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BPSC Mains GS-2 Masterclass · Indian & Bihar Economy

Productivity, Farm Income & MarketingGrowing More, Earning More

India's foodgrain output rose six-fold after 1950, yet yields remain far below China's and farm incomes stay low. Selling well matters as much as growing well. This page traces productivity, the measures to lift it and farm incomes, and how agricultural marketing works, and fails, in India and in Bihar.

Production51 → 303 MTFoodgrains

1950-51 to 2020-21.

Productivity522 → 2,300+Kg per hectare

foodgrain yield, 1950-51 to 2020-21.

Gap< 2.5 vs 6.5 tYield per ha

India vs China.

Income60% → 70%Farm share of income

Dalwai target, 2015-16 to 2022-23.

Bihar2006Bihar ends APMC

first state to abolish the APMC Act.

Procurement~8,500PACS

procure paddy across Bihar.

Part 1 · Introductions

Growing Better and Selling Better

Agriculture's growth story since independence, and what agricultural marketing means.

A busy grain mandi with sacks, a weighing scale and farmers bargaining with traders

From decay to growth

Agriculture in India is livelihood for a majority of the population. Nearly half of the workforce in the country is still employed in the agriculture sector. In Bihar, more than 70 percent of the population is engaged in agricultural operations (Economic survey of Bihar 2019-2020).

At the time of Independence, Indian agriculture was in a state of decay and there were no signs of growth (about 1 percent per annum during the fifty years before Independence). Since independence India has made much progress in agriculture growing at the rate of about 2.7 percent per annum.

National Accounts Statistics and the Economic Survey (ES) are useful sources of data for bringing out production and productivity trends in agriculture.

What agricultural marketing is

Agricultural marketing comprises all operations involved in the movement of farm produce from the producer to the ultimate consumer. It includes all the operations like procurement, grading, processing, storing, transporting and selling of the agricultural produce.

Farmer's income, investment in agriculture depends to a large extent on the agricultural marketing system.

Example: A farmer who grows 20 quintals of potatoes but must sell the day after harvest at the nearest market, at whatever price the trader offers, can earn less than one who grows 15 quintals but stores them and sells two months later in a better market. Productivity and marketing both decide farm income.

Part 2 · Growth and productivity trends

Seventy Years of Foodgrain Growth

India has consistently raised foodgrain production, but growth has slowed since the Green Revolution decades, and yields still trail other countries.

Production and productivity trend of food-grains

Year	Production (million tonnes)	Productivity (kg/hectare)
1950-51	50.82	522
1966-67	74.23	644
1980-81	129.59	1023
1990-91	176.39	1380
2000-01	196.81	1626
2010-11	244.49	1930
2020-21	303.34	> 2300

The source also shows a table of compound annual growth rates in area, production and yield of wheat and rice; it is an image and is not reproduced here (see guide E1).

Foodgrain production (MT)

2020-21303.34
1990-91176.39
1980-81129.59
1966-6774.23
1950-5150.82

Yield (kg/ha)

