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In this April edition of Financing Agriculture we take off from our previousissue in which we had carried an article on hydroponics. Hydroponicagriculture is regarded in Sci-fi literature as the only form of sustainable

agriculture in space! Although it is still an evolving science, hydroponicagriculture (growing plants in water solution rather than soil) is spreading fastthe world over. The nutritional requirement of the plants in this system of soil-less farming is met by the nutrient mixtures, called hydroponics fertilisermixtures, added to the water in which the plant roots are kept submerged.These mixtures are made of chemical plant nutrients.

Read about the challenges of this form of agriculture and its relevance in today’ssociety in our issue focus.

According to the Food and Agriculture Organization (FAO), sustainableagriculture .is the successful management of resources for agriculture to satisfychanging human needs while maintaining or enhancing the quality ofenvironment and conserving natural resources. The cover story on sustainableorganic farming talks about the problems and constraints of this form ofagriculture.

India has a large and diverse agriculture and is one of the world’s leadingproducers. It is also a major consumer, with an expanding population to feed.For this reason and because of its agricultural and trade policy of first ensuringfood and nutrition security of its population, its presence on the world markethas been modest in relation to the size of its agriculture. Our authors investigateIndia’s role in the world agricultural scene in a special report.

Most of the early microfinance in India happened through donor andphilanthropic funds. These funds came in to not-for-profit organizations.However as the activities scaled up, it was imperative to move to a commercialformat. Our article on commercialisation of microfinance in India examinesthe growth imperatives and the transformation processes. As also theimplications of the transformation process and its effect on the personalenrichment of the promoters of MFI as well as the governance implications.

Also featured in our spotlight section is an article on the Indian agriculturalpolicy environment which is still lagging behind the structural change occurringin India’s consumption and production baskets.

Do keep writing to us at [email protected]

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Hydroponics: An Introduction .................... 6By Mohasen Doha and Colleagues

Eco City Ideas: Hydroponics, The UrbanFace of Agriculture..................................... 12By Vikram Adige

A Breakthrough in Hydroponics ................. 15By Surinder Sud

Organic farming in India: Relevance,Problems and Constraints .......................... 16By Dr. S. Narayana

India’s Role in World Agriculture ................ 23

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Editorial Board

Published byAgricultural Finance

Corporation Ltd.Dhanraj Mahal, ChhatrapatiShivaji Maharaj Marg,Mumbai 400 001

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Editor-in-ChiefShri A.K. Garg

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The Paradox and Challenges ofIndian Agriculture ...................................... 27By Joachim von Braun, Ashok Gulati, Peter Hazell,Mark W. Rosegrant and Marie Ruel

Commercialisation of Microfinancein India ...................................................... 34By M.S. Sriram

Winning Technique .................................... 39By Ashok Jainani

Agri News.................................................. 40

6Financing Agriculture

ISSUE FOCUS

Hydroponics is a method ofgrowing plants without soil. Innature, the soil provides

nutrients and is a means of physicalsupport for the plant. In hydroponics, soilis replaced by inert media such as perlite,vermiculite, horticultural rockwool, sand,or fired clay pebbles to which thenecessary elements for growth are addedin the form of a nutrient solution. Byincorporating a study of hydroponics intothe school curricula, students at all levelswill be able to appreciate the differentways in which plant life can be sustained.For many centuries, people haveendeavored to increase yields andimprove crop quality against nature.sinconsistency. The basic techniques ofhydroponics have been known for sometime, but it is only since the beginning ofthis century that the techniques havebeen refined to the point where theycould be applied commercially. Dr.Gericke of the University of California atLos Angeles successfully grew tomatoesin water culture before 1936, arousing

great interest in hydroponics as analternative method of horticulture. Thecommercial and hobby production ofvegetables and cut flowershydroponically is becoming more popular.If optimum growing conditions andnutritional requirements are applied,combined with sound horticulturalmanagement, hydroponics can offer analternative means of food production.Good quality, high yielding crops may beproduced in areas where climate orlocation may previously have hamperedthe production of crops by soil cultivation.Many students and teachers like usinghydroponics as a learning tool because itis a .hands on. method. It brings thedisciplines of chemistry, biology, andphysics together.

Objectives

• To be able to set up one or more ofthe various hydroponic systems.

• To be able to maintain the hydroponicsystem(s).

• To be aware of the advantages and

disadvantages of the varioushydroponic systems.

• To be aware of the different mediaused in hydroponics.

• To understand nutrient elements andsolution pH.

Hydroponic Fundamentals

The word hydroponics. was coined in theUSA, in the early 1930s, when ProfessorGericke at U.C.L.A. coined the name todescribe the growing of plants with theirroots suspended in water containingmineral nutrients. The name comes fromtwo Greek words: hydro (water) andponos (to work, labor), and literallymeans water works. The definition ofhydroponics has gradually beenbroadened. Today it is used to describeall ways of growing plants without soil.It is synonymous with the term soillessculture and both terms are restricted tothe growing of plants without soil. Allsystems except hydroculture can be usedfor the commercial production ofvegetables and cut flowers. Commercial

By Mohasen Doha and Colleagues*

Hydroponics:An Introduction

Hydroponics:An Introduction


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hydroponics is a relatively recentdevelopment. However, the art ofhydroponics is believed to date back tothe Aztec Indians of ancient America,who grew their plants on rafts on shallowlakes where cultivation in soil was notpossible. These rafts were covered withsoil removed from the lake bed, and theplant roots grew through the soil downinto the water of the lake. A few of thesefloating gardens. still exist near MexicoCity. Professor D. Hoagland of U.C.Berkeley verified many of the Gerickeexperiments during the 1930s.Commercial hydroponics was really firststarted in 1936, when gravel culture wasused. Robert and Alice Withrow atPurdue University developed theNutriculture*. system of gravel culture in1940, which was used by the U.S. Armywell into the 1950s to supply troops inJapan and Korea.

Activities

There are many ways in whichhydroponic systems may be established.The manner chosen largely depends uponthe availability of space, the preferredmedia, financial concerns and the typeof crops desired. The hydroponic systemswhich follow may be classified undereight headings:

• Surface Watering Technique• Subirrigation• Wick System• Grow Bag Technique• Soak and Drain• Rockwool Technique• Drip Feed Technique• Nutrient Film Technique

Each system may be modified orexpanded to suit individual requirementswhile, similarly, the medium used maybe varied from that suggested here.There is abundant scope for imaginationand initiative in the design of aninstallation which would suit yourparticular needs.

Advantages

A number of advantages can be identifiedwhen growing crops hydroponically,compared with growing plants in soil.

• The labor input is less than if soil isused, once the unit is established.

• The work involved is generally light.Heavy manual operations associatedwith normal cultivation practice, suchas digging weeding, and ploughing,are eliminated.

• No crop rotation is necessary as thegrowing medium can be reusedcontinually, or replaced.

• Because plants do not have tocompete for moisture and nutrients,production in hydroponics comparedwith soil cultivation in a comparablearea may be increased approximatelytwo times.

• Plants are usually uniform in growthand maturity.

• There is minimum wastage of water.

• There are virtually no weeds and nogophers!

• As the nutrient requirement of plantsvaries according to the seasons,hydroponic gardening can provideplants with optimum quantities of thenecessary nutrients during thedifferent seasons. This will enablemaximum growth to be achieved.

• The need for dangerous pesticides islargely eliminated if the plants aregrown in a controlled environment.Root diseases are controlled to agreater extent.

• Disabled people are not excludedfrom participating in hydroponics, asbenches or units may be adapted totheir requirements.

Hydroponic Culture Types

At the 4th International Congress ofSoilless Culture in 1976, the varioussystems of hydroponics were classifiedand defined as follows.

Water Culture: Roots of plantssubmerged in the nutrient solution withlittle or no growing media. The NutrientFilm Technique (NFT) is an example.

Sand Culture: Roots of plants growingin a solid aggregate of particles with adiameter less than 3 mm. Fine perlite,plastic beads, and washed river sand haveall been used. Beach sand is too fine,giving inadequate aeration of the roots.

Gravel Culture: Roots of plants growingin a solid aggregate composed of particleswith a diameter more than 3 mm. Gravel,basalt, scoria, pumice, plastic, and otherinorganic material. Used in the 1970s insubirrigation systems in the USA. The sizeof most gravel used is between 5 to 10mm in diameter, with rounded edgespreferred.

Vermiculaponics: Roots of plantsgrowing in vermiculite, or a mixture of


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vermiculite with any other organicmaterial. This works very well for smallexperimental systems.

Horticultural Rockwool Culture: Rootsof plants growing in horticulturalrockwool or any similar material. Thismethod really came into it.s own duringthe 1980s, after research in the 1970s.

Hydroculture: All systems or methodsof hydroponics, if used especially forgrowing ornamentals in the home oroffice. It usually means using fired claypebbles in a passive system with nopump. Excellent for slow growing houseplants like ferns or orchids.

Aeroponics: This system uses a spray ofnutrient solution that is aimed at theplants roots, which are supported in achamber filled with moist air. Very highgrowth rates have been observed.

Wick System

In the wick system, the roots aremoistened by the nutrient solutionpassing up a wick made of nylon, rayonor polyester, or by using a lamp wick.Stand a pot, supported above thenutrient solution, in a tray. Soak the wickthoroughly before passing it through thedrainage hole into the nutrient solution,leaving 10 cm of wick in the pot. Unravelthe upper end of the wick to give betterdistribution of the nutrient solutionthroughout the medium. The growingmedium must also be thoroughly soakedto enable the wick to draw up thenutrient solution. Vermiculite, perlite, orfired clay pebbles are the most

commonly used growing media for wicksystems. Rockwool could also be used,but it may hold too much water formany plants.

Hydroculture is a special type of wicksystem that uses the high capillary actionof fired clay pebbles. No actual wick isrequired. The inner pot looks like a coarsenet type of structure. It holds the claypebbles and the plant itself. This culturepot or net pot fits inside anothercontainer which is water tight. Either afloat type water level indicator, or a seethrough window in the outer pot lets thegardener visually check the water level.

Grow Bag Technique

Using grow bags is a simple and cheapway to grow plants hydroponically. Fill alarge clean opaque polyethylene bag withthe growing medium of your choice andseal the open end with freezer bag tiesor insulation tape. Lie the grow bag on afirm surface. To ensure good hygiene,place polyethylene sheeting underneaththe bag. Cut 3 or 4 drainage slits aroundthe outside edges of the bag,approximately 10 mm from the base toallow drainage of excess nutrientsolution. Cut holes in the top of the growbag to allow plants to be inserted. Fourto six plants per bag is usually sufficient,but the number will vary according to thetype of plant grown or the size of thebag. Thoroughly soak the medium in thegrow bag with dilute nutrient solution,before inserting the plants. Plants shouldreceive nutrient when required. Use aplastic watering can or drippers to apply

the nutrient solution. The drippers couldbe automated by using a timer and apump.

Subirrigation

This system is based on the capillaryaction of the growing medium whichcarries the nutrient solution up to the rootgrowing zone. In this particular methoda pot is permanently left to sit in nutrientsolution. When river sand is used as thegrowing medium, the nutrient will riseapproximately 15 cm above the level ofthe solution. This level will differaccording to the particle size of the riversand used. Of the 15 cm of growingmedium available, only 10 cm is suitablefor root growth. The first 5 cm above thelevel of the nutrient solution is saturatedand therefore unsuitable for rootdevelopment.

Regular flooding of the nutrient solutionin the tray to the 5 cm mark will alleviatedrying out of the media. Rockwool willdraw up even more water than sand, dueto it.s very high capillary action. Rockwoolmust have a drainage area below it, sothat water has somewhere to drain.Otherwise standing water may becomeanaerobic at the root area. Fired claypebbles are an excellent media for coolerclimates.

Flood and Drain (Ebb & Flow)

A waterproof growing container is placedon a bench and sloped to an outlet towhich a hose is connected. The other endof the hose is connected to a bucket ordrum which contains the nutrient

Using grow bags isa simple and cheapway to grow plants

hydroponically. Fill alarge clean opaquepolyethylene bagwith the growingmedium of your

choice and seal theopen end with

freezer bag ties orinsulation tape


ISSUE FOCUS

solution. When the container is heldabove the level of the growing container,the nutrient solution will flow out andsoak the growing medium. When thebucket or drum is lowered, the excessnutrient solution will drain out of themedium back into the bucket. The sizeof the container should be limited toapproximately 18 liters, as any larger willmake lifting difficult for students.

The container is then topped off withwater for the next irrigation. Completelyrenew the solution every 1-2 weeks. Themedium must not be left totally floodedduring hot weather because this willcause rapid root death. It is advisable toretain a small reservoir of solution in thebottom of the container to carry plantsover a weekend or during periods of hotweather A pump and timer could be usedto automate this system. The normalrecommendation is to water every 2hours during daylight. The tray shouldfully drain within 30 minutes after thepump shuts off.

Rockwool Technique

Horticultural rockwool can be used as asoilless growing medium. The rockwoolreferred to is a horticultural grade ofrockwool capable of absorbing water andmade to a specific density. Beware ofusing standard thermal rockwoolproducts as these are water repellent, andmay have toxic fire retardants. The

rockwool hydroponic system dependsupon using:

• Rockwool propagation blocks, orsmall cubes

• Rockwool 75 mm wrapped cubes (or100 mm)

• 900 mm x 300 mm x 75 mmrockwool growing slabs

The advantage of using rockwool as agrowing medium lies in the fact that theplants at no point need to be removedfrom the rockwool. Plants are propagatedin rockwool propagation blocks, whichare then transplanted into rockwool 75mm wrapped cubes, which are thendirectly placed onto the rockwoolgrowing slab when plants are at anadvanced stage. Most plants may begrown to maturity in the wrapped cubes.The large slabs are only needed for cropswith a very long life like tomatoes orcucumbers. Both of those crops couldkeep bearing for six to nine months.

Propagation

Rockwool propagation blocks are usedwith the uncut surface uppermost. Cutsin the block help prevent roots fromgrowing from one block to another andalso make the blocks easier to separateat the end of the propagation period.Blocks are placed in seed trays or placeddirectly onto propagation benches linedwith polyethylene sheeting. Looking at

the underside of the propagation blockthe air gaps are readily observed.

How are seeds sown inRockwool?

A hole is made in the propagating blockinto which a seed is sown. DO NOT pushthe rockwool fibers together to cover theseed. The blocks must be completely wetbefore the seeds are sown. This can beachieved by submersing the blocks innutrient solution. Once the seeds havegerminated, water them with nutrientsolution. Plants that can be direct-seededinto cubes are cucumber, zucchini,legumes, tomato and lettuce. Keep therockwool moist, but not soggy. Thevertically-arranged fibers in rockwoolallow most softwood and semi-hardwoodcuttings to be inserted directly into wetpropagation blocks. Bottom heating, ifavailable, should be used. Plants suitablefor cuttings are carnations,chrysanthemums, begonias, indoorplants, roses and fuchsias. Mistpropagation can be used, butwaterlogging and plant diseases candevelop from frequent misting. Toimprove drainage, stand blocks in seedtrays or on a coarse aggregate. Increasedhumidity can be achieved by using a smallpolyethylene tent which will aid theestablishment of plants.

Growing On

Tear away the rockwool propagationblocks with the struck cuttings orseedlings. Separation of blocks is easierwhen wet. Individual blocks can beremoved easily. Air gaps reduce rootinginto adjacent blocks. When roots arevisible on the outside of the propagationblock they are ready to transplant intothe larger blocks. The propagation blocksare then directly placed into rockwool (75mm or 100 mm) cubes. The propagationblocks fit neatly into the holes in thelarger cubes.

