Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

[oped of the day] Farm lessons from China


From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Agriculture lessons from China


India and China have limited arable land — China has about 120 million hectares (mha) and India 156 mha. The challenge before the two countries is to produce enough food, fodder, and fiber for their population. 

Similar story

  • Both have adopted modern technologies in agriculture, starting with high yield variety (HYV) seeds, increasing irrigation cover and using more chemical fertilisers to produce more food. 
  • Irrigation cover – China’s irrigation cover is 41% of the country’s cultivated area, while India’s irrigation cover is 48%. 
  • Total sown area – China’s total sown area is 166 mha, compared to India’s gross cropped area of 198 mha. 

Differed on output

  • Even though China has less land under cultivation, its agriculture output is valued at $1,367 billion, more than three times that of India’s agriculture output, $407 billion.

Reasons for the difference in output – R&D

  • China spends a lot more on agriculture knowledge and innovation system (AKIS), which includes agri R&D and extension. 
  • China invested $7.8 billion on AKIS in 2018-19, 5.6 times the amount spent by India — $1.4 billion. 
  • More impact than subsidies – A study on the impact of investment and subsidies on agri-GDP growth and poverty alleviation revealed that the highest impact is from investments in agriculture research and education (R&E). 
  • Poverty alleviation – For every rupee invested in R&E, agriculture GDP increases by Rs 11.2; and for every million rupees spent on agri-R&E, 328 people are brought out of poverty. 
  • Impact on other sectors of agriculture – Better seeds that result from higher R&D expenditures generally require more fertiliser. As per World Bank estimates, China’s fertiliser consumption in 2016 was 503 kg/ha of the arable area compared to just 166 kgs/ha for India.

Indian investment in R&D

  • India invests just about 0.35% of its agri-GVA while China spends 0.8%.
  • India needs to increase expenditure on agri-R&D. It should make the Indian Council for Agricultural Research (ICAR) accountable for targeted deliveries.

Better investment – Incentives: PSEs

  • The incentive structure, measured by producer support estimates (PSEs) is much better for Chinese farmers than Indian farmers. 
  • The PSE concept measures the output prices that farmers get in a free trade scenario. It also measures the input subsidies received by them. 
  • For Chinese farmers, the PSE was 15.3% of the gross farm receipts during the triennium average ending (TE) 2018-19. Indian farmers had a PSE of -5.7%
  • It shows – that Indian farmers had been taxed much more than they have been subsidised — despite high amounts of input subsidies. 
  • Reasons for negative PSE – This negative PSE is a fallout of restrictive marketing and trade policies that do not allow Indian farmers to get free trade prices for their output.
  • Impact – This negative market price support exceeds the input subsidy support the government gives to farmers through low prices of fertilisers, power, irrigation, agri-credit, and crop insurance. 

Chinese MSP experience

  • Chinese gave procurement prices to farmers that were much higher than international prices. 
  • The result was a massive accumulation of stocks of wheat, rice, and corn. 
  • In 2016, such stocks touched almost 300 million metric tonnes (MMT). 
  • China had to incur a large expenditure as a result. 
  • Having burnt their fingers, China dropped the price support scheme for corn and has been gradually reducing the support prices of wheat and rice. 
  • India’s stock situation in July 2019 was 81 MMT as against a buffer stock norm of 41 MMT. 

Direct Income support

  • China has combined its major input subsidies in a single scheme, which allows direct payment to farmers on a per hectare basis and has spent $20.7 billion for this purpose in 2018-19. 
  • This gives the farmers the freedom to produce any crop rather than incentivising them to produce specific crops. 
  • Inputs are priced at market prices giving right signals to farmers to use resources optimally. 
  • India spent only 3 billion dollars under its direct income scheme, PM-KISAN in 2018-19, but the country has spent $27 billion on heavily subsidising fertilisers, power, irrigation, insurance, and credit. 
  • This leads to large inefficiency in their use and also creates environmental problems.

Way ahead

  • Large scale agri-marketing reforms (APMC and Essential Commodities Act). 
  • Instead, the Indian government has been trying to jack up MSPs for 23 crops for farmers. 
  • India needs to reduce the gamut of commodities under the MSP system and keep MSPs below international prices.
  • India should consolidate all its input subsidies and give them directly to farmers on a per hectare basis and free up prices from all controls.
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