2020-212,300
1990-911,380
1980-811,023
1966-67644
1950-51522

The growth and productivity trends of agriculture in India

The above data shows that India has consistently achieved improvement in its total production of food grains.
Increased use of certain critical inputs under the green revolution (GR) technology (i.e. fertilizers and pesticides) contributed to declining soil fertility with the subsequent experience of stagnation/decline in agricultural productivity in the post-GR years.
- The average annual increase in the production of food grains declined steeply from 4.6 mt over the 13-year period of 1966-79 (i.e. 60 ÷ 13) to 2.8 mt (i.e. 86 ÷ 31) over the period 1979-2010.
The GR resulted in a significant increase in the production of food grains from 72.4 million tons in 1965-66 to 131.9 million tons in 1978-79 and to 303.34 million tonnes in 2020-21 establishing India as one of the world's biggest agricultural producers.
- Per hectare yield of food grains increased from 6.3 quintal per hectare (Q/ha) in 1965-66 to 10.2 Q/ha in 1978-79 and to above 23 Q/ha in 2020-21.
The highest production growth rate was of 3 percent in the decade of 1981-91 [i.e. the post green revolution (GR) decade].
- There was a steep decline in the growth rate of land productivity during the subsequent decade of 1991-2001 to 1.7 percent per annum. This, however, improved slightly during the subsequent period of 2001-2009 to 2 percent per annum close to the rate of growth of population.
During post-green revolution, while the productivity increased for both foodgrains and non-foodgrains items, for the non-foodgrains in general the growth in productivity has been less than that in the foodgrains.
- The increase in productivity was highest, i.e., at the rate of 3.18 per cent per annum for wheat crop.
1980-81 onwards there has been a dispersal of the phenomenon of the growth in productivity to a number of regions and was no more confined to the North Western India.
- Food-grains productivity has grown more sharply in some of the less developed areas of Central and Eastern India where the growth in yield per hectare was much less in the early phase of green revolution.
In the early 1950s, half of India's GDP came from the agricultural sector. By 1995, that contribution was halved again to about 25 per cent. Currently, it is around 16% only.
- Economic survey 2019-20 pointed that Agriculture growth rate in real terms was stagnant between 2014-20.

No threat to supply, but a yield gap

Overall the trend of productivity indicates that there is no threat to food-grain availability in India in the immediate future. However, there is increasing pressure on land for non-agricultural use, and unless land productivity increases meeting the food grain needs of growing population would become a problem.

Notwithstanding this increasing trend, it is also a fact that the average productivity of Indian agriculture is much lower when compared to many other countries. e.g. While China's average yield is around 6.5 tons per hectare, India's average yield is even less than 2.5 tons per hectare. Even though India ranks number one in terms of area under cultivation of rice and wheat, it is ranked at number two for both these crops on the basis of production. Similar contrast in yields exist for coarse cereals and other crops.

Part 3 · Causes of low productivity and measures to improve it

Why Yields Are Low, and How to Raise Them

Tiny holdings, a semi-feudal legacy, weak credit and extension, risky inputs, monsoon dependence, technology fatigue and policy bias; and the remedies.

Causes behind low productivity

Ever increasing population has resulted in higher pressure on agriculture for livelihood. The poor economic conditions of large number of small farmers due to which implementation of better agricultural practices has continued to remain constrained.
- More than 86% of landholdings are less than 2 hectare → fragmented land → economically unviable for applying modern methods of production.
At the time of independence, India inherited a semi feudal agrarian structure with the ownership and control of land concentrated in the hands of a few landlords and intermediaries.
- Even with the efforts made over the last six decades at instituting land reforms and the partial success we have attained in some respects, the actual cultivator continues to work under hindering conditions to produce more.
The issue of absentee landowners, increasing tenancy in relatively better irrigated areas, lack of security of tenure, the inadequate infrastructural support in terms of adequate and timely agricultural credit, good rural transport system, marketing/storage facility, etc. have continued to be deterrent factors.
There is inadequacy of institutional credit to farmers and continued dependence on high cost informal credit.
With increasing dependence on purchased inputs, growing risks associated with new technology, and volatile prices have led to agrarian crisis.
The problem of bumper crops spells disaster as farmers have to sell them off at lower rates due to inadequate storage facility. Such factors have continued to act as deterrent for increasing the productivity.
Example: In a bumper onion year, prices can crash to Rs 1–2 a kg; without storage, farmers sometimes dump the crop on the road.
Lack of investment in general, and falling levels of public investment in recent years in particular, have continued to hamper the achieving of higher levels of productivity in Indian agriculture.
The exposure to private trade in improved seeds not only increased costs but also risks, inhibiting small farmers from undertaking measures to improve productivity.
Majority of Indian farmers are not exposed to new technologies both due to their poor conditions as also due to the lack of reach by scientists and extension workers.
- There has been decline in the extension facilities especially since the introduction of reforms and fiscal constraints on public expenditure.
- As a result, they have continued to operate with traditional methods which are low yielding. In other words, inadequate availability of modern inputs and methods have remained a factor for low productivity.
Dependence on uncertain monsoon due to low reach of assured irrigation facility has remained a continuing reason for low productivity in agriculture.
- Inadequate and poor post-harvest technology, which is estimated to result in a loss of close to 30 percent of agricultural produce, has been a major constraint in realising the potential value of agricultural output produced.
There has been no major breakthrough in the technological front for many decades. This is termed as 'technology fatigue' contributing in no small measure for the stagnating agricultural productivity in the country.
Policy Weakness:
- The state's involvement in promotion of industry was much more than it was for agriculture. High protection offered to industry past the stage of infancy, has made private investment to veer more towards industry than agriculture.
- Infrastructural development also had a similar bias in favour of industry than agriculture.

