely there will be shortage of food and water and hope that at least then our elite Planning Commission and RBI will wake up and will look to reforms in agriculture sector.


Jaisinh Vaerkar

Mar 25, 2011

Spot on!
If we do not take corrective measures now we will be heading for a Tunisia like situation.
We see this happening everyday around us. Our villages are becoming deserted as the younger generation flock to big cities and change their lifestyles and begin consuming more protein rich foods as a result of increased pay while our villages and farmlands lie idle due to shortage of labour and rudimentary agricultural and post harvest practices that are not able to increase yields to meet the needs of our population.

Our development policies seem skewed towards urbanisation leading to a lop sided development.


Ganesh k

Mar 16, 2011

Fine article giving analysis why agriculture needs attention.Till the last paragraph-- CBI helping Hasan Ali to go scot free beacuse of ( paid?) shoddy work. Man having billions can buy entire Indian beurocracy and politicians!! But where does Dr. Binayak Sen comes in this? He was caught red handed acting as messanger for terrorists/bandits, who massacared people hence rightly sentenced for sedition. Please donot sympathise with him though he is supported by european media.



Mar 15, 2011

For Author:
"Of the Rs 55,000 spent on food subsidy" - are we missing some 0s - is this in lakhs or crores?

For Srivatsa:
16000 L for 1 kg beef is correct - check economist.


J Mulraj

Mar 14, 2011

Srivasta, the figure of water consumption are quoted from the Economist Survey and you may perhaps get from them an answer how it has been computed at 16,000 litres per kg of meat.
My guess is that they would include the lifetime consumption of water on feeding a cow which produces it plus any water that is used in the processing of milk, and is a plausible number.
The point is not whether it is 16,000 or 10,000 or whatever but that as more persons adopt a non vegeterian diet, the global water shortage will worsen. There are predictions that wars will break out between countries over water, and sometimes within countries. We have to start addressing this issue now.


J Mulraj

Mar 13, 2011

Correction: Sanjay Kaul delivered a talk at Observer Research Foundation but is MD of MD of NCMSL. The error is regretted.



Mar 13, 2011

Am I missing something here?
How come it takes 16000 litres of water to produce just 1 kg of meat?
Please clarify.

Having said this, the larger point of the author is taken. It is true that we need to invest more time, effort and money into agriculture and related activities.

Is there any kind of support from the Government available for any individuals who may want to enter the agriculture sector?


jagdish sanghvi

Mar 12, 2011

In India, though ironical, we(populace) have not attached importance to some of the basic things in life, leave alone the rulers, who are only interested in power, lawlessness and corruption.
This I believe is because we have never looked at agriculture, water, wind, clean air etc., as sustainable industries, despite seeing starvation over 60 years of independence. We equate agriculture with a poor, starved farmer, toiling from day to night out in the sun and, facing continuous water shortage and living at the mercy of the rulers of this country, and suicides by farmers have become the only means of salvation from abject poverty.
Another reason I believe of dis-interest is that we Indians are unable to look into the future and think long term. Agriculture forces one to think long term and face uncertainties, whereas we always want instant gratification.
Another reason responsible is the non caring attitude of the policy makers and absolute lack of their knowledge about agriculture.
It is of late the grave statistics are aired by world agencies which has made Indian corporate sector enter the field of agriculture. Hope the awareness only grows further. Similar or even grave and immediate is the problem of water in the country. Hardly any one is doing anything about it.

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