In India, rice and wheat comprise 70% of agricultural produce by area, but less than 25% by value. That is, wheat and rice are low value crops to grow compared to other options. Yet, the land area dedicated to wheat and rice has not been decreasing significantly.
Government data shows that the consumption of wheat and rice has been declining around 1-2% in both urban and rural India, while demand for fruits and vegetables has been rising by 2-3% annually. This again begs the question: Why aren’t farmers shifting to growing more fruits and vegetables?
In addition, detailed studies across the country have also shown that while farmers just about break even (gross return compared to gross costs) on cultivating wheat and rice, growing fruits and vegetables is a profitable undertaking (gross returns are on average 2x the gross costs). Besides fruits and vegetables, there are other crops also which generate higher income than wheat and rice which we won’t go into, to help keep this post focused.
Having gone through these reports and data, I have been wondering why, despite all this, do farmers choose to grow mostly wheat and rice?
In other words, if Indian consumers are demanding more fruits & vegetables and these crops are more lucrative anyway, why do Indian farmers keep growing more and more wheat and rice?
Are farmers completely unaware of the difference in returns? Or, is it that despite knowing the disadvantages, they choose to grow wheat and rice?
The first possibility seems rather difficult to believe. While I am sure farmers have not done a detailed P&L for growing wheat versus okra, it is unlikely that farmers are completely ignorant. They probably do have a rough idea of probable market prices, input costs and profits.
So what is it about fruit and vegetables that keeps farmers from growing them?
Out of intellectual as well as professional curiosity, I have being digging deeper into this question, with the help of field visits and people working in the agri sector.
Here are the results from my own observations and discussions with agri-sector professionals and experts.
- Minimum support price. Wheat and rice come with a government minimum support price, and fruits & vegetables don’t. Farmers find it assuring to know that MSP exists and may influence open market prices and/or demand for their produce. (Leave aside the fact whether MSP has a real impact on market prices/demand in reality)
- Risk of crop failure. Pulses, fruits and vegetables are more vulnerable to adverse weather, leading to higher risk of failure. Rather than pay for crop insurance (wherever it is available), farmers prefer to simply avoid these crops.
- Care and effort required in cultivation: Wheat and rice require less care and effort to grow than fruits and vegetables. Higher care for crops means reduced availability of farmers for alternate income-generating activities, whether crafts or wage labour.
- Need to sell quickly due to lack of storage facilities: India has about 5400 cold storage units. So farmers don’t really have much of an option to store fruits and vegetables for later. The need to sell immediately means that they are at the mercy of current market prices, unlike for grains which can be held on to for longer.
- Price volatility: Fruits and vegetables experience a much higher degree of price volatility than grains. Part of the reason for this is the high level of mismatch between demand and supply of fruits and vegetables. Part of the reason is the inefficiency of markets in matching supply and demand in different parts of the country. And of course, part of the reason is their inherent perishability and lack of cold-chain.
- Price realization due to spoilage: Lack of proper storage and transport facilities has yet another impact – spoilage of produce resulting in lower price realization due to poorer quality of produce by the time it reaches markets.
- Stored crops as financials assets: As one agri-expert put it, farmers treat grains like fixed deposits, for lack of other ways of saving/keeping money. They store them and sell them off as needed. You simply can’t do that fruits and vegetables! Even cold storage would extend the life of fresh produce by only so much (unless processed, of course – but that’s a completely different topic).
- Dignity of transaction (Added Aug 2012): Recent discussions with farmers revealed another reason for medium to large farmers for not growing fruits and vegetables. Typically F&V are harvested and sold in smaller quantities (unclear why this is necessary, perhaps perishability and lack of large buyers). When selling wheat, a farmer can arrive in the mandi with a truck-load full of wheat and be treated with respect. But if you arrive with a small auto-lorry vehicle of veggies, you will be treated just like small and marginal farmers without much respect and dignity.
Almost all of the reasons above relate to risk – either production risk, logistics risk or market risk. Only two non-risk reasons can be seen in the list above (besides dignity of transaction) – opportunity cost of choosing crops which require greater time and care, and usage of stored crops as financial assets (which in principal can be addressed with better financial access).
Typical solutions to risk management are insurance products, but typical crop insurance products cover only a limited subset of these risks. And in any case, insurance subscriptions in India have been much lower than hoped for by policy makers and non-profits alike.
So what mechanisms and institutions are needed to address the plethora of risks, to enable farmers to actually deliver what people actually want to eat and what also gives them higher margins? Or, if we expand our thinking to non-food crops, we can ask: what mechanisms and institutions will help farmers shift to more lucrative crops?
[Update: For challenges related to switching crops, see IFMR blog post]