Measures to improve productivity

Establishment of better agrarian relations through land reforms, arrangements for adequate agricultural financing, wider and equitable distribution of agricultural inputs for technologically suitable methods are vitally needed for raising agricultural productivity.
Improving the efficiency of delivery systems. This includes overall rural development measures and empowering democratic institutions like the panchayati raj.
It is necessary to establish institutional mechanisms to help poor farmers with small plots of land to pool their resources and work together. Resources need to be spread across issues of land management, farming systems and agro-forestry.
Developing land saving methods and practices (such as development of better seeds and fertilisers) of a nature that are environmentally sustainable.
Public land banks, Land pooling etc to improve the scale of production.
Supportive measures like input supplies, extension services, credit facility, post-harvest assistance like storage/marketing, etc.
- Accessibility to modern inputs like fertilizers, pesticides and improved seeds at reasonable prices across the nation to small farmers is must to raise small farm productivity.
- Rationalising and restructuring the fertiliser industry to remove the inefficiency of the fertiliser industry.
Agro-service centres which hire out consultants and supply sprayers, tractors and threshers must be widely spread out throughout the country.
Content of research should be both on plant breeding for food grains and other crops including farm management.
State must assume greater role as the regulator of efficiency and equity concerns of the society.
Use of IT in agriculture:
- precision agriculture like computerized farm machinery that applies fertilisers and pesticides etc.
- e-krishi, e-chaupal, village knowledge center are some ICT measures taken for agriculture extension.
Stabilise the returns from agriculture, especially in rain-fed conditions, by effective crop-insurance schemes.
Promote industry-agriculture linkage through 'contract farming' providing the farmers access to better inputs and technology. The collaboration would also help the corporate sector in getting steady supply of quality raw materials.
Reorient the public procurement and price support policies and arrangements to redefine their objectives better. MSP prices can promote environmentally sustainable cropping pattern.
Farmers should be involved in different layers of developmental activity concerning their welfare. In particular, their due representation in decision making bodies like input supplying agencies and output marketing boards should be encouraged to act as a catalyst for better resource efficiency and increase the overall profitability of the sector.
- It is also argued that if all farmers are motivated to invest their meagre resources into their land and work in a coordinated manner the output of the sector can be doubled without any additional government investment in the form of subsidies.
- This calls for promotion of people's involvement policies and measures by which our East Asian neighbours have reached their present heights.

Resilient, if reformed

Indeed, it is rightly argued that much of the Indian agriculture has the required resilience to be competitive and can flourish under a liberalised trade regime. However, to plug the leakages and make it efficient, domestic reforms are needed.

Part 4 · Measures to increase farm income

The Dalwai Committee's Plan to Raise Farm Income

The Ashok Dalwai Committee on Doubling Farmers' Income recommended the following measures.

Target income levels – While aiming to double farmers' income, target must be to raise the ratio of farm income to the total income of the farmers from 60% in 2015-16 to about 70% in 2022-23.
Liberalizing definition of Farmer for inclusiveness –
- Farmers to include cultivators, lessee, sharecropper, etc.
- An online and annually authenticated database may be developed to identify and define a farmer, to render him/her eligible to avail agriculture related support-system.
Prioritize Sub sectors for investment – Need for diversification into high growth and high-value sub sectors such as horticulture (under crop sector), animal husbandry, dairying and fisheries.
Ensuring adequate investment for priority sub-sectors –
- Private investment in new-age infrastructure such as agri-logistics, pack-houses, greenhouses and micro-irrigation.
- Public investment in irrigation, R&D, rural roads & transport, rural energy, etc and to "crowd in" private investment.
Access to institutional Credit – Reducing the current dependence levels of landless, small and marginal farmers on non-institutional credit, with special attention to the north-eastern, eastern and rainfed state/regions.
Strengthening linkages – Forward linkages with micro, small and medium enterprises (MSMEs) would accelerate growth of both farm as well as non-farm income along with employment creation.
Land reforms – incentivising Land pooling, Model Land Leasing Act, 2016, drafting Model Contract Farming Act, digitisation of land records, encouraging Farmer producer organisations, etc.

