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Workshop on

Medium Term Outlook for India’s Food Sector

Under the Project “Incorporating International Best Practices in the Preparation of Agricultural Outlook and Situation Analysis Reports for India”

Supported by Food and Agriculture Organisation

Thursday, June 26, 2014

Amaltas Hall, India Habitat Centre, Lodi Road, New Delhi

Summary of Proceedings

Inaugural Session

Dr. Shekhar Shah welcomed Dr. J.S. Sandhu, Agriculture Commissioner, Ministry of

Agriculture, Mr. Peter Kenmore, FAO representative in India, Dr. Ashok Gulati, Chair

Professor for Agriculture at ICRIER and former Chairman of CACP, Government of India

and other invited participants. In his opening remarks Dr. Shah emphasised the need for

systematic and broad based reviews of the food sector in order to both develop policies for

the medium term and also make course corrections of the programs and in the short term,

especially given the context of sensitivity of the issue of high food prices and also the need

for achieving sustained improvements in agricultural productivity.

Dr. Peter Kenmore in his comments said it is very important to establish a credible

agricultural market information for food security. FAO has already initiated work on

Agricultural Market Information System (AMIS), an initiative of the G20 countries, to

provide member countries of FAO information on a range of variables relating to primary

food commodities and uncertainties associated with production and markets. Information

which member countries collect usually relate to production and related issues. There is a

need to provide a global perspective on these developments as the domestic markets are now

linked to each other through trade on a scale as never before. Further, he also pointed out that

to provide food security for the ever growing population we need to assess not only the

immediate needs but also for the future needs on food.

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Dr. Kenmore recognised the serious consideration of these issues by the Government of India

as it identified NCAER to provide comprehensive reviews of the agricultural situation in

India focusing on the major food commodities and produce quarterly and semi-annual reports

assessing the short term and medium term prospects of the sector. FAO, on its part, was keen

to participate in this process and was able to mobilse technical and financial resources to

support NCAER’s work in this area. FAO was able to bring to this work its own technical

expertise in assessing agricultural outlook across countries.

NCAER was very quick in producing the outlook reports. The quality, depth and analysis

presented in the India reports has been of a high standard and has been highly appreciated

within FAO. He felt that India, through these reports, has been able to get recognition, trust

and influence in International arena in its commitment to improving and sharing information

on the emerging food outlook scenarios globally. It has also given a direction to its agri-

policy making as the processes of the study allowed wide consultations and discussions

among the various stake holders through workshops and meetings.

Session I: Overview and Medium-term Outlook for Foodgrains

Dr. J.S. Sandhu, Agriculture Commissioner, Ministry of Agriculture Chaired the first session.

In his opening remarks Dr. Sandhu said we need to find ways to minimize variations in food

production, particularly of pulses and oilseeds where variation is large. Among coarse grains

variation is large in the case of production of rabi Jowar.

He said Government at its level has identified soil health and irrigation as priority areas.

Dr. Sandhu, then requested Prof. Ashok Gulati to proceed with his presentation on the

outlook for foodgrain sector.

Prof. Ashok Gulati pointed out that since 2000 there were four El Nino years of which three

were drought years. We need to be aware of the likely deficit in rainfall and be prepared with

steps so that variation in foodgrains production is minimized.

Some of the key points that emerged from Prof. Gulati’s presentation were:

Looking back, there is smooth rise in foodgrains production particularly wheat and

rice. Maize production has also achieved dramatic growth. In pulses also we can be

self sufficient, producing more than 20MT, if there is effective market support

mechanism.

India needs to constantly assess foodgrains production and demand given the scarcity

of water. Public irrigation is very expensive and needs serious review. We need to

avoid spikes in the foodgrains prices and our price incentive mechanism should be in

line with the global prices.

India’s productivity levels in rice, wheat and maize is still way below what current

technology can provide and it is a question of right incentives and investments.

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India will maintain adequate production of cereals to meet its consumption

requirements, except for some occasional dips caused by bad weather. But for edible

oils we will remain dependent on imports unless some major policy decisions are

taken to turn around oil palm cultivation.

There is a need to focus attention on horticulture, dairy and poultry production as

these are emerging areas where demand will expand significantly.

Prof. Gulati also expressed his expectation that the agricultural outlook reports should be

sought after reports by the stake-holders in the coming years.