Safety Note: If the grower suffers fromskin allergies it is advisable to cover thearms and wear leather gloves whileworking with dry horticultural rockwool.Once the rockwool has been moistenedit has no irritating effects on skin.

Rockwool Slabs for cropsthat grow over 6 months

Soak the rockwool-wrapped cubes (75


mm or 100 mm) with nutrient solutionbefore inserting the propagation blocks.Again, place the cubes on a well-drainedsurface. The cubes must be watered dailywith nutrient solution. When the plantsin the rockwool cubes are at an advancedstage, the cubes containing plants can beplaced directly onto the rockwoolgrowing slabs. The roots should grow intothe slab from the rockwool-wrappedcube in 3-7 days. It is necessary toprepare the rockwool growing slabs priorto placing the cubes on the slabs. Arrangethe 750 mm x 300 mm x 100 mmrockwool growing slabs in bedsapproximately 300 mm apart. A drainagechannel will be required to remove anyexcess solution, so the slabs must be tiltedslightly toward the drainage channel. Laysheets of black polyethylene on theground, along which the growing slabsare laid in rows. Then cut 3-4 tiny slitson each side of the growing slabs,approximately 10 mm from the base toallow for the drainage of excess solution.Thoroughly soak the growing slabs withnutrient solution before the wrappedcubes are placed on the slabs. Drippersare used to provide each plant withnutrient solution. It is necessary to haveappropriate timing mechanisms in orderto irrigate for the required time. Seasonalvariation and the different needs of plantswill influence how often the system isirrigated. Irrigation must be sufficient toprevent the rockwool from dehydratingand to prevent the development of dryspots and areas of salt accumulation. Setthe dripper in the top of the 75 mmcubes. Pump the nutrient solution froma large tank using a submersible pump.Extra solution should be pumped at eachwatering, to ensure at least a 10 percentdrainage of fluid through the slab. Theextra amount ensures that nutrientbuildup doesn.t happen too quickly.

Growing media

Many types of media and combinationsof media may be used to grow plantshydroponical ly. Choice is largelydependent upon availability, the typeof system in use and the plants to begrown.

Crushed granite: In hydroponics,screened crushed granite of approximateparticle size of 2 mm should be used. Themedium is totally inert, but has arelatively low water retention capacity.

The medium can be reused over a periodof time.

Sand: Coarse washed river sand is amixture of fine and coarse particles. Sandin the 0.5 mm to 2.5 mm range is mostsuitable, allowing drainage and goodaeration. Between 20-25 percent byvolume of peat moss may be added toimprove moisture retention. Builders sandmay be used as long as it does not containlarge quantities of fine broken shell whichwill increase the alkalinity of the medium.

Scoria: Scoria is a relatively porousvolcanic rock which is very good as amedium. Generally a mixture of fine andcoarse scoria is used, being heavy enoughto support plants yet having goodaeration. It is sold as lava rock in manyhardware stores.

Perlite: Perlite is a volcanic rock, whichwhen heated in excess of 1000 C,expands into lightweight particles. Inhydroponics approximately 3 mm particlesize should be used. The medium is inertand sterile and is used as a lightweightsupport medium. It does not have a highcapacity for water retention and has nonutrient holding capacity. Perlite can beused on its own or with vermiculite,depending upon specific plant needs. Themedium must be pre-wetted before use.Avoid inhalation of the dust.

Vermiculite: An expanded mica,vermiculite is light and has a very highcapacity for water retention. Because ofits flaky structure, vermiculite eventuallybreaks down and requires replacementevery 2-4 years. Works well in warmclimates.

Mixes: A 50/50 mix of perlite/vermiculite makes an ideal growingmedium. It is advisable not to mix sand,scoria or crushed granite with Perlite orvermiculite, as they will separate whenwet due to differences in densities.

Rockwool: Horticultural rockwoolconsists of a mat of long, fine fibers, spunfrom molten natural rock. It is inorganicand inert, very light when dry, sterile, isnot biodegradable and has a very highwater and air holding capacity. It is soldin Australia under the trade name ofGrowool. In Canada, the United Statesand Europe the product is marketedunder the brand name of GrodanRockwool.

Scoria is arelatively porous

volcanic rockwhich is very

good as amedium.

Generally amixture of fine

and coarse scoriais used, being

heavy enough tosupport plants

yet having goodaeration. It is

sold as lava rockin many

hardware stores

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Fired Clay Pebbles: This is a highperformance growing media. The claypebbles are either formed from clay andfired, or milled form shale rock, andthen fired. In either case the end resultis a porous interior surrounded by a lessporous hard shell. The less porous hardshell prevents the media fromdegrading in the presence of water. Thecapillary action is very high. Three sizesare available.

Coconut Fiber Coir: Not used much inthe United States, but due to the low costit is used in tropical countries. Notrecommended for recirculating systemsdue to leaching of organics into the water.

Shredded Fir Bark (or coarse firsawdust): Again, low in cost but notrecommended for recirculating systemsdue to the leaching of large amounts oftannic acid into the water. Canadiantomato growers used to use non-recirculating drip systems with coarsesawdust with good results. The sawdustmust be replaced each season. Orchidgrowers use fir bark, as it simulates thenatural way they grow on trees, anddoesn't hold excess water.

Care and maintenance ofhydroponic systems

Recirculating Systems: As the level inthe supply tank falls in hydroponicsystems which recirculate the nutrientsolution, it should be topped off to itsoriginal level with water. This can beachieved manually, or automatically bythe use of a float valve placed in thenutrient tank. Do not top off the tankwith nutrient solution, otherwise you willhave no idea of its strength. After a while,the nutrient solution will need replacing.As a rough guide this should be doneabout every 1-2 weeks in summer, everytwo weeks in spring and autumn, and inwinter every four weeks. As a moreaccurate method of determining whento replace the nutrient solution, aconductivity meter can be used. Thisinstrument measures the electricalconductivity of freshly prepared nutrientsolution, so when the conductivity fallsto two-thirds of the original reading, thesolution needs to be replaced or toppedoff with nutrients.

Non-Recirculating Systems: In systemswhere the nutrient solution is notrecovered and reused, the supply tank is

simply topped off with nutrient solutionat any convenient time. Make sure thatthe supply tank is big enough to holdsufficient nutrient solution to last anumber of days. Try to keep wastage toa minimum by learning how much isrequired under various conditions andefficiently applying the correct amount.

Moisture Content: The nutrient solutionshould be applied at a rate to fully wetthe growing medium and cause somedrainage. Do not keep the growingmedium flooded with solution as this willforce the exclusion of air and havedetrimental effects.

Flushing: Over a long period of time,deposition of nutrient salts in the growingmedium occurs, which may cause animbalance in the nutrient supply. Every1-4 weeks flush the whole system outwith plain water.

High Temperature: If the temperaturebecomes too hot in summer then someprotection will be needed. The plants

may need some shelter such as shadecloth if grown outdoors. If grown insidea greenhouse, shade cloth or theapplication of whitewash may beneeded. In greenhouses, good airmovement is essential and will assistgrowth and reduce the incidence offungal diseases on the foliage. Completeprotection from low temperatures canonly be achieved with a heated andregulated greenhouse. Very littleprotection can be given to plants grownin the open. Covering plants with aplastic sheet can protect against lightfrosts, and advance their growth slightly.

Containers: When building anyhydroponic systems, use inert materialslike plastic or fiberglass. Some materialscorrode and cause a nutrient imbalance.For example, if galvanized iron is used,zinc toxicity in plants will occur.

In greenhouses, good air movement isessential and will assist growth and reduce the

incidence of fungal diseases on the foliage.Complete protection from low temperatures

can only be achieved with a heated andregulated greenhouse

*The authors are teachers at the HydropincsSchool, Mussorie

ISSUE FOCUS


SPOTLIGHT

Hunger and water scarcity are buttwo sides of the same coin, bothin urban India as well as in

farming communities depleting theirreserves of arable land. We desperatelyneed for traditional practices of soil-basedagriculture to be complemented by moreproductive and ecologically-sustainableforms of modern agriculture. Thesemodern practices need to be cognizantof our modern day challenges of de-forestation, overly complex distributionof perishables, overuse of water forirrigation, excessive use of transportationfuels, and the rising menace of food priceinflation.

Hydroponics, a technology for soil-lessfarming of fresh vegetables, herbs, fruitsand flowers in a specially formulatednutrient-mix substrate, is now ripe foruse in back-yard, roof-top, greenhouse,and commercial farming. The practicehas been around for a number ofdecades, but recent innovations haveallowed this technology to grab thediscerning eye of green-techentrepreneurs and venture capitalists.The value proposition is abundantlyclear, especially in land and soil deprivedurban areas. It is a mode of agriculturethat does not need soil and hence canbe practiced just about anywhere with

the right tools, that needs 90 percentless water than soil irrigation, that cangrow in-demand non-native produce,that can grow them faster withsignificantly higher yields and thereforerevenues, that can be productive on ayear-round basis, that is less prone tosoil borne diseases and micronutrientdeficiencies, that needs less growingarea per unit of organic output, andfinally, that if practiced well enhancesthe flavor and nutritional content offood. Much like in the renewable arena,hydroponics is a form of agriculture thatenables distributed production, wherefarmer/producer and consumer are

By Vikram Adige*

Eco City Ideas:Eco City Ideas:Eco City Ideas:Eco City Ideas:Eco City Ideas:Hydroponics, The Urban Face of Agriculture


SPOTLIGHT

brought closer to one another whileeliminating wastage.

So the key feasibility questions remain:What early successes have proven thesolution? How costly and available arethe hydroponics options? Whichhydroponics business models may beattractive in places like India?

Successes

There are diverse examples ofhydroponics projects across the globe,with varying levels of innovation, scaleand success. Relevant to hydroponics tourban locales, Changi General Hospitalin Singapore uses rooftop farming to nowmeet most of its fresh food needs.Gotham Greens prides itself as NewYork’s first commercial rooftop ‘closedloop’ hydroponics operation, in whichplants are being grown directly innutrient-enriched water that is carefullycleaned and recycled back into thesystem, and solar-powered pumps arefeeding nutrient-enriched rainwater to anacre of greenhouse space. ProMedicaHealth System network of clinics has usedthe roof of a hospital in Toledo, OH, togrow using hydroponics more than 200pounds of vegetables and then servethem to patients and a nearby foodshelter. This project led to the setup ofeight more vertical gardens throughout

underserved areas of Toledo. The Womanof Hope Project in Hyderabad, at theCenter for Promotion of SimplifiedHydroponics, shows different ways ofsetting up hydroponics for generatinglivelihoods for women. Atul Kalaskar useshydroponics to grow strawberries, andbelieves that as small and marginalfarmers become more competitive bymoving up the chain of activities such asdrip-irrigation, poly-houses andcooperatives, they will eventually aspireto going soil-less in hydroponics. The PetBharo (meaning “fill your stomach”)project in India, affiliated with theInstitute of Simplified Hydroponics,provides training, consulting services,agricultural inputs and testing services forsetting up simplified hydroponics as wellas commercial hydroponics.

Some of the more capital and technologyintensive projects are AeroFarms, whichis building hydroponics farms incontainers stacked on top of each otherin warehouses and old buildings, lit byLED lamps that also provide pest controlwhen set to emit certain wavelengths.Cityscape Farms in San Francisco isdeveloping rooftop organic greenhousesthat use hydroponics along withaquaculture, in which the nutrient mixfor the hydroponics is organicallyfertilized with fish waste produced from

tilapia fish raised on-site. The water isthen cleaned and recycled back into thefish tanks to complete the loop. One ofthe most technology-intensivehydroponics projects, and one that wasvoted one of Time Magazine’s Top 50Best Innovations of 2009, is Valcent’s‘Vertical Farming Technology.’ HisVertiCrop innovation grows non-GMplants in rotating rows one on top ofanother, feeding them precise amountsof light and nutrients while using thevertical stacking to use far less water thanconventional farming. And, by growingupward instead of outward, he canexpand food production without usingmore land. He claims to be able toincrease production volume for fieldcrops up to 20 times over, while using aslittle as 5 percent of the normal watersupply. One final examples of very largescale operation is Eurofresh’s 274-acrehydroponic greenhouse in southeasternArizona, where more than 200 millionpounds of tomatoes were producedin 2007.

Cost

With regard to cost, here are some initialresources for gathering information.Vincent Dessberg, a rooftop hydroponicfarmer in Sarasota, FL, growing fruits &vegetables, says he spent $25,000 to set

Gotham Greens pridesitself as New York’s first

commercial rooftop‘closed loop’

hydroponics operation,in which plants are

being grown directly innutrient-enriched

water that is carefullycleaned and recycledback into the system,

and solar-poweredpumps are feedingnutrient-enriched

rainwater to an acre ofgreenhouse space


SPOTLIGHT

up his facility, including the cost of his6,000 plants growing vertically in 180hydroponic planters. One could visualizehis capex and opex needing to be muchhigher for a commercial setup thatneeded to pump water throughsophisticated sensors that automaticallyadjust nutrient and acidity levels in thewater. Dinesh Rao, a relatively newhydroponics practitioner in India whocarefully manages his water and nutrientmix, says a capex of ~Rupees 100,000-150,000 ($2,200-3,300) was required toset up a 1000-plant capacity, giving 10tons of annual tomato output. The costof a high-end hydroponics greenhouse,using state of the art technologies forlighting, water, nutrients and so on wouldprobably need to be offset by sales intopremium organic retail channels such asa Whole Foods, and export markets.Lower-end simplified hydroponics farms,which is the focus of my study here, isusually based on a static solution culture(compared to a continuous flow solutionculture, or an aeroponics culture) or asolid-medium culture, and a powder(rather than liquid) nutrient mixture, andwould also get the job done though atlower yield. Low-cost greenhouses andpolyhouses would be key to designing asustainable hydroponics model forgrowing affordably priced foods. Anotherconvenient benefit of running such as

project in tropical India, wheregreenhouse heating and humidity is notas much of an issue, is that less energy isrequired for the operation. In general, keycost drivers would be availability ofaffordable nutrient mix, access to trainingand quality analysis, and technology-levelthat is matched to the buyers’requirements.

Models

Low-cost hydroponics greenhouses(along with grading and packing area),built around distributed production withclose proximity to consumers, can be astabilizing factor in food production andretail. The model would need to capitalizeon the predictability of producing year-round nutrient-rich vegetables, extractcost savings from increased yields, andadequately market the health benefits ofpesticide-free produce. But this wouldmake sense only if an affordable andstable price point is achieved for theproduce. In urban India, one businessmodel possibility would be to build ashowcase hydroponics greenhouse onthe rented terrace of a chain of hospitals,much like in some of the examplesprovided above, prove the model for aselect range of fruit-bearing and leafycrops required by the hospital and thenearby community, and then franchiseout the model across the rest of their

network. The initial phase of this projectwould need to involve R&D intotechnology and the nutrient mixrequirements for different families ofcrop. Over time, the business could thenbe expanded to co-locate (I’m using thisterm loosely) greenhouses with farmer’smarkets and restaurants that need freshproduce, animal farms that require foddercrops, and specialty retailers that needflower/ornamental crops andcondiments. Another more scale-orientedmodel would be to develop a high-techvertical farm, expressly to supply large-format quality-sensitive food retailerssuch as Reliance Fresh. All of thesemodels could provide employment tolow-skilled labor, and stay true to theirmission of local consumption by notentering into the logistics heavy exportmarket.