Conclusion on productivity and income

Thus, multi-prong approach needs to be taken for the growth of production and productivity as well as increasing the income of farmers. Government has already taken numerous steps in this direction like Kisan Credit Card (KCC) Scheme, Priority Sector Lending, Recently passed three farm laws, Soil Health Card scheme, Nutrient Based Subsidy scheme, PM-Kisan, Pradhan Mantri Krishi Sinchai Yojana, agriculture Roadmap in Bihar since 2008 etc.

Part 5 · Agricultural marketing in India

How Farm Produce Is Sold in India

Under its present form, agricultural marketing in India is not uniform; there is considerable regional variation in methods of marketing. These processes can be broadly divided into three categories.

Traditional Marketing Methods: Traditional methods generally start with sale by farmer and involve a number of intermediaries at different levels from rural markets to terminal markets.

Rural Primary Market: Produce moves from farmer to trader via commission agents. Examples include Haats, Shandies, Mandis, Fairs etc.
Wholesale and terminal markets: Produce moves from traders to consumer going through wholesale markets like Mandis administered by APMCs and other terminal markets.
Close to 50% of the agricultural produce in India is sold via these channels.

Importance of the agricultural marketing system

Monetizing the produce

Turning the harvest into cash income for the farmer.

Market information

Disseminating market information and price signals.

Fewer intermediaries

Reducing the role of intermediaries.

Capital formation

Encouraging capital formation and investment.

Value addition

Value addition in agriculture by increasing access of agricultural produce. e.g. large scale 'Makhana' snack industry in Bihar.

The defects in the agricultural marketing system

Fragmentation of markets – Absence of a National Integrated Market. For e.g. Thousands of APMC markets under respective State Government, with no linkages between them, operating in monopolistic silos.
Lack of unrestricted movement –
- Obsolete APMC act mandates that farmer's first sale shall only be to commission agents, which forces farmers to sell their produce in the immediate market yards.
- This creates problem of plenty at one market and scarcity at another market, resulting either in price-depression and loss to producer, or inflation and loss to the consumer.
Institutional Issues like licensing barriers for owning a shop or godown, very high incidence of market charges (as large as 15% in some cases) and absence of standardized grading mechanism of agricultural produce.
Infrastructural Issues like limited access of Agricultural Produce Markets in some areas in the country, poor Infrastructure in Agricultural Markets (like Cold Storage facilities, modern warehouses, Electronic weigh-bridges etc.) and poor economic viability of agricultural infrastructure projects.
Market information system issues like absence of real time informational channels creating lag in demand signals, information to farmers is limited to major commodities and poor awareness among farmers regarding new channels of information (like SMS based advisories).
Limited public investment: Public expenditure on agricultural marketing sub-sector ranges 4-5 % of the total public expenses on agriculture, while expenditure on marketing infrastructure development has been less than 1 %.
Less farmers' price realisation – The share of farmer in consumer's price is very low, particularly in perishables, due to a large number of intermediaries, lack of infrastructure and poor holding capacity.
Discourages Direct selling – No direct selling to contract farming sponsors, retailers, food processing unit etc. As a result, farmers are unable to command higher profits, forward linkages to food processing industry are distorted, and private investment is adversely affected.
Exploitation by intermediaries – Lack of direct selling opportunity also increases exploitation by commission agents, who cartelise themselves, depress gains of farmer, increase prices of consumer, restrict entry of new players, etc.
Non transparency in utilization of levies collected – Levies do not go to state exchequer and, hence, do not require approval of state legislature. No oversight on its utilization.
Political interference & corruption – APMC and APMC boards are occupied by politically influential persons, who are hand in glove with commission agents to wield monopoly power over a particular market area.
High Wastages in Supply Chain – Inclusion of fruits and vegetables under the purview of APMCs has resulted in Post-harvest losses & large wastage.