Prof. Parmod Kumar (ISEC) in his comments said droughts of 2006 made us conscious about

the vulnerability to production fluctuations from a food security perspective. He said except

for 2009 all were reasonably good monsoon years and years of good harvest in the recent five

years. But still we were reeling under high food inflation. We have achieved record

production of milk and fisheries but are unable to meet our ever growing demand.

Two the other key points that were mentioned in the presentation by Prof. Kumar were:

In horticulture our quality is still poor and wastage high. As such a large part of

production is not reaching consumers.

In the Food Security Act emphasis is only on cereals.

He also presented his forecasts for the supply and demand for major food commodities in the

medium term using an econometric Model.

Dr. Shashanka Bhide (NCAER) made a presentation on an overview of the trends and

patterns in the development of India’s food sector. He said challenge lies in achieving output

growth in an environment where food commodity prices are expected to remain subdued over

the medium term in the international markets.

In the general discussion following points were made:

There is a need to incorporate the changing economic conditions in policy. For

example, there is a duty of 100% on chicken and zero duty on pulses, a situation that

cannot be sustained. In the case of Sugar, inconsistency between State Advised Price

for sugarcane, a globally competitive sugar sector must be resolved

On solutions to the extensive malnutrition problem in the country, relying on higher

consumption of wheat and rice alone cannot be the approach. We need to provide

better sanitation, safe drinking water and work towards improving female education.

The issue of extent of usage of output for seed, feed & amount of wastage at various

stages was raised. While there are no specific estimates, some indirect estimates were

obtained for modelling total utilization of output. Dr. Parmod Kumar’s approach

provided one such set of estimates.

While there is scope for improving the efficiency of fertilizer use by improving the

mix of fertilisers (N-P-K ratio) which will improve productivity of fertilisers, there

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was also a view that there are areas in the country and commodities where the overall

use of fertilisers was also low. There is, therefore, a need to address both sources of

productivity improvement.

Dr Sandhu commenting as chair said technological advances in hybrid seeds, mechanization,

raising seed replacement rate and varietal replacement rate can double our productivity which

needs further investment.

Session II. Medium-term Outlook for Horticultural Food Commodities

Mr. Sanjeev Chopra, Joint Secretary and Mission Director, National Horticulture Mission,

Ministry of Agriculture, chaired the session. In his opening remarks, he pointed out the policy

challenges in the sector characterized by high growth and also sharp fluctuations in market

prices.

Dr. N.K. Krishna Kumar, Deputy Director General (Horticulture) presented the issues in

the development of the vegetables sector, particularly potatoes and onions. He noted that

climatic disturbances like hailstorms, untimely rains etc have severely affected the crop

production and prices.

He noted some characteristics of the potato and onion production and markets.

This year potato prices have increased by 35% mainly because of late rain and storage

of previous year.

There has been significant growth in the production of potato and onion in the recent

years. Gujarat state has done well in Potato production.

About 80 per cent of seed potato is coming from northern hills of the country.

In Karnataka potato production takes place in kharif season also and this aspect has an

important role in stabilizing prices.

In the case of potato post-harvest loss is about 16 per cent of total produce. 7.5 per

cent of the produce is processed and 8.5 per cent is used as seed.

There are significant yield gaps across production conditions. Yield gap in case of

potato is 50 per cent. Through better irrigation systems and nutrient delivery systems

this gap could be bridged as has been done in Gujarat.

The impact of climate change will be positive in NW plains, slightly negative in NE

plains and severely negative in the plateau region. In order to meet the growing

consumption demand short duration hybrids are required with appropriate temperature

related sensitivity characteristics so that cultivation can expand across the country.

There is a need to adopt ecological niche modelling techniques to identify sites

suitable for seed production in non-traditional areas like Indo Gangetic plains.

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Two to four crops of onions are now taken in various parts of the country. Fresh onion

starts coming from July onwards in Andhra Pradesh, Karnataka and Tamil Nadu and

continues upto April-May. In Maharashtra fresh onion starts coming into market from

September to May whereas in Gujarat and Madhya Pradesh crop comes from

November and continues till May. This year hailstorm damaged the crop, as a result

seed prices of onion doubled in less than three months. In Nasik region rain in

September and October affects the onion production adversely.