On the related topic of quality, there issomething to consider on the ‘organic’versus ‘inorganic’ hydroponics front.With food inflation continuing to rise, onecan imagine shoppers who spend moreneeding more alternatives to expensive,imported and organic vegetables. Theymay gladly gravitate towards the nextbest thing – fresh vegetables grownhydroponically, and locally by farmersright in their community. Note:hydroponic farms can use both organicand inorganic (i.e. artificially-made, themore popular) nutrient mixtures, and itis unclear as to whether the former optionprovides adequate yields and otherbenefits. I am therefore reluctant tosuggest that going the more expensiveorganic-fertilizer route is worth it foraffordable hydroponics.

Conclusion

In closing, did you know that more thanhalf of the world’s plants already growhydroponically? I’m referring to theoceans, where there is no soil and plantsdraw their nutrients directly from the seawater around them. It is worthappreciating that hydroponics is simplytaking a cue from nature and applying itto our life on land. It is now up to ourinnovators and financiers to make thiscommercially viable on a grand scale.

*The author is novelist and has writtenvarious books on the agriculture systemsof India


PERSPECTIVE

Although it is still an evolvingscience, hydroponic agriculture(growing plants in water solution

rather than soil) is spreading fast the worldover. The nutritional requirement of theplants in this system of soilless farming ismet by the nutrient mixtures, calledhydroponics fertiliser mixtures, added tothe water in which the plant roots are keptsubmerged. These mixtures are made ofchemical plant nutrients.

A breakthrough has now been achievedby an Indian hydroponics hobbyist increating a purely organic nutrient mixturefor growing plants in water. This whollychemical-free plant growth solution hasbeen tested successfully for growingseveral plants, including commonvegetables like tomato and arbi and somehigh value medicinal plants like Brahmi,Arjun and Cineraria. Indeed, a good dealof research is underway in this system ofsoilless farming in the US and Europe butnot much headway has been madeanywhere in organic hydroponics.

Of course, some hydroponics enthusiastsabroad have been experimenting withvarious kinds of organic manures andmixtures of plants, but successful andcommercially viable organic hydroponicsmodels are still not available. In fact, evenglobally accepted principles for certifyingorganic hydroponics products are also notyet available. The success in this venturein India is claimed by a Delhi-based familyheaded by Vidya Shankar Singh. Hisdaughter, Shweta Singh, a DelhiUniversity botany student, has beenassisting him in discovering and furtherimproving the biofertiliser mixture forgrowing plants in ordinary water.“Though we normally call this biofertiliseran ayurvedic medicine for raising plants,we have also given it the name ShwetaAnand Growth Solution”, says Singh. Itcosts only about Rs 30 to Rs 40 forproducing one litre of this concoction,though it takes a long time of six to eightmonths to process it. This mixture, addedto the water at the rate of just onemillilitre per litre per week, takes care ofthe complete nutritional requirement of

the plants. Singh has also evolvedanother wholly plants-based mixture forspraying on the plants to boost theirgrowth. He has named it Shweta Protonicmixture. He, however, is keeping theformula for making these mixtures asecret. Nor does he want to disclose theplants whose leaves are used in preparingthem. “I will work on it for a couple ofyears more before thinking of launchingcommercial production of this bio-fertiliser for hydroponics.

However, if some governmentorganisation, such as the Indian Councilof Agricultural Research (ICAR), comesforward, I am willing to cooperate withit in promoting organic hydroponics inIndia,” he says. The hydroponics gardenthat Singh is maintaining on the roof ofhis house near backside entrance of theNizamudin railway station has severalspecies of flowering plants, vegetablesand medicinal plants. He believes thatnearly 200 commercially important plantscan be grown by hydroponics technique.But, surely, this technique cannot beapplied to all plants. His attempts to growhorticultural plants like lemon and grapeshave not been successful. In India, thehydroponics system of farming was firstattempted by an English scientist W JShalto Duglas in a laboratory in Kligpongarea of West Bengal in 1946. After his

return to England in 1948, the scientificresearch work on it virtually stopped.Globally, however, the chemical fertilisermixture-based hydroponics is in voguein several countries, especially in areaswhere either the climatic conditions orthe poor soil quality prohibit normal cropcultivation. In British Columbia, the bulkof the greenhouse industry is now usinghydroponics technology.

Various models of the hydroponics are inuse for indoor as well as outdoorgardening and farming. Specialisedcultivation techniques have also beenevolved for growing vegetables insubmarines to feed the crew members.It may soon also find its use in spacecrafts.The US space agency is reported to havebegun experimenting growing plants inspace. In India, too, several tracts ofwastelands having poor quality soil butplenty of water can be brought underhydroponics. All that will be needed is tocreate an impervious surface at thebottom and bunds to hold water. Thetechnology used for polythene lining ofcanals can come in handy for creatinglarge hydroponic farms to grow foodcrops, vegetables and other plants.

A Breakthrough in HydroponicsBy Surinder Sud*

*The writer is a renouned journalist. Thearticle is an excerpt that was published inBusiness Standard


COVER STORY

Sustainable development has caughtthe imagination and action all overthe world for more than a decade.

Sustainable agriculture is necessary toattain the goal of sustainabledevelopment. According to the Food andAgriculture Organization (FAO),sustainable agriculture “is the successfulmanagement of resources for agricultureto satisfy changing human needs whilemaintaining or enhancing the quality ofenvironment and conserving naturalresources”. All definitions of sustainableagriculture lay great emphasis onmaintaining an agriculture growth rate,which can meet the demand for food ofall living things without draining thebasic resources.

Organic farming is one of the severalapproaches found to meet theobjectives of sustainable agriculture.Many techniques used in organic

farming like inter-cropping, mulchingand integration of crops and livestockare not alien to various agriculturesystems including the tradit ionalagriculture practiced in old countrieslike India. However, organic farming isbased on various laws and certificationprogrammes, which prohibit the use ofalmost all synthetic inputs, and healthof the soil is recognised as the centraltheme of the method.

Adverse effects of modern agriculturalpractices not only on the farm but alsoon the health of all living things and thuson the environment have been welldocumented all over the world.Application of technology, particularly interms of the use of chemical fertilizersand pesticides all around us haspersuaded people to think aloud. Theirnegative effects on the environment aremanifested through soil erosion, water

shortages, salination, soil contamination,genetic erosion, etc.

Organic farming is one of the widely usedmethods, which is thought of as the bestalternative to avoid the ill effects ofchemical farming. There are severaldefinitions of organic farming and theone given by the US Department ofAgriculture (USDA) is considered themost coherent and stringent. It is definedas ‘a system that is designed andmaintained to produce agriculturalproducts by the use of methods andsubstances that maintain the integrity oforganic agricultural products until theyreach the consumer. This is accomplishedby using substances, to fulfill any specificfluctuation within the system so as tomaintain long term soil biological activity,ensure effective peak management,recycle wastes to return nutrients to theland, provide attentive care for farrn

Organic Farming in India:Relevance, Problems and ConstraintsBy Dr. S. Narayana*


COVER STORY

animals and handle the agriculturalproducts without the use of extraneoussynthetic additives or processing inaccordance with the act and theregulations in this part’. The origin oforganic farming goes back, in its recenthistory, to 1940s. During this period, thepath breaking literature on the subjectpublished by J.I. Rodale in the UnitedStates, Lady Balfour in England and SirAlbert Howard in India contributed to thecause of organic farming.

The farming being practiced for the lastthree decades in India has increasinglybeen found non-sustainable. The systemis oriented towards high productionwithout much concern for ecology andthe very existence of man himself.

Relevance of Organic

Farming

The relevance and need for an eco-friendly alternative farming system arosefrom the ill effects of the chemicalfarming practices adopted worldwideduring the second half of the last century.The methods of farming evolved andadopted by our forefathers for centurieswere less injurious to the environment.People began to think of variousalternative farming systems based on theprotection of environment which in turnwould increase the welfare of thehumankind by various ways like clean andhealthy foods, an ecology which iscondusive to the survival of all the livingand non-living things, low use of the non-renewable energy sources, etc. Manysystems of farming came out of theefforts of many experts and laymen.However, organic farming is consideredto be the best among all of them becauseof its scientific approach and wideracceptance all over the world.

The International Scene

The negative effects of modem chemicalbased farming system were firstexperienced by those countries, whichintroduced it initially. So, naturally, it wasin those countries organic farming wasadopted in relatively large scales. Thereare very large organisations promotingthe organic farming movement inEuropean countries, America andAustralia etc. These organisations, forexample, the International Federation ofOrganic Agriculture Movements

(IFOAM) and Greenpeace have studiedthe problems of the chemical farmingmethods and compared the benefitsaccruing to the organic faming with theformer. Organic farming movementshave since spread to Asia and Africa too.

IFOAM was founded in France in 1972.It spearheads and coordinates organicfarming efforts the world over bypromoting organic agriculture as anenvironment friendly and sustainingmethod. It focuses on organic farmingby highlighting the minimum pollutionand low use of non-renewable naturalresources through this method. It hasabout 600 organisational membersspread over about 120 countriesincluding India.

IFOAM undertakes a wide range ofactivities related to organic farming suchas exchanging knowledge and thoughtsamong its members; representation ofthe movement in governmental,administrative and policy making forumsin the national and international arena;updating of production, processing andtrading standards; formulation andcoordination of research projects; andholding of international conferences andseminars. IFOAM participates in theactivities related to organic farming underthe auspices of the United Nations andkeeps active contacts with severalinternational NGOs.

The Food and Agriculture Organisation(FAO) of the United Nations providessupport to organic farming in the membercountries. It also attempts theharmonization of national organicstandards, which is absolutely essentialto increase international trade in organicproducts. The FAO has, in associationwith the World Health Organisation(WHO), evolved the Codex Alimentariusfor organic products.

Organic farming has several advantagesover the conventional one apart from theprotection of both the environment andhuman health. Improved soil fertility,better water quality, prevention of soilerosion, generation of rural employment,etc. are some of them.

Growth of Organic Farming

Organic farming has spread to about 100countries around the world (Annexure -1). An estimate in 2004 puts about anarea of 24 million hectares under oi’ganicfarming worldwide. Australia with its10.5 million hectares leads the countries.However, much of this area is pastoralland for grazing. Argentina with 3.19million hectares, Italy with 1.83 millionhectares and USA with 0.95 millionhectares follow suit. The importance oforganic farming is growing in manycountries. Austria and Switzerland haveabout 10 per cent of their food systemunder organic agriculture. The annualgrowth of organic farming is estimatedto be about 20 percent in USA, France,Japan and Singapore.

The Developed World

Great strides have been made in organicfarming by the western developedcountries. We very often tend to putsmall farms in harmony with the organicfarming system imagining that the largefarms are not attuned for its adoption. InUSA, there are large organic farmscoming to thousands of acres and theyraise crops using organic methodscompletely avoiding the use chemicals formanuring and controlling of pests andweeds. They implement crop rotationsand lay emphasis on the timing of culturaloperations.

Progress of Organic

Farming in India

The first conference of NGOs on organic

In USA, there arelarge organic farms

coming to thousandsof acres and theyraise crops usingorganic methods

completely avoidingthe use chemicals for

manuring andcontrolling of pests

and weeds. Theyimplement crop

rotations and layemphasis on the

timing of culturaloperations


farming in India was organized by theAssociation for Propagation of IndigenousGenetic Resources (APIGR) in October1984 at Wardha. Several other meetingson organic farming were held at differentplaces in the country towards the end of1980s. Here, mention must be made ofthe Bordi Conference in Maharashtra, thestate which was the focal point for theorganic farming movement in India. TheRajasthan College of Agriculture with thesupport of the state governmentorganized a meeting on organicagriculture in 1992. The United Planters’Association of South India (UPASl)organised two national level conferenceson organic farming in 1993 and 1995.ARISE (Agricultural Renewal in India fora Sustainable Environment) is a majororganization in the country engaged inthe promotion of organic farming. ARISEwas founded in 1995 at a nationalconference of organic farming held atAuroville. ARISE comprises of asupporting network of regional groupsaiming at sustainable environment byprotecting bio-diversity and promotingorganic agricultural practices. Theselect ion of Aurovi l le for theconference was apt as it housed theArabindo Ashram and the pioneeringwork under its auspices on buildingtechnology, a lternat ive energyresearch, wasteland development,afforestation and organic agriculture.

By 1980, three groups of Indians hadtaken to organic farming. The first oneconsisted of urban educated technocratsfor peripheral interest, which did not lastlong. Educated farmers consisted of thesecond group whose farming practiceswere based on scientific knowledge. Thethird group practiced organic farmingthrough trial and error. The successfulorganic farmers in India are those whohave access to sufficient natural resourceslike, water and other organic inputsmostly on their own farms. These farmsproduce crops like sugarcane, areca,cocoa, coconut, pepper and spices. Manyof them have shown that switch over toorganic farming do not affect yields andincome and more importantly,knowledge/ expertise is available forsuccessful adoption of organic farmingin the country.

The International Federation of OrganicAgriculture Movements (IFOAM)estimates that an area of about 41,000hectares in India is under organic farmingrepresenting about 0.17 percent of theworld organic acreage. It also reveals thatthe percentage of organic area to thetotal cultivated area comes to only about0.03 percent and the total number offarms comes to about 5,661. But, acomparison of our 41,000 ha to Australia(10.5 million ha), Argentina (3.19 millionha], Italy (1.83 million ha), and USA (0.95million ha) clearly indicates that organic

farming in India has to go very far evento catch up with that of the leadingnations of the world.

Non Governmental Organizations(NGOs) are spearheading organicfarming in India. A report in 2002indicates that about 14,000 tonnes oforganic products have been raised inIndia. They include tea, coffee, rice,wheat, pulses, fruits, spices andvegetables. India exports organicagricultural produces to EuropeanUnion, USA, Canada, Saudi Arabia,UAE, Japan, Singapore and Australia,among others.

The International Conference on “IndianOrganic Products-Global Markets” at theend of 2002 was the first to be held inIndia. IFOAM predicts that India andChina have great potential to be organicfarm produce exporters in the future. Animportant event in the history of themodern nascent organic farming in Indiawas the unveiling of the NationalProgramme for Organic Production(NPOP) on 8"^ May, 2000 and thesubsequent Accreditation andCertification Programme on P’ October,2001. The logo “India Organic” wasreleased on 26'*’ July 2002 to supportthe NPOP.

Progress

An important progress towards organicagriculture made by India is the increasingawareness of the ill effects of the modernfarming system, which the countryadopted about 35 years ago. The threatpoised by the conventional food productsto the human health and the damagedone to the ecology are being viewedseriously. Efforts are made to producehealthy foods and the demand. for themis increasing. The importance of themarketing of the organic products ishighlighted for the promotion of organicagriculture. Several individuals andassociations have taken to organicfarming and organic products areavailable in the large cities to a verylimited extent.

Production and Exports

The aggregate production of organicagriculture came to about 14,000 tonnesduring 2002 and the exports amountedto 11,925 tonnes.

Indian organic products are mainly

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exported to Europe (Netherlands, UnitedKingdom, Germany, Belgium, Sweden,Switzerland, France, Italy, Spain, etc.),USA, Canada, Saudi Arabia, UAE, Japan,Singapore, Australia and South Africa.

Regulations

The most important step towards organicfarming taken by the government wasto draw a regulatory framework. It is truethat the initiatives by the government tointroduce organic farming by laying downregulations came belatedly as manycountries have already done this kind ofbasic work decades ago. Theimplementation of NPOP is ensured bythe formulation of the NationalAccreditation Policy and Programme(NAPP). The regulations make itmandatory that all organic certificationbodies should be accredited by anAccreditation Agency. The internationalcertification agencies operating in Indiaeven prior to these regulations will alsohave to get accreditation under the newdispensation.