The result

The collective result of these issues has been low price realization for farmers, creation of food and nutritional insecurity and high wastages in the supply chain. (For instance, the total post-harvest losses estimated by Indian Council of Agricultural Research were at about Rs 92,651 crores at average prices value of 2014.)

Part 6 · Measures by the Centre and by Bihar

Reforming Agricultural Marketing: India and Bihar

Central measures (mention only briefly) and the measures taken by the Government of Bihar, from abolishing the APMC Act to PACS, warehouses and vegetable cooperatives.

Measures by the Government of India

(Mention only briefly in the answer.)

Creating a Model APMC Act, 2003: It aimed to facilitate amendment of the existing Rules. So far, only sixteen States have amended their Act and only six states have notified the amended Rules. There are some States which do not have APMC Act and some have partially amended their Act.
Consumer/Farmer Market (Direct Sale by the Producer): Direct marketing by farmers to the consumers has been experimented in the country at the State level. For example, Apni Mandi of Punjab, Rythu Bazaars in Andhra Pradesh, Shetkari Bazar in Maharashtra etc.
AGMARKNET: It is a G2C e-governance portal that caters to the needs of various stakeholders such as farmers, industry, policy makers and academic institutions by providing agricultural marketing related information from a single window.
Gramin Agricultural Markets (GrAMs): Efforts are being made to develop and upgrade existing 22,000 rural haats (Rural Primary Markets) into GrAMs. These markets will have several features like:
- Physically strengthened infrastructure enabled through MGNREGS and other schemes along with better road linkages with habitations.
- An Agri-market infrastructure fund with a corpus of Rs. 2000 crore has been envisaged for the initiative.
- GrAMs will be linked to e-NAM and will remain outside the APMC Act regulation.
Initiatives like Kisan Rail for movement of vegetables, fruits and other perishables. It aims to ensure their safe, reliable and fast transportation which will aid in better price realisation for the farmers. India's first Kisan Rail was recently flagged off in Maharashtra.
AGRIDEX: National Commodity and Derivatives Exchange (NCDEX) announced the commencement of trading in the country's first agriculture futures index called AGRIDEX.
Scheme for Formation and Promotion of Farmer Produce Organizations (FPOs): The scheme aims to create 10,000 FPOs in five years period from 2019-20 to 2023-24 and also provide handholding support to each FPO.
Recently passed three farm laws: The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020; The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020; and The Essential Commodities (Amendment) Act, 2020.
Other initiatives affecting agricultural marketing – Pradhan Mantri Gram Sadak Yojana (PMGSY), Pradhan Mantri Kisan SAMPADA Yojana, Mega Food Park Scheme, Agri-infrastructure development fund, promoting organic farming etc.

In 2006, Bihar was the first state in the country to abolish the APMC Act which facilitated private companies to directly purchase from farmers. Under the APMC Act, the local municipal bodies used to charge 1 per cent of the selling price, both from the farmer and the purchaser.
- However, the reforms have not been very beneficial for farmers and they have to sell their produce to private companies at throwaway prices.
- There are a majority of farmers who claimed that after the abolition of APMC Act, middlemen and local traders were making huge profits by buying the farmers produce even below the Minimum Support Price (MSP).
- It has also led to the erosion of the existing infrastructure over time due to poor upkeep, and farmers facing issues such as high transaction charges and lack of information on prices and arrival of produce.
Example: With no regulated mandi nearby, a paddy farmer in Rohtas may sell to a local trader at well below MSP, and the trader then sells the same paddy in Punjab or Haryana's regulated mandis.

Conclusion on marketing

In Bihar, more than 70 per cent of the population is engaged in agricultural operations. According to Bihar Economic Survey, economic activities in Bihar are closely linked to development of agriculture and allied sectors for its significant links with food and nutritional security. Only with the efficient marketing system farmers can receive remunerative prices for their produce and only then Bihar can achieve sustainable development goals and constitutional vision of prosperous society.

“Only with the efficient marketing system farmers can receive remunerative prices for their produce.”

— BPSC Mains answer, 2016

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