Diversification role on poverty

1. Pratap S Birthal
National Institute for Agricultural Economics and Policy Research
New Delhi

2. Concerns?
Enhancing agricultural growth (4%), and
doubling of farmers’ income
 Growth targets remained illusive
 Per capita farmers’ income increased by 34% (2002-03
to 2012-13)
Dominance of smallholders
 67% landholdings are <1.0 ha; average size 0.4ha.
 Higher incidence of poverty
Will they escape poverty ?
Exit agriculture or Diversify towards activities
that generate higher returns to land, and labour

3.  On-farm income and employment:
 Horticultural crops and animal production: higher and
regular income; labour-intensive; hence, match with the
income requirements and resource endowments of the poor.
 Backward linkages to agricultural input sectors:
 High-value agriculture typically input- and information
intensive. If it increases demand for locally produced inputs,
it may generate employment and income in these sectors.
 Forward linkages:
 High-value agriculture may influence the demand for
labour by traders, processors, etc. in the marketing
chain.
 Demand for HVCs:

4.  Domestic demand
 1993-94- 2011-12: changes in per capita consumption= fruits
+22%, vegetables +14%; milk +12%, meat, eggs and fish +16%,
and food grains -14%.
 These changes are nearly same for rural and urban consumers;
and more for low-income groups
 Changes in demand by 2030: Vegetables +53%,fruits +59%, milk,
+65%, meat, eggs and fish +75%
 Trade
 2001-2013: global per capita consumption of fruits +24%, vegetables +47%,
milk +14%, meat +13% and fish +17%
 Global trade in fruits +52%, vegetables +57%, milk +45%, meat +64%, eggs
+83% and fish +22%
 India’s exports of fruits, vegetables and meat grew substantially

5. Diversification in Indian agriculture
Diversification within crop sub-sectorWithin agricultural sector
High-value commodities: 35% in 1982/83 to over 50% in 2012-13
0
10
20
30
40
50
60
70
80
90
100
1980s
1990s
2000s
1980s
1990s
2000s
Share in Gross
cropped area
Share in value of
output
62 57 55
42 40 37
14
13 12.5
7.3 6.2
5.2
10.8
14.2 14
12.4 14.1
12.1
6 8 10
24 28
33
Cereals Pulses Oilseeds
Sugarcane Horticulture

6. Contribution of diversification to growth
16.5
8.7
21.2
51.5
32.3
39.4
5.2
24.3
7.2
26.3 33.3 31.2
0.5 1.3 1.0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1980s 1990s 2000s
Area Yield Price Diversification Interaction

7. 0
10000
20000
30000
40000
50000
Gross returns Cost of
cultivation
Net returns
C
e
r…
Labour use in HVCs is 2-5 time times more than in cereals

8. Net returns per ha: Small vs large farms
0
5000
10000
15000
20000
25000
All crops Horticultural crops Other crops
Marginal Small Medium Large

9. Diversification and smallholders
 Landholding of small farmers is too small to allow
them to divert more land out of staples toward HVCs
at the cost of their household food security.
 Cultivation of HVCs is capital-, and information-
intensive, may restrict them to grow HVCs.
 Most HVCs are perishable and are prone to greater
risks, small farmers are risk averse.
 Marketable surplus of HVCs is too small to be
remuneratively traded in the urban markets due to
high transportation and transaction costs.

10. Marginal Small Medium Large
% households
growing HVCs 22.2 23.6 21.4 19.2
Fruits 3.6 3.8 4.7 4.9
Vegetables 16.8 17.7 13.4 9.8
Spices 4.0 4.4 6.1 7.1
% area allocated 38.7 24.8 25.5 22.6

11. Diversification vs household food security
73.86 66.57 59.83
44.91
56.79
6.65
9.64
10.91
14.6
10.24
7.3 6.2 5.7
3.4
5.2
Marginal Small Medium Large All
Cereals Pulses Oilseeds Horticultural crops Fibre Others
Diversification happened displacing less profitable coarse cereals,
and not staple food crops, rice and wheat

12. Mean MPCE Head-count poverty
Growers of
HVCs
Non
growers
of HVCs
%
differenc
e
Growers
of
HVCs
Non
growers
of HVCs
difference
Marginal 526 455 15.6 24.1 30.2 -6.1
Small 559 511 9.4 16.9 20.3 -3.6
Medium 617 543 13.6 10.9 17.4 -6.5
Large 718 624 15.1 7.2 10.5 -3.5
All 558 488 14.3 19.6 25.4 -5.8

13.  Livestock sector contributes 30% to AgGDP;
more than combined share of rice and wheat
 Contributes about 37% to agricultural growth
 More equally distributed than land,
smallholders share 53% of land, and 71-92% of
different livestock species
 Livestock sector growth has 1.4 times greater
effect on poverty reduction compared to
crop sector

15.  By Farm size:
 Compared to that of marginal farmers the per
capita income of large farmers is 3 times, of
medium farmers 2-times and of small farmers
1.5 times more.
 By income class:
 Those in top income class earn 9 times more
compared to those in the lowest income class.
 In the lowest income class three-fourths
households are marginal farmers,
 The distribution of marginal farmers across
income classes= 77% in the lowest; 16% in the
middle and 7% in the top income class.

16. Income class
Q1(Lowest) Q2(middle Q3(Highest)
Per capita income (Rs) 60678 20639 50478
Net income from crops
(Rs/ha)
25655 45683 79420
% area under HVCs 6.3 8.9 14.6
% owning livestock 47.1 58.3 59.3
% Non-farm business 7.8 16.5 20.7
% wages/salaries 52.1 69.4 73.4
Q1: Their cropping intensity is low. They have lower level of education,
less access to credit and information.

17. Concluding remarks
Livestock sector needs policy support: 12% of agricultural
expenditure, 5% of agricultural credit, extension support is
missing
Growth in high-value crops has largely come from area
expansion, and not much from yield.
Information system- returns from investment in information are
higher in the diversified systems (17%)
Enhanced access to credit, insurance
Investment in public infrastructure that reduces transportation
and transaction costs and induces the private investment in value
chains
Policies facilitating institutional arrangements like contract
farming, producers’ organizations, and cooperatives that provide
farmers easy access to markets, distribute price risks, and reduce
marketing and transaction costs, include smallholders and