The regulations lay down the institutionalarrangements for implementing thenational programme for organicproduction. The NPOP is administered,monitored and implemented for thebenefit of farmers, processors, tradersand consumers. It envisages a three tieredorganisation under the overall guidanceof the Union Government with theDepartment of Commerce, Ministry ofCommerce and Industry as the nodalagency. Policy making and declaration ofthe standards for organic products,recognition of organic standards of othernations, efforts to get our standardsrecognized by others and coordinationwith other arms of the government forthe successful management of theorganic agriculture are the majorfunctions entrusted to the ministry.

The agencies accredited are theAgricultural and Processed Food ProductsExport Development Authority (APEDA),Coffee Board, Tea Board and the SpicesBoard. The regulations cover exports,imports and the domestic trade of theorganic products. But the governmentregulations are applicable to only theexports. So, an organic farm product canbe exported only if it is certified by acertification body accredited for thepurpose. The categories of products

covered under accreditation are organiccrop production, organic animalproduction, organic processingoperations, wild products and forestry.

A national level steering committee isfunctioning as the apex advisory body forassisting the government to promoteorganic farming in the country. This bodyconsists of representative’s form theMinistries of Agriculture, Food ProcessingIndustries, Forests and Environment,Science and Technology, RuralDevelopment and Commerce.

Organic production requires certificationafter periodic inspections in order toensure that all prescribed practices arefollowed. The inspection and certificationare done by the agencies accredited tothe Accrediting Agencies dealing with thecommodity. Inspection and certificationagencies can be governmentdepartments, NGOs, trade or consumeror producer organisations. Such agenciesshould be registered bodies, withmanagements in position, declaring thepersons who shall be held responsible forany miscarriage of certification andhaving proof of adequate field staff toundertake periodic inspections. Thecontinued accreditation of such bodies isdependent upon their record of fidelityto the principles of organic production.They are authorised to award certificatesafter due satisfaction that practicesconformed to those enunciated by theAccrediting Agency in relation to the item

concerned. The charges levied by thecertifying agencies are fixed by theAccrediting Agencies.

Research and Training

A National Institute for Organic Farminghas been established to spearheadresearch in organic agriculture. Thegovernment of India constituted taskforce had also recommended theinitiation of the postgraduate levelcourses in organic farming. The MorarkaFoundation and Maharana PratapUniversity of Agriculture and Technology(MPUAT), Rajasthan have collaborated inthe design and implementation of sucha programme.

Projects and Initiatives

Several projects and initiatives topromote organic farming in the countryhave begun at the behest of individualsand institutions. The following are onlya few of such efforts the details whichcould be available.

A project aided by the World Bank toempower the rural communities in thecountry to grow organic products forexports had come up in 2002. Theprogramme aims at the improvement andpromotion of organic production ofspices, certification and export of blackpepper, white pepper, ginger, turmeric,cardamom, clove, nutmeg and herbalslike rosemary, thyme, oregano andparsley. The implementation of the

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progamme is done by the NGOs, andIdukki and Waynad districts of Kerala,Nilgiri district of Tamil Nadu andKandhamal district of Orissa are theareas selected for the purpose. Impartingtraining to both the JNTGOs and thefarmers on organic production methods,basic standards required,documentation, inspection andcertification is a major objective of theprogramme. The assistance to NGOsincludes among others computerhardware and software especially formarket promotion of their produces.

In Haryana, an enterprising farmer whobegan farming on his 16 acre land in theSonepat district in 1971 could establishan organic farm on 108 acres, raisingvegetables and other crops (Rathi, et. al.,2003). It appears that his success ismainly attributable to the efforts madeby him to market the products. NGOsfunctioning in the neighbourhood ofDelhi buy the produces like rice, wheat,pulses and vegetables from his farm at apremium price of 30 to 50 percent. Anexporting firm at a premium of 20 to 30percent buys his basmathi rice. Almost70 percent of his farm production is soldthrough advance agreements/contracts.Presently he and his friends are workingwith the resident associations in Delhi tomarket their organic products at apremium of about 25 percent.

In Rajasthan, the Morarka Foundation,

established in 1995, promotessustainable agriculture. It has about10,000 partners producing vermi-compost and the Foundation is said tobe the single largest producer of thisorganic input in Asia. It encourages theproduction of bio-pesticides and supportsprocurement of certified organicproducts. It has set up a joint venture topromote agri-biotechnology parks and amodel park of such a nature has comeup in Jaipur on 20 acres of land.

The campaign launched by theFoundation in the Sheldiawati region ofthe state in favour of organic farming hasresulted in reduction of cultivation costsand improvement in the quality of theproduces. Small and marginal farmers inthe districts of Sikar and Jhunjhunu, whohad been complaining of degradation oftheir agricultural land and decliningproductivity, were benefited. The effortsof the Foundation to popularize the useof vermi-compost in place of the chemicalfertilizer by creating awareness andimparting training to the farmers havebeen successful. The Foundation too hasa large facility to produce vermi-compost.Application of vermi-compost reducesirrigation, increases the flavour of theproducts and results in a decline in thedamage to the crops by insects. TheFoundation is presently engaged indeveloping techniques to enrich vermi-compost through micro-organisms to

make it suitable for location and cropspecific application.

Problems, Constraints

And Prospects

It is quite natural that a change in thesystem of agriculture in a country of morethan a billion people should be a wellthought out process, which requiresutmost care and caution. There may beseveral impediments on the way. Anunderstanding of these problems andprospects will go a long way in decisionmaking.

Problems and Constraints

The most important constraint felt in theprogress of organic farming is the inabilityof the government policy making levelto take a firm decision to promote organicagriculture. Unless such a clear andunambiguous direction is available interms of both financial and technicalsupports, from the Centre to thePanchayath levels, mere regulationmaking will amount to nothing. Thefollowing are found to be the majorproblem areas for the growth of organicfarming in the country:

Lack of Awareness

It is a fact that many farmers in thecountry have only vague ideas aboutorganic farming and its advantages asagainst the conventional farmingmethods. Use of bio-fertilizers and biopesticides requires awareness andwillingness on the part of the farmingcommunity. Knowledge about theavailability and usefulness ofsupplementary nutrients to enrich the soilis also vital to increase productivity.

Farmers lack knowledge of compostmaking using the modern techniques andalso its application. The maximum theydo is making a pit and fill it with smallquantities of wastes. Often the pit isflooded with rainwater and result is thetop of the compost remains undercomposted the bottom becomes like ahard cake. Proper training to the farmerswill be necessary to make vermi-composton the modern lines.

Attention on the application of composts/organic manure is also lacking. Theorganic matter is spread during themonths when the right moisture level isabsent on the soil. The whole manure

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turns into wastes in the process. Therequired operation is of course labourintensive and costly, but it is necessaryto obtain the desired results.

Output Marketing Problems

It is found that before the beginning ofthe cultivation of organic crops, theirmarketability and that too at a premiumover the conventional produce has to beassured. Inability to obtain a premiumprice, at least during the period requiredto achieve the productivity levels of theconventional crop will be a setback. It wasfound that the farmers of organic wheatin Rajasthan got lower prices than thoseof the conventional wheat. The cost ofmarketing of both types of products wasalso same and the buyers of wheat werenot prepared to pay higher prices to theorganic variety (Rao, 2003).

Shortage of Bio-mass

Many experts and well informed farmersare not sure whether all the nutrients withthe required quantities can be madeavailable by the organic materials. Evenif this problem can be surmounted, theyare of the view that the available organicmatter is not simply enough to meet therequirements.

The crop residues useful to preparevermi-compost are removed after harvestfrom the farms.and they are used asfodder and fuel. Even if some are left outon the farms termites, etc destroy them.

Experiments have shown that the cropresidues ploughed back into soil willincrease productivity and a betteralternative is conversion into compost.

The small and marginal cultivators havedifficulties in getting the organic manurescompared to the chemical fertilizers,which can be bought easily, of course ifthey have the financial ability. But theyhave to either produce the organicmanures by utilizing the bio-mass theyhave or they have to be collected fromthe locality with a minimum effort andcost. Increasing pressure of populationand the disappearance of the commonlands including the wastes andgovernment lands make the task difficult.

Inadequate SupportingInfrastructure

In spite of the adoption of the NPOPduring 2000, the state governments areyet to formulate policies and a crediblemechanism to implement them. Thereare only four agencies for accreditationand their expertise is limited to fruits andvegetables, tea, coffee and spices. Thecertiiying agencies are inadequate, therecognized green markets are non-existent, the trade channels are yet tobe formed and the infrastructure facilitiesfor verification leading to certification ofthe farms are inadequate.

High Input Costs

The small and marginal farmers in India

have been practicing a sort of organicfarming in the form of the traditionalfarming system. They use local or ownfarm renewable resources and carry onthe agricultural practices in anecologically friendly environment.However, now the costs of the organicinputs are higher than those ofindustrially produced chemical fertilizersand pesticides including other inputs usedin the conventional farming system.

The groundnut cake, neem seed andcake, vermi-compost, silt, cow dung,other manures, etc. applied as organicmanure are increasingly becoming costlymaking them unaffordable to the smallcultivators.

Marketing Problems of OrganicInputs

Bio-fertilizers and bio-pesticides are yetto become popular in the country. Thereis a lack of marketing and distributionnetwork for them because the retailersare not interested to deal in theseproducts, as the demand is low. Theerratic supplies and the low level ofawareness of the cultivators also add tothe problem. Higher margins of profit forchemical fertilizers and pesticides forretailing, heavy advertisement campaignsby the manufacturers and dealers areother major problems affecting themarkets for organic inputs in India.

Absence of an AppropriateAgriculture Policy

Promotion of organic agriculture both forexport and domestic consumption, therequirements of food security for millionsof the poor, national self-sufficiency infood production, product and inputsupplies, etc. are vital issues which willhave to be dealt with in an appropriateagriculture policy of India. These areserious issues the solution for which hardand consistent efforts along with anational consensus will be essential to goforward. Formulation of an appropriateagriculture policy taking care of thesecomplexities is essential to promoteorganic agriculture in a big way.

Lack of Financial Support

The developing countries like India haveto design a plethora of national andregional standards in attune with thoseof the developed countries. The adoption

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and maintenance of such a regulatoryframework and its implementation willbe costly.

The cost of certification, a majorcomponent of which is the periodicalinspections carried out by the certifyingagencies, which have freedom to fix thetimings, type and number of suchinspections appears to be burdensome forthe small and marginal farmers. Ofcourse, the fees charged by theinternational agencies working in Indiabefore the NPOP were prohibitive andthat was a reason for the weak responseto organic agriculture even among thelarge farms in the country. No financialsupport as being provided in advancedcountries like Germany is available inIndia. Supports for the marketing of theorganic products are also not forthcomingneither from the State nor from the Uniongovernments. Even the financialassistance extended to the conventionalfarming methods are absent for thepromotion of organic farming.

Low Yields

In many cases the farmers experiencesome loss in yields on discardingsynthetic inputs on conversion of theirfarming method from conventional toorganic. Restoration of full biologicalactivity in terms of growth of beneficialinsect populations, nitrogen fixationfrom legumes, pest suppression and

fertility problems will take some timeand the reduction in the yield rates isthe result in the interregnum. It mayalso be possible that it will take yearsto make organic production possible onthe farm.

Small and marginal farmers cannot takethe risk of low jaelds for the initial 2-3years on the conversion to organicfarming. There are no schemes tocompensate them during the gestationperiod. The price premiums on theorganic products will not be much of help,as they will disappear once significantquantities of organic farm products aremade available.

Prospects

Indian agriculture should be able not onlyto maintain but also must strive toincrease the production of foodgrains. Itappears that given the availability oforganic infrastructure, minimum effortsfor conversion due to the low use ofchemical farming methods and the limitof the public investment, organic farmingcan be progressively introduced. Thepotential areas and crops, which fulfill theabove constraints, could be explored andbrought under organic agriculture. Therainfed, tribal, north-east and hilly regionsof India where the traditional farming ismore or less practiced could beconsidered (Veeresh, 2003). Table - 11gives the details of fertilizer consumption

in the north-east and hilly regions of thecountry.

Agriculture production in these areas isstill almost on the traditional eco-friendlylines and making the farmers aware ofthe methods of organic farming may notbe very difficult.

A strategy to prevent sudden andsubstantial yield losses is to convert toorganic production in phases to reducethe risks during the initial years. Thequestion of the vast requirement oforganic matter to the country’s farms inorder to switch over to organic agricultureis also answered. Chemical fertilizer isapplied only in 30 percent of thecultivated area, which is irrigated, and theremaining land is under rainfedagriculture with almost no fertilizerapplication. Also the rainfed area undercultivation accounts for only 40 percentof the foodgrain production of thecountry (Veeresh, 2003). Theintroduction of organic farming in theseareas will allay the fears of a sudden sharpdecline of food production which manyfear may drive the nation to food imports.Thus the demand for biomass for theproduction of organic manures can alsobe controlled in a phased manner.Moreover, the simple technologies withlow input use have been developed fordry farming and they can be transferredto the farms for organic cultivation. Theresulting increases in productivity andsustain-ability of production willincreasingly contribute to the bettermentof the economic condition of the dry landfaming community, which is one of thepoorest in the country.

Conclusion

The ill effects of the conventional farmingsystem are felt in India in terms of theunsustainablity of agricultural production,environmental degradation, health andsanitation problems, etc. Organicagriculture is gaining momentum as analternative method to the modernsystem. Many countries have been ableto convert 2-10 percent of theircultivated areas into organic farming. Thedemand for organic products is growingfast (at the rate of 20 percent per annumin the major developed countries).

*The author is Head of the Department forEconomic Analysis and Research, Nabard


OPINION

India is one of the fastest growing economies of the worldand is currently the focus of a great deal of internationalattention. It is the seventh largest country in the world in

terms of its geographical size. Today it has a population of nearly1.1 billion which makes it the second most populous nation inthe world. With current population growth by 2025 India mayeven have caught up with China according to the UN.

In this MAP we focus on agriculture and especially on agriculturetrade. India has a large and diverse agriculture and is one ofthe world’s leading producers. It is also a major consumer, withan expanding population to feed. For this reason and becauseof its agricultural and trade policy, its presence on the worldmarket has been modest in relation to the size of its agriculture.

India is still a big unknown. While it has been a small netagricultural exporter overall since 1990, in recent years therehave been many changes in its agriculture and trade policiesand significant changes in its net trade position for manyindividual products.

The leading forecasting institutions expect that India will playa bigger role in world markets in future. In a number ofmarkets it is expected to consolidate its position among theworld’s leading importers (vegetable oils) and exporters (rice).Given the size of Indian agriculture, changes in its balancesheets for key commodities have a potentially large impacton world markets.

Economic Developments

India is the third largest economy in Asia after Japan and China,as measured in terms of its Gross Domestic Prod-uct (GDP)and it is continuing to grow rapidly.

The Indian economy has seen high growth rates of more than8 percent since 2003. In 2005 and 2006 GDP grew at a rate ofover 9 percent. Globally India’s growth is surpassed only bythat of China. This is expected to continue with growth justunder 7 percent by 2015. Graph 1 compares GDP growth inIndia, China and Brazil, where growth has been much slower.

High growth rates have significantly reduced poverty in India.However it’s GDP per head is still very low (estimated at US$820 in 2006), so it remains classified by the World Bank as alow income country. The World Development Report 2008states that over one third of the population of India was livingbelow the poverty line in 2004-2005, managing on less than$1 a day.

