This is a question that has been at the back of my mind for a couple of years. Luckily, I now have the opportunity to dig deeper into it.
Here is some data on gross returns, defined as (total value realized – cost of cultivation) divided by cost of cultivation.
|Onion – dryland||63%|
[Data from “Can Horticulture be a success story for India?” by Dr. Surabhi Mittal of ICRIER.]
As you can see, farmers barely break even on wheat/rice. In contrast, fruits and vegetables give attractive returns. Of course, here we are ignoring the fact that for fruits, you have to wait multiple years before trees are mature enough to fruit. And, we have ignored non-food crops in this comparison. But still these are very stark differences in returns.
This data makes you wonder why anyone would bother growing wheat or rice.
Yet, government data shows that roughly 70% of cultivation is for cereals.
It would be silly of us to assume that farmers are completely ignorant of the substantial difference in returns. They may not have done the detailed studies and calculations done by Dr. Mittal, but they would know the ballpark difference in returns. So why not shift to more lucrative crops?
It turns out that there are many reasons for lower cultivation of fruits and vegetables, including higher production risk (pest attacks and sensitivity to adverse climate), high price volatility, as well as the lack of proper storage and transport facilities required for perishable crops. I also wonder how much of the relative risk perception is affected by the minimum support prices offered by the government for grains. We will explore these reasons in future blogs.
To get back to our original topic of economic viability of farming, the answer seems to be disappointing.
Given the low or negative returns from what is actually grown, (mostly cereals), is it any wonder that the state of farming and farmers in India is what it is today?