Chinese Agri-Lessons for Indian Policy Makers
Posted by Unknown in China, India, Policy Making and Strategy on Tuesday, 29 January 2013
Saurabh Bhatt
Global
food security and food inflation are closely linked to economic
development and agricultural production of the two Asian giants, China
and India, as they comprise over 30 per cent of the world population.
High GDP growth rates and rising income levels in these countries have
increased the demand for high nutrition and calorie intake, putting
further pressure on a sector which is critical to the livelihood of a
vast majority of the citizens of these agrarian giants.
Compared
to India, China's grain production is double that of India despite
lesser arable land and similar area of irrigated land. China has a
liberal agriculture import policy whereas India's agri-import policies
are restrictive. India's fragmented land holding has led to low
mechanisation. China faces different challenges. China's collective
land-ownership system is a major constraint on farm borrowing, leading
to poor economies of scale. China's ratio of investment in agriculture
to agri-GDP is similar to India, however, since 2000, China has invested
significantly in agri-parks and dairy towns, which are fully integrated
models right from cultivation to processing (financed by the
agri-banks). Both countries address food-security challenges using
policies which are both congruent and different on multiple fronts.
WATER AVAILABILITY
China
and India face periodic drought-like conditions or floods across
regions. China's fresh-water storage capacity is about 1,000 cu. m per
capita , five times that of India. China's depletion of ground water
table is lower as compared to many parts of India (because of tube-well
abuse). Compared to China, Indian agriculture would require more water
by 2050, but its water footprint would deplete faster, especially in the
Ganges and other major river basins.
India
also continues to grapple with the river-linking project in terms of
environmental impact issues. On the other hand, China is already
implementing many large-scale water projects (Three Gorges Dam,
north-south aqueducts using Yangtze's water). Indian policy makers
approach to the fresh-water storage and sustainability issue has been
mired with slow decision-making and legal opposition by
environmentalists. However, India scores better on micro-irrigation with
its Government subsidy schemes.
GRAIN RESERVE AND AGRI-STORAGE
India
and China build significant grain reserves each year. India's grain
reserve is around 50-60 million tonnes (20-22 per cent of annual
production) whereas in China it is about 150-180 million tonnes (35 per
cent of annual production). Due to this huge reserve, the food system is
less dependent on flows from the global market and helps China contain
food inflation in tough years. In terms of grain-storage infrastructure,
China has the capacity to store up to 200 million tonnes of wheat and
paddy, while India's capacity is 87 million tonnes.
In
India, there is an erosion of value of approximately 7-8 per cent
(about 18 million tonnes) of total food production worth about $6
billion annually, due to unscientific and insufficient storage and
supply-chain inefficiencies. Given China's large trade surplus and
foreign currency reserves, any grain imports would not have material
impact on their fiscal position. India may face a sharp currency
depreciation and ballooning balance of payments if it were to resort to
large-scale grain imports. Hence, India needs to enhance storage
capacity and increase buffer stock to at least five to six months.
PRODUCTIVITY AND POLICY MAKING
The
stated objective of both countries' agricultural policy is to achieve
self-sufficiency and food security. China has surged ahead on
productivity through the use of high-yielding seed varieties, extensive
use of fertilisers and pesticides (twice of India by per-hectare use).
China has also focused significantly on cash crops, helped by stagnation
of grain consumption and increasing consumption of fruits, vegetables,
milk, milk products and meat. The Chinese Government has, since the
1970s, invested significantly into agricultural research and development
(R&D), especially to create high-yield varieties of rice, wheat and
maize.
After
the first green revolution , India's agriculture R&D has been
academic and localised instead of supporting productivity at national
levels.. China accounts for over 70 per cent of world's fresh-water
aquaculture production and its livestock production has grown over 8 per
cent annually for the last decade.
During
the 1990s, China encouraged import of large amounts of new genetic
material for hog, beef, poultry and dairy industries from the US, Japan,
Canada and New Zealand, which has improved the quality of the genetic
stock in China's livestock.
While
India and China have some congruency on policy front including a
State-enforced minimum support price, there are notable differences in
respect of wholesale agri-markets, agriculture subsidies and cooperative
financing system for agriculture.
Land
ownership is individual in India but collective in China. While the
Chinese Government provides direct subsidies to its farmers, subsidies
in India are indirect. Compared to India, China has well-developed
commodity exchanges and futures markets and tighter rules for converting
or selling crop land for non-agricultural use. Unlike India, China has a
price ceiling to minimize the effects of food inflation.
WASTE MANAGEMENT
In
India, less than 3 per cent of fruits and vegetables produced is
processed while total processing in the agriculture sector is less than 8
per cent. By contrast, 40 per cent of food consumed in China is now
processed (80 per cent in Western nations). Lack of economies of scale
due to size restrictions on industry (under Small Scale Industries
rules), supply-side constraints for agri-inputs because of rules
governing large-scale corporate farming, and paucity of dry and cold
storage infrastructure are the key shortcomings of the Indian
food-processing industry.Since many sections of food processing were
reserved for the small sector, there are hardly any large
food-processing companies in India. On the other hand, over 70 of
China's 500 largest companies are in the food-processing sector (in
India this would be at most 15), and this industry is growing rapidly.
AGRI-TRADE
India's
agri-trade with the rest of the world is limited with agri-exports of
$25 billion (10 per cent of total exports) in financial year 2011 and
agri-imports of $8 billion (less than 3 per cent of total imports).
Restrictive agri-import policies in India partly fuelled by insecurity
of domestic cultivators (political motivations) and some genuine and
misguided concerns of disease import have led to inflationary pressure
on key food articles.
Bulk
of India's agri-exports are rice, oil meal, cotton and spices
(commodities with limited value addition) and bulk of the imports are
pulses, edible oils and sugar. China, on the other hand, has a liberal
agricultural import policy and is among the world's largest importers of
commodities, including edible-oil seeds and even cattle.
According
to China's Custom statistics, agri-imports for 2010 were $65 billion
and exports were over $30 billion, taking the agri-trade value to over
three times that of India. China's agri-trade deficit has been growing
but is balanced by exports of manufacturing and electronic goods. This
has enabled it to maintain food inflation under 6 per cent as compared
to the consistent 10-plus per cent for India.
CONCLUSION
India
and China are similar in terms of issues and policy challenges in
agriculture. Both countries, due to their strong economic growth, are
also experiencing inflationary pressures on food.
However,
India's total fertility rate of 2.6 (China's is 1.6) poses greater
challenges as India's population will continue to grow faster and remain
young longer, demanding high-nutrition food.
Like
China, India needs to focus on livestock, poultry and aquaculture (all
key sources of protein), focus on R&D in agriculture by increasing
budgetary allocations, promote farm mechanization through producer
cooperatives, focus on replenishing aquifers through scientific
water-harvesting in villages, avoid pitfalls of excess use of
fertilisers and pesticides liberalise agri-trade policies to manage food
prices and focus on economies of scale and integration in food
processing.
The writer is President and Managing Director (Corporate Finance and Development Banking), YES Bank.
The Hindu Businessline