Cereals are the staple food in India, providing over half thecalories consumed, while pulses are the main proteinsupplement in the diet. Rising incomes and the influence ofglobalisation have contributed to changes in the diet with aslight decrease in cereals consumption and an increase in pulses,edible oils, fruits and vegetables, milk and meat, which isgrowing from a low base. In the case of edible oils, the fall inprices after the liberalisation of imports further stimulated

India’s Role inWorld Agriculture


OPINION

consumption. However although diets are diversifying, Indiastill lags behind Brazil and China in terms of daily calorie intakeper capita.

Agricultural Policy

Indian agriculture policy is aimed essentially at improving foodself sufficiency and alleviating hunger through food distribution.Aside from investing in agricultural infrastructure, thegovernment supports agriculture through measures includingminimum support prices (MSP) for the major agricultural crops,farm input subsidies and preferential credit schemes.

Under the price support policy, MSPs are set annually for basicstaples to protect producers from sharp price falls, to stabiliseprices and to ensure adequate food stocks for public distribution.In the past guaranteed prices have been below the prevailingmarket prices, according to the International Food PolicyResearch Institute (IFPRI) in 2007.

At the same time subsidies on farm inputs including fertilisers,electrical power and irrigation water have led to inefficient useof inputs and indirectly subsidise income. IFPRI concluded that“support for agriculture (from 1985-2002) has been largelycounter cyclical to world prices”.

OECD appears to reach a similar conclusion. Its 2007 monitoringreport points out that the level of agricultural support (coveringtransfers from taxpayers and consumers) for India “wouldappear to be slightly below the OECD average but considerablyhigher than that of the emerging economies reviewed by theOECD”. Furthermore the instruments of support used are “theleast efficient and the most trade distortive forms of support”.

Key Agricultural Sectors

India is among the world’s leading producers of paddy rice,wheat, buffalo milk, cow milk and sugar cane. It is either theworld leader or the second largest producer in eight out of itstop ten products. Some of these are widely traded while othersare more specialist products.

Table 2 shows the composition of production by value for 2003-

2005, when paddy rice was the top sector, followed by buffalomilk and wheat. India is now the largest milk producer in theworld and the second largest producer of paddy rice, sugarcane, wheat, cow milk, groundnuts and certain fresh vegetables.But it is also a leading consumer. So although it exports theseproducts the quantities will vary depending on the size of thecrop and demand.

Meanwhile India is the world leader in such specialist productsas buffalo milk, spices (pimento) and bananas, mangoes,chickpeas etc., which are important in the Indian diet and arealso exported.

And India is the fifth largest cultivator of biotech crops in theworld, ahead of China. In 2006, about 3.8 million hectares ofland were cultivated with genetically modified crops, by about2.3 million farmers. The main GM crop is Bt Cotton, which wasintroduced in 2002.

Trade

Reforms introduced in India in the early 1990s have greatlyincreased overall trade flows. However it has consistently run atrade deficit unlike China and Brazil (US$35 billion in 2004-2005).

The EU (27) ranks as India’s largest trading partner accountingfor about 21 percent of total Indian trade in 2005, ahead ofthe United States and China. Meanwhile India is the EU’s tenthlargest trading partner accounting for 1.8 percent of total trade.In 2005 its trade deficit with the EU was about €2 billion.

India is one of the leading members of the G-20 within theDDA negotiations. It has a preferential trade agreement withMercosur since 2005. It is also part of the South Asia Free TradeAgreement (SAFTA) covering seven nations (India, Bhutan,Nepal, Sri Lanka, Pakistan, Bangladesh and the Maldives) whichcame into effect in January 2006 with the aim of reducing tariffsfor regional trade. And it is currently negotiating Free TradeAgreements with the EU and ASEAN. Turning our focus to trade

Table 2: Top 10 sectors of India & world rank

Source: FAOSTAT, world rank calculated by DG AGRI

Commodity Rank World Rank ProductionIndia 2005 Avg 2003-2005

Billion $ Million T

Paddy rice 1 2 27.5 129.2

Buffalo milk 2 1 25.2 50.5

Wheat 3 2 10.9 69.7

Cow milk 4 2 10.0 37.5

Fresh vegetables 5 2 6.6 34.9

Sugar cane 6 2 5.2 250.0

Potatoes 7 3 3.6 25.0

Groundnuts 8 2 3.4 7.1

Pimento 9 1 3.3 1.1

Buffalo meat 10 9 3.1 1.5


OPINION

in agricultural and food products; this accounts for a relativelysmall share of overall Indian trade. Agricultural exports represent9 percent of the value of total exports while the share ofagriculture in total imports is just 5 percent.

When compared with other main players on world marketsand considering the size of the country, Indian agricultural tradeflows appear relatively modest. As the key goal of agriculturalpolicy since independence has been to achieve self-sufficiency,trade has been relatively limited. However technologicaldevelopments and macroeconomic policy reforms have broughtincreased liberalisation, following the implementation of theUruguay Round Agreement, and have contributed to changesin agricultural trade.

Thus India is a net exporter of agricultural food products with asmall surplus of just under $4 billion. Between 1993-1995 and2003-2005, exports nearly doubled while imports grew almostthreefold. The value of exports grew from $4 to $7.7 billionwhile imports rose from $1.8 to $5.2 billion within a decade.

The balance of agricultural trade has always been in surplusthough there were sharp fluctuations during the nineties. Since2000 both imports and exports have grown steadily.

India’s Main Export Partners

India is diversifying its export markets. The EU remains its topmarket, accounting for 16 percent of the value of export salesin 2003-2005, although this is a decline from 21percent adecade ago. ASEAN is in 2nd place with 14 percent, althoughits share has also fallen.

This trend may be reversed however as India is negotiatingFree Trade Agreements with the EU and with ASEAN.Meanwhile trade with neighbouring Bangladesh and China(currently 7.5%) is growing fast. The US market share hasremained steady at 10 percent and also that of Saudi Arabia.

A Closer Look at India’s Imports

ASEAN is by far the biggest supplier of agricultural products toIndia, accounting for a massive 40 percent of its imports in2003-2005. Argentina and Brazil rank 2nd and 3rd respectivelywhile the EU only has 4 percent market share (down from 7%a decade ago), ranked at number six in 2003-2005. While thisis roughly equivalent to the share of imports from China andthe United States, it is far below the share enjoyed by Mercosur(supplying about 17% of imports) and ASEAN countries. Over

the past decade ASEAN and Argentina have both substantiallyincreased their market share at the expense of the US, the EU,Brazil and China. Together the top six suppliers now accountfor over 70 percent of imports.

India’s agricultural imports are focused mainly on intermediateproducts. These account for 56 percent of imports; final productsare 31 percent, while the share of commodities is just 13percent.The biggest growth has been in intermediate products whichincreased nearly fourfold over the period.

This reflects the importance of vegetable oils in Indian imports.Palm oil is by far the biggest import at 29 percent of the total.Together with soybean oils, they represent over 40 percent ofimports. Protein rich peas are also within the top 5. The increasein imports of these foodstuffs is driven by population growth.While cashew nuts and cotton are among the top exports, theyalso appear in the top 10 imports. Cashew nuts are imported

Indian agri-food exports by destination(million $)

Source: COMTRADE

India agri-food imports by origin (million $)

Source: COMTRADE

Structure of Indian agricultural trade (million $)

Source: COMTRADE


OPINION

for further processing as are silk and cotton, which are used inthe Indian textile industry.

Outlook for Agriculture and Trade

OECD and FAPRI (Food and Agricultural Policy ResearchInstitute) both expect India to play a bigger role in world marketsin future. It is likely to remain a small net exporter overall.

India is forecast to consolidate its position among the world’sleading exporters of rice (its top export), though the volume ofexports has been erratic since the mid nineties (depending onthe size of the crop and on domestic consumption). Currentlyit is the second largest rice producer after China and the thirdlargest net-exporter after Thailand and Vietnam.

FAPRI expects it to increase its world market share from 16percent to 20 percent by 2015 as area and yields increase andper capita consumption declines. OECD meanwhile takes a moreconservative view of production prospects and therefore ofexport potential. FAPRI’s and OECD’s projections for the globalrice trade.

Its world market share is expected to rise from 4 percent to 6percent over the coming decade, thanks to robust growth inproduction (second only to Brazil’s) and a slowdown inconsumption growth. For soya meal India’s world marketposition is relatively stable and it is expected to stay at about 6percent world market share (FAPRI).

Indian buffalo beef exports are projected to grow as productionrises faster than demand, with world market share for beefstable at around 11 percent. On the dairy side, net exports of

butter and SMP will also grow. For butter although there is astrong increase in production, this is in response to surgingdemand growth, so India remains a small net exporter. On theother hand it becomes a significant net exporter of SMP, withits share of world trade rising from 4 percent to 6 percent.

Conclusions

Agriculture occupies a prominent position in Indian policy-making not only because of its contribution to GDP but alsobecause of the large proportion of the population that isdependent on the sector for its livelihood.

The growth in population and wealth has stimulated demandto the extent that domestic production has not always beenable to keep up and there is increasing speculation that theIndian economy may be overheating leading to inflation. Thedownside of the increased import demand and the currentcommodity boom is that India’s food import bill will rise sharply.

However it is clear that India’s agricultural sector has madehuge strides in developing its potential. The green revolutionmassively increased the production of vital food grains andintroduced technological innovations into agriculture. Thisprogress is manifested in India’s net trade position. Where onceIndia had to depend on imports to feed its people, since 1990it is a net exporter of agri-food products. Its agriculture is largeand diverse and its sheer size means that even slight changesin its trade have significant effects on world agricultural markets.

How India will develop is still a big unknown, with the picturechanging rapidly. Questions have arisen about India’s capacityto compete in global markets under the current farm structureand farm policy. As the service economy grows, the share ofagriculture will diminish, which may also have implications forIndia’s stance on trade and agriculture policy in the future.

excerpts from a report by World Bank

India is forecast to consolidate itsposition among the world’s leading

exporters of rice (its top export),though the volume of exports hasbeen erratic since the mid nineties

(depending on the size of the crop andon domestic consumption)

Evolution of World Rice Trade ('000t) Average2014/15 to 2016/17


OVERVIEW

Indian agriculture is facing a policyparadox. Although several forecastsof the 1990s predicted that India

would be a large importer of grains inthe years to follow, in fact from 2001 to2004 India exported around 30 milliontons of foodgrains. It was seekingprimarily to liquidate its bulging grainstocks, which reached 63 million tons inJuly 2002. Whereas India’s agriculturalpolicy is still rooted in the goal of self-sufficiency in grains, consumptionpatterns are changing fast toward high-value agricultural products such as fruitsand vegetables, livestock products, andfish. The policy environment is laggingbehind the structural change occurringin India’s consumption and productionbaskets. On another front, foreignexchange reserves, which had reached arock-bottom US$1.2 billion in July 1991,climbed to more than US$120 billion bythe end of 2004. Nonetheless, despitecomfortable food and foreign exchangereserves and reasonably high growth ingross domestic product (GDP) of about6 percent annually, India still has morethan 250 million underfed people (belowthe poverty line) and high under-employment. This situation reflectssevere problems on the distribution front.

What are the reasons behind thisparadoxical situation? The answerpresumably lies in the neglect of, as wellas misallocation of resources in,agriculture and rural development,especially in the later phase of the reformprocess initiated in 1991. The averageannual rate of growth in agriculture fellfrom more than 4 percent per year during1992/93 to 1996/97 to less than 2percent per year during the period 1997/98 to 2002/03, and it remains low. Whatled to this dramatic decline in the growthof agriculture since 1997/98? How canit be revived? How can growth inagriculture and rural developmentdiminish poverty quickly? To stimulate

pro-poor agricultural growth and ruraldevelopment, India will need to makesome strategic choices. We proposeaction in five major areas that can helpthe government to accelerate agriculturalgrowth and reduce poverty, malnutrition,and unemployment quickly and on asustainable basis. All of these reforms canbe achieved with due regard for the well-being of the country’s rural poor.

Enhancing Pro-Poor Rural andAgricultural Investments andCutting Subsidies

Since the early 1980s public investmentin agriculture has experienced a seculardecline, while input subsidies (onfertilizers, power, and canal irrigation)have been rising. In the early years ofeconomic reforms, an attempt was madeto arrest and reverse these trends (seeFigure 1), but this effort could not besustained. As a result the gap betweeninvestments and subsidies kept widening.

Today input subsidies, together with foodsubsidies, amount to roughly five to sixtimes the public investment in agriculture.With a burgeoning subsidy bill andshrinking public investment, the growthimpetus for agriculture has beendeclining. Private investment inagriculture has been increasing, yet it hasnot fully compensated for the loss fromfalling public investment.

The first strategic decision must be toraise the level of public investment inagriculture and in rural India. This movewould also help unleash private sectorinvestment, which complements publicinvestment. The strategy should be tocontain and target subsidies and plow thesavings back into agriculture asinvestment.

IFPRI research shows that investments inR&D have the highest impact onagricultural growth per million rupeesinvested. The rates of return to public

The Paradox and Challenges ofIndian AgricultureBy Joachim von Braun, Ashok Gulati, Peter Hazell,Mark W. Rosegrant and Marie Ruel*


OVERVIEW

investment in research have been as highas over 60 percent, and in extension, over50 percent. India currently invests onlyabout 0.5 percent of its agricultural GDPin agricultural research, compared with0.7 percent in the developing countriesas a whole and as much as 2–3 percentin the developed countries. These figuressuggest that government has beensystematically underinvesting in a sectorthat offers a high social return and thatthere is considerable scope for divertingincremental outlays to priority areas inresearch.

Investment in rural roads has the mostpotent effect on poverty alleviation, permillion rupees invested, followed byinvestment in R&D. Across regions, thereturns on each million rupees investedin the less-favored (rainfed) areas ofwestern and southern India are nowhigher than in the irrigated tracts of thenorthwest. These rainfed areas werelargely bypassed by the GreenRevolution. Thus any investment in thisregion has a win-win potential in termsof both higher returns (efficiency) andequity.

In R&D, India had a successful record ofimporting highyielding seed varieties andadapting them to local conditions duringthe late 1960s and 1970s, an effort thatled to the Green Revolution. Althoughthere is still ample scope for increasingrice and wheat yields, especially in the

water-abundant eastern belt, the GreenRevolution has been stagnating in thenorthwest states of Punjab, Haryana, andwestern Uttar Pradesh, as well as in thesouthern states of Andhra Pradesh andTamil Nadu. To keep pushing theproduction frontier outward, India mustinvest in new technologies and theinstitutions to accompany thesetechnologies. The new agriculturaltechnologies on the horizon are largelybiotechnologies. Indian policymakers,scientists, and regulators have longsupported the development ofbiotechnology (including geneticmodification) that provides new cropsfavorable to India’s climatic areas and issuitable for use by farmers in ruralcommunities. One of the most importanttechnologies in the Indian context is onethat produces drought resistance.Developing biotechnology appropriately,however, will require effective researchand reforms of the regulatory structureand process, duly recognizing the localand international debate onbiotechnology, particularly regardinggenetically modified (GM) crops. In thiscontext, setting up a body like theNational Biotechnology RegulatoryAuthority (NBRA) would enhanceregulation of biotechnology in India.

Investments in advanced croptechnologies for Indian farmers will payoff only if there are accompanying

investments in infrastructure. Theconnection of India’s villages toinformation and communicationstechnology is an important componentof these initiatives. The private sector canbe the key driving force, and manycorporate giants have already enteredrural areas with a view to expandingbusiness. But public policy shouldfacilitate these investments in rural areasby removing controls on privateinvestment as well as by offering taxconcessions for investing in rural areas,in order to improve poor communities’access to education, market informationfor farmers and other small businesses,and service information.

