1. High-value agriculture and market linkages in India Pratap S Birthal National Centre for Agricultural Economics and Policy Research (NCAP), New Delhi (India) & PK Joshi International Food Policy Research Institute (IFPRI), New Delhi (India)

2. Background Dominance of small landholders Two-thirds of the farm households operate less than or equal to 1.0 ha of land. Their average farm size is 0.38 ha. Another one-fifth of the farm household operate between 1-2ha with an average size of 1.38 ha. Their share in land is only half of their share in farm households. ???....... Can such tiny pieces of land provide them adequate livelihood and help escape poverty? Breakeven farm size to escape poverty:0.64ha (Planning Commission, GOI). No further scope for land reforms. Should some of the small farmers exit agriculture so as to improve the average land holding size ? Limited access to RNF; Barriers to entry into RNF Should they continue in agriculture and diversify their production portfolio towards horticulture, dairying, poultry and fisheries, which generate higher and regular returns; and are labor-intensive? 3. Organization Opportunities for diversification towards high-value agriculture Consumption and demand Trends and contribution of high-value crops to agricultural growth; and distributional consequence Decomposition of growth by crop and source Smallholder participation in production Linking farmers to markets Institutional innovations Smallholder participation Conditions for success Scaling-up 4. Change in food basket between1983-2004 (per capita consumption) -50 0 50 100 150 200 250 300percent Rural Urban Overall Share of foodgrains in food expenditure declined from 48 to 35%, High-value food commodities increased from 30 to 40% 5. Demand for food to 2020 0 50 100 150 200 250 300 212 12 55 108 95 13 275 17 81 155 143 20 Milliontons 2004 2020 6. Trends in production of high-value commodities 0 50 100 150 Milk Fruits Vegetables 32.1 20.9 37 53 27.4 70 80.4 45.4 104 107.4 68.5 132 Milliontons 0 1 2 3 4 5 6 7 Eggs Meat Fish 0.6 2.6 2.4 1.2 3.6 3.3 1.9 4 5.5 3 4.4 6.9 Milliontons TE1980-81 TE1990-91 TE2000-01 TE2009-10 7. Diversification towards high-value commodities Within crop sub-sectorWithin agricultural sector High-value commodities: 35% in 1982/83 to over 50% in 2008-09 8. Contribution of different crops to growth % annual growth % share in growth 1980s 1990s 2000s 1980s 1990s 2000s Rice 2.9 2.6 0.4 21.3 18.1 1.9 Wheat 2.3 4.6 1.9 10.4 19.0 6.8 Maize 0.6 3.4 5.9 0.6 2.0 3.1 Other cereals -2.0 -1.0 3.9 -2.6 -1.2 3.0 Pulses 4.0 1.5 3.5 8.5 2.3 5.2 Oilseeds 7.3 -0.3 5.3 25.6 -1.5 13.7 Fibre crops 2.4 2.1 10.0 3.9 2.5 11.3 Sugarcane 1.7 3.3 6.8 3.8 8.2 14.4 Beverages 4.8 4.8 0.0 2.0 2.1 0.0 Spices 6.2 6.1 3.8 4.6 7.7 3.9 Fruits 4.1 6.4 5.7 10.6 20.1 18.9 Vegetables 3.3 5.5 4.9 10.7 18.9 16.2 9. Sources of growth 10. Do smallholders benefit from diversification-led growth? Limited land and household food security concerns Lack access to quality inputs, improved technology, information and credit High production and price risks Perishable, insect pests and diseases Price volatility Market constraints high transportation and market costs associated with small marketable surplus 11. Cropping pattern (%) Small Medium Large Fruits 1.18 1.41 0.93 Vegetables 3.53 2.02 1.02 Condiments and spices 1.04 1.22 1.01 12. How efficient are smallholders? 13. Contribution of smallholders, 2003 14. Small farmers and livestock 15. Households 2000L 15% Small farmers in marketed-oriented dairy 65 19 11 6 59 20 13 8 55 21 16 9 43 21 19 18 0% 20% 40% 60% 80% 100% 2000 Marginal Small Medium Large 16. Smallholders in the market place Open markets(long supply chain; high marketing and transaction costs) Direct marketing (Apani mandi; Raythu bazar) Cooperativedairy (NDDB) : grapes (Mahagrapes) fruits and vegetables (HOPCOMS ) Producers associations: MDFVL (fruits and vegetables); Agrocell (Basmati rice) New Marketing Act in 2003 Contract farming: for almost all crops/commodities- Nestle; Dynamix Dairy Industries; Venkateshwara Hatcheries; Suguna Hatcheries; Bharati field fresh; ITC; Frito Lay; Chuapal fresh; Appachi cotton; Aditya Birla; Retail Ltd. Heritage; Reliance fresh; Namdhari fresh; Global green; MCain Apprehensions Monopsony and monopoly Exclusion of smallholders Low volume, high transaction costs of contracting to firms Inability to comply with quality and food safety standards 17. 60-90% reduction in marketing and transaction costs (Birthal et al, 2005; Birthal et al. 2008, Singh and Singla 2010) Lower production cost Timely access to quality inputs (Birthal et al. 2005; Ramaswamy et al. 2006, Singh and Singla 2010) Access to infrastructure and improved technology (Mahagrapes, Nestle) (Birthal et al. ,2005; Roy et al. 2008) Alleviate liquidity constraint (broilers) Insurance against risk : reduction in production and market risk (broilers 88%): (Birthal et al. 2005; Ramaswamy et al. 2006) Marginally higher yield, price premium (Birthal et al. 2005; Singh and Singla 2010). Higher and stable income Scaling up: poultry and dairying What is the evidence on impact? 18. Scaling up in dairying: Nestle 0 10 20 30 40 50 60 70 80 90 100 1980 1990 2001 2005 Milksuppliers(000) 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Milksupply/suppler(ton/annum) Nestle 19. Dairy - Nestle model of contract farming in Punjab 5 kg milk/day=42%, 5 in-milk animals =56% Dairy cooperatives in Punjab: 55% small and landless All crops in Punjab: 15% small farmers (Kumar 2006) Broilers in Andhra Pradesh 5000 chicks 32% 50% households were small farmers and landless Vegetables Haryana and Delhi ( 2ha)=37% Gherkin in Karnataka =51% (Erappa 2006) Contracts with smallholders spread risk, more of family labor low-cost producers, easy to enforce terms and conditions Evidence on smallholder participation? 20. Conditions for success Assured offtake of produce Reduction in marketing and transaction costs Transparent pricing (market-linked, fixed income) Timely supply of inputs and services; and technical guidance Timely payments Incentives for efficiency and quality, sharing of benefits of higher prices Effective communication/supervision Mutual trust Mechanisms for involvement of smallholders Producers' association, intermediate contracts 21. Conclusions Diversification into higher-value commodities is a sustainable source of agricultural growth Despite scale limitations smallholders do participate in high-value agriculture, and are more efficient, hence is a potential pathway for smallholders to enhance their income and escape poverty Farmers benefit from emerging market institutions like contract farming 22. Implications for scaling up Investment in infrastructure (roads, communications, storage) that generate widespread public benefits, reduce marketing and transaction costs and induce private sector participation in high-value agriculture and agribusiness Strengthen institutions (credit, insurance, extension) encourage farmers to diversify Facilitate SHGs/producers associations/cooperatives to deal with agribusiness firms Enforce Model Marking Act 2003 to pave way for direct transaction between producers and agribusiness firms Contract not con contact farming Transparency in contract agreements Evolve grades and standards Mechanisms to include smallholders Mechanisms for dispute settlement 23. ThankYOU