Investing in appropriate institutions is asimportant as investing in agricultural R&Dand infrastructure. Institutional changesare required to ensure greatertransparency and accountability inimplementing agencies. India facesendemic problems stemming from poorstaff incentives and a lack of financialautonomy, accountability, andtransparency in its public sector agencies.The best solution is likely to be selectiveprivatization that takes into account bothequity and efficiency considerations.

Public investment needs to be made morepro-poor and productive throughdecentralization. Communityparticipation in constructing andmaintaining rural infrastructure is crucialfor the efficient operation of financialincentives and the establishment of alegal framework. The typical top-downapproach followed so far in publicinvestments will not give the desiredresults. Heavy participation of usergroups and nongovernmentalorganizations (NGOs) in maintainingpublic infrastructure is required to turnthe process of rural development fromtop down to bottom up.

Reforms with a Human Face

Addressing the Landless Poor Reforms inthe agricultural sector are an importantstep toward increasing growth rates inthe Indian economy and thus reducingpoverty sustainably. But manyhouseholds are not in a position to sharein economic growth because of their lowasset base (for example, poor nutrition,low education, and few physical assets).Studies reveal that there is typically little


OVERVIEW

mobility out of extreme poverty, andmany households remain poor forgenerations.

Indeed, low human capital status and aninability to build up a minimum physicalasset base play a key role in theintergenerational transmission of poverty.Any credible, broad-based developmentstrategy must therefore involve publicpolicies aimed directly at promoting assetaccumulation by chronically poorhouseholds. In addition, the laborproductivity of the poor is currentlyimpaired by nutrition problems, including“hidden hunger” in the form ofmicronutrient deficiencies. Agriculturalresearch and production programs shouldfocus on addressing these deficienciesthrough supplementation, fortification offoods (including complementary foods),and attention to making low-cost foodsthat are rich in micronutrients.

India is home to a wide range of socialsafety net programs that togetherattempt to address the needs of poorhouseholds at various stages of the lifecycle. For households with youngchildren, the Integrated ChildDevelopment Scheme (ICDS) providestake-home food rations linked toacquiring nutrition guidance and crucialhealth care. To promote highereducational attainment, the Mid-DayMeals Program provides meals to childrenattending school. The Public DistributionSystem (PDS) provides subsidized foodrations to poor households through a vastnetwork of fair-price shops. A range ofcommunity public works programs (suchas Jawahar Gram Samridhi Yojana orEmployment Guarantee Schemes [EGSs])provide employment to the poor duringperiods of economic downturn or duringthe slack agricultural season. The NationalOld-Age Pension program and theAnnapurna program provide cash todestitute elderly households withoutalternative family support. Theseprograms should be transformed fromsocial assistance to social developmentprograms that contribute directly to thecreation of physical and social assets.

Although safety net programs in Indiavary widely and absorb substantial publicfunds, their combined effectiveness isquestionable. Rationed food subsidies areoften poorly targeted, and corruptionprevents much of the food from reaching

the intended beneficiaries. For example,53 percent of India’s rural poor live inthree states (Bihar, Uttar Pradesh, andMadhya Pradesh), but their dependenceon subsidized food through the PDS off-take is only between 5 and 10 percentof their total cereal consumption–toolittle to make much difference in theirfood security. The costs associated withpublic distribution of food are also oftenunnecessarily high.

There is a need to rationalize wages inpublic works programs, walking the linebetween too-high wages, which willresult in leakage of transfers to nonpoorhouseholds, and too-low wages, whichwill undermine the very objective of theprograms–that is, poverty alleviation.These two considerations need to bebalanced, in line with minimum wageregulation. In addition, high costsassociated with managing the creationof assets through public works programsabsorb scarce resources, and the resultingprojects are often of low quality or neverbenefit the poor. The economicinefficiencies associated with financingthese safety net and public worksprograms can also be substantial, as isthe case with foodgrain support pricesthat distort production incentives. Thesedifferent safety net programs are oftenpoorly integrated, with some householdsreceiving benefits from a number ofsources and other poor households beingcompletely excluded. As a first step,existing social safety net programs inIndia need to be revisited to assess their

targeting mechanisms, coverage, cost-effectiveness, and overall impact onpoverty alleviation. Research at IFPRI,along with several studies in India, showsthat programs like the EGS ofMaharashtra to build rural infrastructureare more cost-effective in reaching thepoor than is the untargeted PDS. Thesepublic works schemes need to be scaledup to build rural infrastructure, developand preserve watersheds, undertakeforestation, desilt canals, and so forth.

Bangladesh’s Food for Education (FFE)scheme and India’s own ICDS show thattargeted programs have been highlysuccessful and are worth investigating.Under the FFE scheme, the poor familyof the school-aged child gets a quantityof subsidized food as long as the childattends school. This program ensureshigher attendance in village schools,especially of girls, and provides foodsecurity to the poor. Such a program maybe worth implementing in India on a pilotbasis.

Achieving reforms for the landless poorrequires developing and applying credibleevaluation techniques that can theninform the design and implementation ofprograms. Given budget constraints andthe extent of poverty in India, the countrycannot afford to tackle the problem ofassisting the landless poor withoutsubstantial improvements in the cost-effectiveness of the overall social safetynet system. Fortunately, we have learnedmuch from diverse experiences in severaldeveloping countries, and the wide


OVERVIEW

variation in program performance acrossIndian states may also be a valuablesource of lessons for future policyreforms.

Addressing the WaterChallenge

Rapid growth in nonagricultural waterdemand, the unsustainable overdraft ofgroundwater, and a slowdown in thegrowth of water supply investments areleading to growing water shortages foragriculture in much of India. Theseshortages are likely to worsen in thecoming years if business as usualcontinues, and the local impacts onagricultural employment and rurallivelihoods could be severe. Concertedpolicy efforts, however, couldsignificantly mitigate the negative effectsof growing water shortages.

The ultimate irrigation potential of thecountry is roughly 140 million hectares,of which not more than 70 percent hasbeen exploited. During the Ninth Five-Year Plan (1997–2002), irrigation grewat only about half of its target rate. Largeinvestments would be required tocomplete several hundred irrigationschemes that have gone unfinished foryears because of severe resourceconstraints. Additional resources for thoseprojects nearing completion would bringhigh returns to investments alreadymade. Part of the solution to waterscarcity, however, lies outside of the

irrigation sector. Increased investments inagricultural research could boostagricultural productivity to compensatefor the diversion of water from agricultureto domestic and industrial uses. Cropresearch needs to target rainfedproduction as well as irrigated areas,taking pressure off the irrigated cropssector. In the domestic and industrialwater sectors, improving both efficiencyand equity through increased waterprices would provide incentives forconservation, cover the costs of delivery,and generate adequate revenues tofinance the needed growth in suppliesand expanded coverage of clean pipedwater. At the same time, pressure onwater transfers from agriculture wouldbe reduced.

Generalized domestic and industrialwater subsidies need to be replaced withsubsidies targeted to the poor. In theirrigation sector, water policy should bedesigned to induce investment inimproved technology and conservationof water and to encourage diversificationaway from irrigated cereals into cropsthat give more value per unit of water. Itis feasible to design and implement waterpricing systems on the basis of waterrights that would introduce positiveincentives for efficient water use and cropdiversification, recover operations andmaintenance (O&M) costs, and protectand even increase farm incomes. Waterrights, combined with appropriate

incentives, are essential for establishingrational water allocation because theyprovide users with the security to investin water-saving technology and practices.Because of the large number of smallfarmers in Indian irrigation systems, inmost cases it is preferable to assign waterrights to water user associations ratherthan to individual farmers. A waterbrokerage system with a river basinauthority, or an irrigation system thatbrokers water trades among irrigatorsand between irrigation and nonirrigationwater uses, could establish incentives touse water efficiently without reducingfarm incomes.

A base water right would be establishedat major turnouts to water userassociations. The user group would beresponsible for internal water allocation.A fixed base charge would be applied tothe initial (historical) quantity, sufficientto cover O&M and longerterm assetreplacement (depreciation) costs. Fordemand above the base water right, aprice equal to the value of water inalternative uses would be charged tousers; for demand below the base right,the same price would be paid to the wateruser for not using the water. This systemwould facilitate the mutually agreedpurchase and transfer of water to higher-valued uses. The promise of efficientwater use and the allocation of waterresources without harming the welfareof irrigators and other rural water usersmake the establishment of water rights,together with appropriate incentives, oneof the highest priorities for water reform.

Toward High-Value Agriculture

Given sustained increases in per capitaincomes of about 4 percent per yearduring the past two decades,consumption patterns in India arechanging away from cereals to high-value agricultural products. How fast hasthe consumption basket of an averageIndian changed? Data from the NationalSample Survey Organisation (NSSO)show that per capita consumption ofcereals from 1977 to 1999, for example,declined from 192 to 152 kilograms peryear in rural areas and from 147 to 125kilograms in urban areas. Theconsumption of fruits, on the other hand,increased by 553 percent, of vegetablesby 167 percent, of milk and milk productsby 105 percent, and of meat, eggs, and


OVERVIEW

fish by 85 percent in rural areas over thesame period. Similar changes occurred inurban diets. These dramatic changesindicate a structural shift in Indian diets.Add to this the new export marketopportunities for many of the sameproducts, owing to trade liberalization,and there is a happy match between thedemands of the market and the need forfarmers to diversify into higher-valueactivities. Further, high-value agriculturalproducts have higher employmentelasticity and can be suitable forsmallholders, if they can participate.

In this new situation, more of the energiesand resources of the agricultural sectorcan be unleashed to produce the kindsof high-value foods and products that arenow in high demand by India’s growingmiddle classes and urban dwellers andthat have new export marketopportunities. A reinvigoratedagricultural and agribusiness sector couldthus continue to be a major engine ofincome and employment growth for thecountry. Despite the tremendousopportunities ahead, success is not yetassured. Important challenges will needto be overcome. The first challenge is tofurther shift the government’s prioritiesfrom heavy support and protection offood staples to promotion of agriculturaldiversification, processing, andcommercialization. Simply put, mostfarmers are not going to get rich bygrowing cereals when there are alreadynational surpluses, demand growth isslow, and world markets are glutted with

the subsidized production of rich-countryfarmers. Farmers must shift into higher-value products to increase their incomes.

A set of public policies and investmentsis required to fully unleash this newpotential. This set must include additionalpublic investment in the kinds of ruralinfrastructure and technologies neededfor these new high-value activities,improvements in marketing anddistribution systems for higher-value andmore perishable foods, and furtherliberalization of the agroindustrial sector.The private business sector can andshould play a dominant role in thesehigher-value market chains, and publicpolicy must strengthen the enablingenvironment. This change will require afundamental shift in thinking in manypublic agencies that are still gearedtoward the dominant role that the stateplayed in the market chains for foodstaples during the Green Revolution era.

Although some of the funding for thesenew investments will come from theprivate sector, new public investments arealso needed. The needed funds might beobtained by reducing some ofthe hugesubsidies that are still maintained onfertilizers, credit, and water for the foodstaples sector and that no longer serve auseful purpose. This could be a win-winstrategy for farmers and the governmentand at the same time could contribute tonational economic growth.

The second challenge for the “new” high-value agriculture is to make it pro-poor.

Left to market forces alone, the majorbeneficiaries of the new high-valueagriculture will be mostly the larger andcommercially oriented farms, as well asfarms that are well connected to roads andmarkets. The majority of the 300 millionor so poor people in India are rural peoplewho depend on agriculture for their living,and many live in the less-favored regions.These people must not get left furtherbehind during the next phase of India’sagricultural development.

Fortunately, there is great opportunity toguide the new highvalue agriculture sothat small farms and even many less-favored regions can be majorparticipants. Achieving broadparticipation will require improvinginfrastructure and education in manylessfavored regions and communities,ensuring that small farms get thetechnologies and key inputs they need,and promoting producer marketingorganizations that can link small farmersto the new market chains (supermarkets,contractors, processors, exporters, andthe like). Small farmers cannot do all ofthese things on their own, and the publicsector, private sector, and NGOs all haveimportant roles to play.

Because high-value agriculture demandsmore working capital, which smallfarmers often lack, a major effort mustbe made to reform the rural creditdelivery system to reach smallholders.Innovative institutions promoting verticalcoordination between farms, firms, and

The consumption offruits, on the other

hand, increased by 553percent, of vegetablesby 167 percent, of milkand milk products by

105 percent, and ofmeat, eggs, and fish by

85 percent in ruralareas over the same

period. Similarchanges occurred in

urban diets


forks (supermarkets) would reducetransaction costs and market risks andwould also act as a conduit to funnelmore credit into this venture, especiallyfor smallholders. This system would helplay a foundation for globally competitiveagriculture in which smallholders can alsoparticipate and prosper. Public policy canmake a major contribution by facilitatingfarmer organizations, standardization,transparent food safety policies, andcontract security between farmers andthe processing and retail industry.

A third challenge will be overcomingmany of the environmental problems thatnow plague agriculture. Water scarcitieswill continue to grow, and farmers mustlearn to use less water and to be lesspolluting. Land degradation anddeforestation must also be contained. Ashift toward more diversified and higher-value farming systems will help, bothbecause many of the new crops need lesswater and because, by increasing returnsto land, small farmers will have less needto overexploit poor lands and soils.

Although agriculture can make asignificant contribution to growth,employment creation, and povertyreduction, on its own it will not drivethe full economic transformation that isnow possible for India. A fourthchallenge, therefore, is for policymakersto find ways of accelerating growth inthe service and manufacturing sectors,which will require continued economicliberalization and privatization.

Trade and Market PolicyReforms

The policy reforms of the 1990s more orless eliminated the bias againstagriculture by lowering industrial tariffsand liberalizing exports of agriculturalcommodities. This change improved therelative incentives environment(measured as the ratio of agriculturalprices to prices of manufactured goods)in favor of agriculture, providing a strongboost to private sector investments inagriculture.

The liberalization of agricultural exportsalso led to a major upswing in agriculturalexports, at least from 1992/93 to 1996/97. But the years 1997/98 through2002/03 did not augur well foragricultural exports. The world prices ofmost agricultural commodities fell

sharply, primarily triggered by the EastAsian crisis. This decline highlighted thedifficulties in integrating domesticagricultural markets with world markets.Whereas developed countries such as theUnited States and the European Unioncountries resorted to subsidizing theirfarmers, developing countrypolicymakers did not have many optionsand accepted the loss of those markets.

This outcome raises the fundamentalissue of establishing and strengthening arule-based system in the global trade ofagricultural commodities. In anincreasingly interdependent world, it isneither desirable nor feasible to remaininsulated from global markets. India, asa major player in the developing world,should play its due role in WTOnegotiations and push for multilateralglobal liberalization of agricultural trade.Although India should insist onsubstantial cuts in the export subsidiesand domestic support being provided toagriculture in the Organisation forEconomic Co-operation andDevelopment (OECD) countries, it shouldalso be ready to open up its own marketsstep by step. Major trade increases aregoing to take place within the developingworld over the next two decades or so,and therefore it would be in India’sinterest to form a strong coalition ofdeveloping countries to open marketswhile pressing for reducing distortions indeveloped-country agricultural policies.India’s role in the G20 coalition at Cancun

proved strong in putting pressure on theOECD countries, but India and itscoalition partners Brazil, China, SouthAfrica, and others must engage furtherto break the deadlock and argue for rules-based open trade. In the event of aslowdown in multilateral negotiations,given the complexities, India should opena second track of negotiations on bilateraland regional free trade agreements withmajor developing countries in the region(like China) and beyond (like Brazil andSouth Africa). India can harvest richreturns from trade liberalization, providedit also carries out large-scale reforms tostreamline domestic markets and put inplace the infrastructure and institutionsto connect local markets with nationaland global markets. These reforms wouldinvolve removing all controls on thefunctioning of domestic markets, such asmovement restrictions, stocking limits onprivate trade, levies on rice and sugar mills,controls on investments in large-scaleagroprocessing and on foreigninvestments in retail chains, and bans ondirect buying from farmers by processors.India should also introduce newinstitutions such as futures trading that canreduce market risk and promoteinvestments. Further, to integrate thedomestic markets with world marketssmoothly and manage trade liberalizationmore effectively, India needs institutionsthat can closely monitor movements inworld and domestic prices and take timelyand appropriate actions to avoid major

OVERVIEW


shocks. Here, an institution like anagriculture tariff commission may be moreuseful than the existing Commission forAgricultural Costs and Prices.

Summary

In summary, we suggest five areas foraction to put rural India on a highergrowth trajectory that would cut hunger,malnutrition, and unemployment at amuch faster pace than has been the caseso far. The five areas for action areinterlinked and would best work ifpursued in conjunction. We emphasizeinvestments with a human face thatinclude and reach out to the rural poorand a reorientation of subsidies towardsuch investments.

1. India should increase investments inrural infrastructure (includingtransport and information technologythat connects villages) andagricultural R&D (leading toimproved technologies for farmers).This is our most importantsuggestion. To ensure high returns onthese investments, India will have toinvest in institutions that makeimplementing agencies transparentand accountable to user groups. Partof this expansion of pro-poorinvestments in rural India should befinanced by reducing food and inputsubsidies, making them available onlyto vulnerable groups.

2. India should reorient its social safetynets to create more employment inrural areas; help strengthen thehuman resource base througheducation, nutrition, andempowerment of women; and buildphysical infrastructure. In this

context, schemes like the EGS ofMaharashtra to build ruralinfrastructure and FFE, well tested inBangladesh, are much morepromising than the untargeted PDS.These social investments must alsoaddress the high prevalence ofmicronutrient deficiencies (especiallyof iron, vitamin A, and zinc) amongthe poor.

3. Water is going to be increasinglyscarce. Investing large sums in newmega-irrigation schemes may not bethe best course of action, but it isimportant to complete those inwhich a lot of money has alreadybeen invested. Overall, however,managing water use throughinstitutional changes, such as waterrights that are based on farmergroups and water-harvestingschemes in dry areas with localparticipation, are likely to be morerewarding. Price reforms in irrigation,and even power supplies foragriculture, can succeed only ifaccompanied by suitable institutionalreforms.

4. Indian agriculture faces promisingopportunities in the production andmarketing of high-value livestockproducts, fruits and vegetables, andfishery. To exploit these opportunities,India must liberalize its marketing andtrade policies to encourage verticalcoordination between farms, firms,and forks (supermarkets); facilitateincreased flow of rural credit,

• Promote pro-poor rural and agricultural development by increasing investmentsin rural infrastructure and agricultural research and development (R&D).

• Reorient social safety nets to create more employment in rural areas; helpstrengthen the human resource base through education, nutrition, andempowerment of women; and build physical infrastructure.

• Reform water management and institutions and design water pricing systemson the basis of water rights to cope with increasingly scarce water supplies foragriculture.

• Exploit new opportunities to participate in the production and marketing ofhigh-value livestock products, fruits and vegetables, and fishery.

• Work toward establishing and strengthening a rules-based multilateral tradingsystem through World Trade Organization (WTO) negotiations and exploresecond-best options for bilateral or regional free trade agreements with othermajor developing countries.

Recommended Actions

especially to smallholders, through,say, nonbanking financialintermediaries; and withdraw anyspecial concessions in support offoodgrain policies.

5. Trade liberalization in agriculture hasthe potential to bring rich dividendsto developing countries, includingIndia. To realize this potential, Indiamust work toward establishing andstrengthening a rules-basedmultilateral trading system throughWTO negotiations. In the event ofmajor hurdles in WTO negotiationsand a delay in reaching anysubstantive agreement, India shouldexplore its second-best options ofreaching bilateral or regional freetrade agreements with majordeveloping countries in the regionand beyond. Furthermore, to exploitthe full potential of tradeliberalization, India should carry out“behind the border” reforms bystreamlining its own domesticmarkets, institutions, andinfrastructure.

India should reorient itssocial safety nets to

create more employmentin rural areas; help

strengthen the humanresource base through

education, nutrition, andempowerment ofwomen; and build

physical infrastructure

*The authors are Joachim von Braun isdirector general of the International FoodPolicy Research Institute (IFPRI); AshokGulati is director of IFPRI’s Markets, Trade,and Institutions Division; Peter Hazell isdirector of its Development Strategy andGovernance Division; Mark W. Rosegrantis director of its Environment and ProductionTechnology Division; and Marie Ruel isdirector of its Food Consumption andNutrition Division.

OVERVIEW


INVESTIGATION

There has been a significant shiftfrom the days when microfinancewas being discussed as the next big

innovation to address the poverty issuesin India to being discussed in terms of

themselves to hit the capital market withtheir unbelievable valuations and thepromise of deliverance, it might beimportant to reflect on the origins ofthese MFIs, examine the process of their

the next big investment opportunity. Thelanguage of microfinance has undergonea fundamental change in the two decadesof its evolution. As some of the largemicrofinance institutions [MFIs] ready

Commercialisation ofMicrofinance in IndiaBy M.S. Sriram*

The paper looks at the growth and commercialization of microfinance in India. It starts out belooking at how the commercial microfinance has evolved internationally by discussing two specificexamples and then moves on to examine the specifics cases of four large microfinance institutionsin India. The basic argument of the paper is that most of the early microfinance in India happenedthrough donor and philanthropic funds. These funds came in to not-for-profit organizations. Howeveras the activities scaled up, it was imperative to move to a commercial format. The article examinesthe growth imperatives and the transformation processes. The paper then proceeds to look at theimplications of the transformation process and its effect on the personal enrichment of the promotersof MFI as well as the governance implications. Basically it questions the moral and ethical fabric onwhich some to the large microfinance institutions are built. It ends by answering a set of questionsthat may emanate out of this discussion.


INVESTIGATION

transformation and discuss some basicstructural issues that are plaguing themicrofinance sector in general and largeorganizations in particular.

Unlike other developmental interventionsof the past – be it joint forestmanagement, natural resourcemanagement and marketinginterventions that benefit the poor,microfinance caught the imagination ofthe NGO sector in a big way in the 1980s.While a large part of the 80s was spentin organizing groups, being focused oncommunity owned and managedstructures and integrating them with thebanks, the impatience of the slowness ofthis process was showing. The globalmicrocredit summit organized inWashington DC in 1997, widely attendedby representatives of 137 countries andnearly 3,000 delegates was, in a way, awatershed event. This was an event thatwas used by Grameen Bank to showcaseits work of the past two decades.Grameen and microfinance were clearlybeing acknowledged as an effectivemethodology to reach small loans to thepoor. The high profile support from thethen first lady Hilary Clinton and theQueen of Spain drew the attention ofseveral interested parties.

That was the time that many of thecurrent large MFIs were setting shop inIndia. While BASIX was incorporated in1996 and started off as the largest privatesector MFI, SML, Spandana werefollowing suit with SKS being a distanceaway. BASIX had a regional rural banktype of product portfolio – trying toaddress the needs of the poor as well asthe non poor. Share was clearly sold onthe Grameen model, Spandana wasagnostic and even tried both the self-helpgroup and the Grameen model beforesettling for the latter. SKS made a veryslow start. The commonality in all theseorganizations was that [except for BASIX]they were all registered as public societieswith grant money and came with adevelopmental orientation. Their originalexpanded names – Society for Helpingand Awakening the Rural poor throughEducation and Swayam Krushi Sanghamare indications of the orientation of theseorganizations. They were focused onpoverty and looking at interventions thatwould benefit the poor. However, oncethese organizations discovered the magic

of microfinance and started to grow, theissues were different.

Move from Not-for-profits to for-profits: The imperatives

When we look at the past two decadesof microfinance, we find three distinctwaves of action. The first wave was whenpeople who were working in thedevelopment sector discovered themethodology of reaching micro-loans tothe poor through a methodology thatwas mastered by Grameen Bank. Thewave 2 came in when the first generationorganizations reached scale and soughtmethods to morph into for-profitcommercial organizations. The wave 3 iswhen mainstream commercialinstitutions like L&T finance, Equitas andthe private equity players started lookingat microfinance as an interestingbusiness.

The basic methodology being used incommercial microfinance in India wasinnovated by Grameen Bank and laterimprovised by several players. Thismethodology involved the followingelements:

1. Identify the potential customer. Thiswas to be done by using a povertyindex, thereby ensuring that thecustomers had a great deal ofhomogeneity

2. Organise them into groups so that

they could address the issue ofinformation asymmetry and lack ofcollaterals by transferring what couldbe an individual liability into a groupliability and hold the group morallyresponsible for repayment – througha process of public oath4.

3. Have standardized products,standardized operating systems andenforce discipline; ensure that theexceptions were dealt with severely.

This methodology meant that there wasa great template that could be appliedalmost anywhere irrespective of localcultural issues or peculiarities. Theamount was small enough not tothreaten the existing vested interests,small enough to ensure that the basicfabric of the local economy does notundergo a drastic change and at the sametime was appropriate enough for peopleto go through the process of groupmeetings. The magic formula worked andwas geographically scalable.

For the first time people in thedevelopmental sector were discoveringa methodology where they could keepin touch with a large number of poorclients, scale rapidly, and actually countthe direct impact of their work5. Thecounting could easily be done by numberof clients reached, the portfolio quality,amount loaned and the magic 100percent recovery statistic. This was a


magic formula discovered and by thetime the Microfinance Institutions [MFI]spent three to four years in operations,they found that there were challenges inkeeping pace with the growthopportunities. From 2002 onwards wefound these MFIs talking a new language– the language of transformation.

Globally this poor client hitting the Wallstreet was being celebrated by theformation and listing of Bancosol in theearly 1990s. However, that was not amethodology that the South Asianplayers took fancy to, because of thebasic differences in the deliverymechanism. However by the timemicrofinance in India had reached thesecond wave – the wave oftransformation, every model became

relevant for examination, because the

delivery and the growth was

contextualized for this region, and we

needed solutions for continuous access

to funds to fuel the credit tread mill that

was built.

In case of legal ownership and

governance, Indian MFIs had to find their

own solutions. It was not possible to

follow the Grameen Bank pattern in

terms of ownership, where the borrower

members also have a stake in the capital

of the bank. That was possible with

Grameen because it was incorporatedunder a special act. In case of the Indianmicrofinance the first wave institutionsdid not find a legal framework under

which they could involve the communityin the ownership structure of a MFI.

We had in an earlier paper listed theimperatives for movement to a for-profitformat for MFI and the challenges in“transformation” from not-for-profit tofor-profit format These imperativesstemmed from size – that the MFIs weregrowing much bigger than they shouldin their original form of not-for-profitincorporation. This meant that it wouldbe increasingly difficult for them toexplain their form to the commercialworld, while the developmental worldwould stop funding them after a stage,given that the operations were largelyprofitable. It was also increasingly difficultfor them to maintain capital adequacy orattract commercial capital because profitscould not be distributed in a not-for-profitformat. Therefore there was a need forall these institutions to “transform” ormove from a non-profit format to a for-profit format.

While the potential for looking at thisbusiness from bottom-of-the-pyramidparadigm existed even then, the idea wasnot proven and therefore people withcommercial interests were not coming in.It was indeed difficult for BASIX whichstarted as a commercial entity, but with

little capital, to explain to the investorsthat this was a business in whichcommercial capital could come in.Therefore it was imperative that the initialplayers in first wave were the ones who

had limited personal means to run thebusiness. At the same time, the donorcommunity saw potential in market basedsolutions for helping the poor to gainaccess to financial services. Thus it was agood combination of a market waitingto be tapped, with the funding comingfrom softer sources. Clearly a marketfailure was being addressed through thismechanism.

However, once the methodology wasestablished, and tested over a few years,and the experiment was scaling up, it wasindeed difficult for the donor communityto continue to be engaged in what couldbe seen as a rank commercial activity. Itwas also around this time that some ofthe investors [including from the siliconvalley – Vinod Khosla, Michael and SusanDell, Pierre Omidiyar among them whotook active interest in the globalmicrofinance space] started looking forinvestments which not only gave themreturns, but also an enhanced image – aspeople who ploughed their riches intosocially responsible businesses. The wave1 institutions that had started in the not-for-profit paradigm were facingchallenges of stepping up their operationsfrom their existing framework to a for-profit framework. These challenges werenot only at the conceptual level, but alsoat the operational level.

Logic of public-purposeinstitutions

Unlike the for-profits, the not-for-profit

INVESTIGATION


organizations operate under a paradigmthat can be classified as “public purpose”organizations. The essential differenceis not necessarily in their operatingmethodology – for instance there mightbe little difference in the operatingmethodology of Grameen Bank ofBangladesh and SKS Microfinance inIndia, but there is a significant differencein what these organizations are. Theorganizations classified as “publicpurpose” are structured in a manner thatthere would be no residual claims –structured as dividends in ‘for-profits’ –on current income. Similarly there is alsono scope for residual claims on theliquidation proceeds. For instance if anot-for-profit trust or a society liquidatesand there are resources left after payingoff all the liabilities, this residue cannotgo to the promoters or any other personsidentified as promoters or managers ofthe trust/society, but in turn has to goto another public purpose organizationthat persues similar activities or in theabsence of such an institution, to thestate. The spirit is that if the organizationis working on the basis of donor moneywhich is coming in for the larger socialgood such monies are coming in fromthe public at large – it could be taxpayermoney or potential tax payer money[money that is exempt from taxes duethe nature of donations to a cause]. Itcould even be money whichphilanthropists put into the public arena.

These funds should be necessarily usedfor a larger public cause than forgenerating private profits or enrichmentof individuals. Therefore such fundsshould remain in the public domain. Themicrofinance activities in wave 1, wereall started in such “public purpose”space with significant donor money thatcame in. When microfinance scaled upand became commercially attractive forthe mainstream market to address theaccess to formal microcredit, there nolonger was a need for these institutionsto continue making a point. Ideally itshould have been declared that theirmission was accomplished and thereforethey should have moved on to otherproblems that needed to be solved inthe society. However, with theexperience and success it was tooattractive for the players to give up thisagenda, and thus the need to prove itat scale and take the success across thecountry and elsewhere was great.

Challenges and Issues ofMoving from Public Purpose toPrivate Profits

Thus, we can see that there was a naturalpush for microfinance organizations tomove into the commercial space.Unfortunately for the operators ofmicrofinance, the move into thecommercial space was not going to besimple. The options available in the

commercial space to carry outmicrofinance activities were three:

1. Move the operations to a non-banking finance company [NBFC]

2. Move the operations to a co-operative format

3. Set up a local area bank

Each of these options had their ownbarriers from the perspective of the wave1 microfinance organizations. Setting upof a local area bank [which BASIX didafter much scrutiny and delays inobtaining a licence] was a painful andarduous route. The Reserve Bank wascareful and miserly in granting licencesfor banks, its area of operations were tobe restricted to three contiguous districtsand the capitalization required was Rs.5crores, a significantly steep hurdle forthe players operating at that time. Theregulations also prescribed divestmentof the equity stake in a specific timeframe and diversification of ownership,with cap on voting rights irrespective ofinvestments. All these did not make theprospect attractive for anybodyto pursue.

While several initiatives took off on theco-operative format, the design of co-operatives dictate it to be user-memberbased and therefore posed a challengeof continuously raising capital from themembers, a much more difficult, slowand arduous route. This actually left theplayers with only one option of settingup of an NBFC. While BASIX had set upits operations in the for-profit space rightfrom the beginning – through a complexstructuring of softer loans obtained frompatient investors like Ford Foundation andthe Swiss Development Co-operation ina highly leveraged holding company anddownstreamed as equity in an operatingcompany, it was not possible for theothers to replicate the model. Followinga scam in the NBFC space in 1996-97,the Reserve Bank tightened theregulatory environment for NBFCs. Theinitial capital requirement for new NBFCswas set Rs.2 Crore and licence from RBIwas made mandatory.

The wave 1 organisations that wereoperating under the not-for-profit formatwere ostensibly not in a position to bringin this capital through their personalresources to morph into wave 2

INVESTIGATION


organisations. Most of the players at thattime were from the developmentalsector, who had discovered the magic ofmicrofinance. There was a peculiarsituation of having generated adequatebusiness and profits within the non-profits, enough funds to promote anNBFC but a clear legal hurdle that thesefunds could not be invested in for-profitNBFCs because they were not publicpurpose organizations, but private profitgenerating organizations.

Internationally this was not much of aproblem. In our discussion on BancoSolof Bolivia and Banco Compartamos ofMexico a little later, we shall discuss thespecifics of the experiences in movingfrom non-profits to profits. In the Indiancontext the law – through the office ofthe charities commissioner – prohibitedequity investments by not-for-profits.The logic followed the spirit of whatpublic purpose organizations ought to do.The public purpose organizations wereholding public funds in “trust” and suchfunds could not be invested in riskyventures irrespective of how proven theidea was, because the funds were infactmeant for larger public good. Thereforethe law provided that it is okay to parkexcess funds in approved safe securities[like government bonds, mutual fundsand so on] so that they earn a returnwhile they are waiting to be deployed,but not used as investments incommercial activities.

International Experiences in“Transformation”

While there are several examplesinternationally in organizations“transforming” from not for- profitparadigm to commercial institutions [SeeRhyne, 20017 for a detailed discussion]we will discuss two celebrated stories asan illustration here.

Bancosol: BancoSolodario [BancoSol] ofBolivia was the first celebratedexperiment that moved from starting offas a donor based not-for-profit entity toa full-fledged bank that celebrated thelisting of its instruments on Wall Street.Its background was in a not-for-profitinstitution called Prodem. The Bolivianlaw permitted Prodem to take an equityposition in the new entity and thus it waspossible for Prodem to transfer its existingportfolio to the newly created entity

BancoSol in consideration of getting anequity position in the bank, while the newbank could also attract independentprivate parties to contribute to the equity.The route was clean where the not-for-profit took a direct equity position.Prodem continued to fund newer clientsand transfer the stable clients toBancoSol. However over a period of time,there were tensions between Prodem andBancoSol on the orientation of the latter,with differences on excessivecommercialization and Bancosol beingaccused of drifting away from smallclients towards the larger ones. Over aperiod of time the ownership structureof Bancosol underwent a fundamentalchange with the original promoters fullymoving out, Prodem reducing its stakein the bank and giving up its board seat.However there is no ready data availableon “enrichment” of Prodem or any of theindividual promoters.

The Indian Situation

When we look at the four large MFIs inIndia, we find the issues raised in the BCcase resonating. Not only these issuescome back to the fore, there are muchlarger ethical issues that we will have todiscuss, not only from the underlyingtheory of understanding public purposeand private profits, but also from theapparently legal mechanisms used by thelarge MFIs. Given that these institutionsare going to be hitting the market soonerthan later, there would be a heightenedpublic scrutiny of their practices and wewill have to examine their conduct ingreater detail. In the following sectionswe shall focus on issues pertaining to thenature and type of capital infusion intothe industry and its implication on thegovernance standards and client

relations. For the purposes of discussionwe have chosen four of the largest MFIsin terms of gross loan portfolio in India.

Based on the MIX data, each of thesefour institutions serve more than8,00,000 customers, have a loanportfolio of more than US$ 100 millionand an asset size of more than US$ 170million each by the year end 2009. Thesefour MFIs chosen based on the MIX dataare:

1. SKS Microfinance (SKS)2. Spandana Spoorthy Financials Limited

(Spandana),3. Share Microfin Limited (SML)4. Asmitha Microfin Limited

Of the four institutions listed above, three[exept Asmitha, which we shall discussseparately] have followed a similar pathin terms of the original organizationalstructure, incorporation into acommercial format and the methodologyof moving from a “charitable” constructto the “commercial construct.” The issuesarising out of such a movement and thepath adopted by Spandana werediscussed in detail in an earlier paper.

Unlike the international counterparts ofBancoSol and BC the legal framework inIndia did not permit the NGOs to takean equity position in for-profit financecompanies.

The promoters of each of theseinstitutions possibly did not have theresources to meet the initial capitalizationrequirements of Rs.2 Crore to set up afor-profit finance company at that time.While this is not explicit, the nature ofinitial capitalization and the latermovement gives enough reason tobelieve that personal resources wereindeed a problem.

Given the legal framework of non-profitsocieties which were operating in themicrofinance space, it was impossible toshift the portfolio without the newcompany providing consideration in cash.It was not possible for the newly formedcompany to acquire the portfolio of apublic society in consideration of equityshares, which was the route that wasadopted by the Latin American models.

*The author is Professor, Indian Institute ofManagement Ahmedabad till 31st March2010. Independent researcher from April01, 2010. E-mail: [email protected]

Given the legalframework of non-profit

societies which wereoperating in the

microfinance space, itwas impossible to shift

the portfolio without thenew company providing

consideration in cash

INVESTIGATION


BOOK REVIEW

However, some of the tips are repetitive.For instance, the first winning strategy ishow to profit from a company's changingfocus, while the fourth strategy is to focuson recovery plays, where the companyrestructures its products to adapt to themarket demand. Aren't both, in a way,one and the same? In the second strategy,'Find cheap shares', the author cites luckas a major factor in finding a cheap stock.However, relying on fate seems simplistic,especially as trading shares is a skill thatneeds to be honed. Such frivolous adviceis hardly beneficial to readers.

At times, the author contradicts himself.For instance, while explaining the conceptof price to earnings (PE) ratio, Burns saysthat he "does not take an awful lot ofnotice of them". However, throughoutthe book, he cites his 'rule of thumb'- themarket cap to profit ratio should be about15 times. This is nothing but PE, the ratioin question.

In the third section of the book, Burnsstates that he strongly believes in charts.However, on the same page, he makesan assertion: "It's simply crazy to buy andsell shares on the basis of looking at achart and nothing else at all."

Also, he has illustrated numerousexamples, all of which are backed bycharts. Burns has also completely ignoredthe fact that the stock markets do notfunction in isolation and that any actionin a major country has repercussions inother parts of the world. The emergingmarkets have also become financiallyinfluential.

This makes the entire process ofstockpicking and winning rathercomplicated. The language is simple andthe text is not inundated with jargon. Theconcepts are explained in an easy mannerwith the help of charts and graphs. Ifyou're a newbie, Burns' advice will helpyou learn how to zoom in on profitable

stocks. However, contrary to the author'sclaims, it's not a 'sure-fire' guide tosuccess.

If you want to become an active daytrader, you will need to read more aboutthe craft of stock-picking. Despite thefailings, the book is racy and has anentertaining style, which can help thetrading tyros get a foothold in thecomplex arena of stock markets andensure that they make a profitable start.

Winning TechniqueBy Ashok Jainani

Book : How Anyone Can MakeMoney Trading Shares

Authors : Robbie Burns

Publishers : Unicorn Books

Pages : 331

Price : Rs 296

The Review as Published in Businesstoday

After earning 500,000 pounds in atrading career spanning 10 years,Robbie Burns believes he has

garnered ample expertise and investingwisdom to share with the public.

In this endeavour, he is assisted by theenticing cover and title of his latest book,How Anyone can make Money TradingShares. Both these are effective lures forreaders who are easily baffled by thestock markets.

Burns tried to help them earlier, when hepublished his first book, The NakedTrader, in 2005. Now, he wants to revealhis top 10 secrets, the 'sure-fire' ways topick good stocks. Burns starts fromscratch and takes the reader, simply andsavvily, through the steps that areessential to become an investor or a daytrader.

A journalist who left his job in 2001 tobegin a career as a day trader, Burnsclaims to have made a profit every year,even during the market downturn. Heputs this knowledge to good use andguides the reader through the intricaciesof stock-picking in a witty manner.

Burns does not outline any new analyticaltool and simply employs well-knownconcepts and tried-and-tested strategiesof successful investors.

He points out how even a layman canutilise these to pick stocks that have thepotential to earn profit. The book isbrimming over with tips, from 'Things toThink about before Buying' to 'Top TenMistakes'.

Some of these, such as the 'Seven Sins',are provocative enough to catch thereader's attention instantly. Burns advisestraders to avoid 'lust', that is, not to fallin love with their stocks. He says, "You'renot dating shares-think of them as justacquaintances that can be dumped anytime without worry."


India’s record grains output in 2011 mayprompt the government to allow wheat

exports, Farm Minister Sharad Pawar wasreported as having said in a pressconference at the capital. This statementboosted the prospect of overseas salesof the grain from the world’s second -biggest producer.

According to news report, Junior FarmMinister Arun Yadav last month said thecountry could lift a four-year-old ban onthe overseas sale of the grain.

Pawar, a key member of a panel ofministers headed by Finance MinisterPranab Mukherjee on food, has favouredoverseas sale of farm products like sugarto keep funds flowing to mills to ensuretimely payments to cane growers.

India Harvests Record Grains, May Allow Exports


Centre proposes to allow export ofwheat and cotton as prospects of

record harvests in the rabi seasonbrighten, Agriculture Minister SharadPawar said on Wednesday.

According to news reports, Mr Pawar wasbeaming with the excellent rabi harvest.He said “Production of food grain ishighest since 1947. The government hasto give serious thought on storage,allocation and exports of food grains thisyear”.

Agriculture ministry also released its thirdestimate of production levels for all majorcrops and projected record food grainsoutput of 235.88 million tonnes, up by8.14 percent. Wheat harvest in thecountry is projected at an all-time high

Bumper Rabi Harvest Brightens Export Prospects

India’s wheat harvest is seen at 84.3million tonnes in 2011, higher than theprevious forecast of 81.5 million tonnesand last year’s output of 80.8 milliontonnes.

“The government has to take a seriousthought on storage, allocation to statesand exports,” Pawar said in theconference while releasing the latest foodgrain forecast for the current crop yearto June.

India’s food grain output is set to touchan all-time record of 235.88 milliontonnes in 2010/11 helped by the highest-ever output of wheat and pulses, he said.

The latest production forecast is 1.6percent higher than the previous year’s

232.07 million tonnes. India’s crop yearruns from July to June.

Analysts said the higher grain outputforecast would help the government toallow wheat exports at a time when thecountry’s food inflation has eased.

In 2010/11, India’s lentils production islikely to rise 18 percent to 17.3 milliontonnes. India is a net importer of lentilsand higher production would make thewidely consumed nutritional cereals moreaffordable for the common man.

India’s food inflation eased to 9.50percent in the year to March 19,data released last Thursday showed,from 10.05 percent in the precedingweek.

since independence at 84.27 milliontonnes while rice output at 80.38 milliontonne.

”We have more stocks than buffernorms. Government must take a view onallowing exports,” Mr Pawar wasreported to have said. As on April 1, riceand wheat stocks in the country totalled52 million tonnes, way ahead of thebuffer norms for the period. Whileexports of wheat were banned by Indiain 2007, rice exports were banned thefollowing year.

Quoting commission of agriculturecost and prices (CACP) estimates,Pawar said wheat stocks alone werevalued at Rs 40,000 crore. “This is avaluable stock and proper usage has

to be given a serious thought,” hesaid.

The government has already allowed 5.5million tonnes cotton export till Januarythis year and lifted the export cap on 720million tonnes yarn. The textile industryis already complaining of severe shortagein natural fibre. It had urged thegovernment to prevent further exportsin light of actual production being lowerby up to four million tonnes.

A decision to announce bonus over andabove a higher minimum support pricefor wheat this year is also likely to bedecided at a ministerial panel meeting onThursday. CACP is likely to announce Rs50 bonus over and above wheat MSP ofRs 1,120 per quintal this year.

AGRI NEWS

41Financing Agriculture 41Financing Agriculture

Wheat yesterday traded with thepositive node and settled 1.8

percent up at 1174.8 on the heels ofpossibility of domestic wheat exportpermission by government.

As per official sources, government isexpected to make a decision nextmonth on lifting the export ban onwheat in light of strong domesticproduction in the current year alongwith hefty buffer stocks in governmentwarehouses.

Wheat Jumps on Estimated Exports

Spinning Industry Body Pleads to Curb

Cotton Exports

bales of cotton (170 kg each) duringthe tail end of this cotton season evenwith the current export limit. He addedthat the SIMA has urged the Indiangovernment to curb further cottonexports due to the supply shortfall andthe interest from the Indian Ministry ofAgriculture to enhance the exportceiling limit.

In the letter to the Prime Minister, Mr.Thulasidharan has forecast the shortageof cotton from July of this season andinsisted that there needs to be a closingstock of at least 5.5 million bales (170kg each) for this season.

However, on February 25th, India’sCotton Advisory Board has estimated theclosing stock for this season to be 2.75million bales (170 kg each).

Mr. Thulasidharan has stated thatallowing further export of cotton will

result in the closure of large number ofspinning mills between July and October.He has commented that any furthercotton export will be disastrous for thespinning industry which is alreadysuffering due to enormous inventory ofcotton yarns and poor upstreamdemand.

A cotton procurement executive from atextile conglomerate who wants toremain anonymous said to this scribethat the enhancement of the export levelmay be a bonus for this year; but he feelsthis situation is highly unlikely as thecotton arrivals in India are in the lastthrow. Producers are likely to bring 5thor 6th picking to the market limiting theavailability and the planting season inthe State of Punjab is on the horizon.He ruled out that the exportenhancement is merely a speculation atthis juncture.

India’s wheat harvest is seen at 84.3million tonne in 2011, AgricultureMinister Sharad Pawar said.

In Delhi wheat prices dropped -10 rupeeto end at 1225 rupees per 10 kg. In arecent trading session Wheat hadtouched the all time low of 1157.6 afteropening at 1157.6, and finally settledat 1174.8.

Trading Ideas:

• Wheat trading range is 1145.5-1199.5.

• Wheat gained on the heels ofpossibility of domestic wheat exportpermission by government

• Wheat is having resistance at 1187.10and support at 1160.10 level.

• India’s wheat harvest is seen at 84.3million tonne in 2011

• In Delhi wheat prices dropped 10rupee to end at 1225 rupees per10 kg.

The Southern India Mills’ Association(SIMA) has urged the Prime Minister

of India not to allow any further exportof raw cotton till January 2012.

In response to the media report that theIndian Agriculture Ministry hasrecommended to enhance the exportquota of raw cotton by 1.5 million balesto reach a ceiling of 7 million bales (170kg each) for this cotton season endingin September 2011, the chairman ofSIMA, Mr. J. Thulasidharan on April 6th,has written to Mr. Manmohan Singh,the Prime Minister of India and theCabinet Ministers of Finance,Commerce & Trade and Textiles urgingthem not to allow any further cottonexports from India.

In speaking to this scribe on April 6thfrom India Dr. K Selvaraju, SecretaryGeneral of SIMA told that the spinningindustry will face a shortage of 2 million

AGRI NEWS

agri april 2011 - afc india limitedafcindia.org.in/pdf/agri_april_2011.pdf · growing plants...

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