Prof. P.G. Chengappa, ICAR National Professor, Institute of Social and Economic Change,

Bangalore in his presentation on competitiveness of Onion market in India said that the

behaviour of arrivals and prices differs for urban market such as Bangalore, and Lasalgaon

and Pimpalgaon markets in Maharashtra. In Bangalore market higher arrivals also coincide

with higher prices. Wholesale prices are more volatile than retail prices.

Indian onion export of onion has grown significantly; March-July is the peak period for

export of onions.

Referring to a study of producers and other market intermediaries he noted that onion trade is

unilaterally dictated by the traders and not by the farmers mainly because of low average

farm size leading to low bargaining power in price formation. Lack of strong farmers’

organization to compete with traders is another major reason for large price margins. Factors

which affect the decision for cultivation mainly include suitable weather, short duration crop

varieties and sufficient rainfall. Apart from this, availability of water and labour are crucial.

Higher marketing costs, lack of market infrastructure, hoarding of produce and significant

post-harvest losses contribute to inefficiency of onion markets. For promoting competition

and marketing efficiency, entry of new traders/ private firms should be encouraged.

Dr. Rajesh Chadha, Senior Fellow, NCAER in his presentation on ‘Issues in Onion

markets’ talked about causes and consequences of price volatility in the Indian Onion

Markets with specific focus on supply chain issues.

He said that the Indian Government generally responded to the price increases by banning

exports and introducing direct market interventions to control prices. The subsequent price

collapse as in February 2011 then impacted heavily on the farm sector.

While climate played a role in reducing onion supply and increasing consumer prices, these

effects were exacerbated by anti-competitive and inefficient supply chains and further short-

term interventions by government to control consumer prices.

The reform of supply chain regulation, which enables certain intermediaries to earn above

normal margins, would not only have lowered consumer prices and negated the need for the

export ban, but would have done so in a manner that avoided (i) high costs being imposed on

the farm sector in the form of the subsequent depressed onion prices and (ii) consequent

adverse impact on the longer term competitive advantage in the international market. The

combination of high wholesale margins and high marketing costs associated with APMC

markets, significantly increase consumer prices, which then escalate further in the face of

seasonally induced supply shortages.

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In the discussion, the issue of lack of momentum in industry taking up dehydrated onion

processing was raised. While the Indian consumer prefers fresh onions in home cooked food,

the use of dehydrated onions is growing as packaged food and in restaurants.

The importance of production shocks in inducing volatility of prices relative to the other

factors such as market inefficiencies was also discussed. It was recognized that while

production shocks lead to price volatility, such volatility was strengthened by market

inefficiencies. Prices in urban markets are influenced by arrivals of harvest. Even a 5 %

increase in an area affects the supply a lot.

The role of National Horticulture Mission in addressing the need for expansion of supply was

discussed. The NHM programs addressed mainly issues relating to seed, seedling and

fertilizer supplies or usage in the past. But now NHM is also focusing on post-harvest

management.

Some key points that were highlighted include,

Contract farming is also not gaining as much wide acceptance as expected. Because

of scattered onion production belts, cooperatives have not successful in achieving

benefits of scale to the producers. Introduction of E-auction which has been initiated

in Karnataka is a good initiative.

West Bengal farmers often face low price of potato. However, the number of days of

low prices is going down and high prices are increasing. Demand for onion is

exponentially increasing. Out of total demand 40% is fulfilled by kharif production,

20 % by late kharif and 40% by rabi, which is mainly going for storage. The quantity

in storage at the beginning of the new crop year was a major determinant of price of

potato during the year.

Onion demand is consistently rising and gradual erosion of MEP regime has ensured

greater stability in prices. The major challenge for horticulture is to sustain this

growth by ensuring better institutional support mechanism, infrastructure and

technology support for the entire value chain.

When NHM was initiated its main focus was on area expansion. But in this year 25-

30% of funds will go to post harvest management. Temporal and spatial spread of

potato and onion is required for solving many problems on the supply side. Fiscal

initiatives like enhanced support to cold chain projects, and investment in suitable

warehousing will help in strengthening the supply chain of vegetables.

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Session III: Medium Term Outlook for Oilseeds and Edible Oils, the Dairy

Sector, and the New Marketing Channels for the Farm Commodities

Dr. Mruthyunjaya, Former Director, NCAP chaired the session.

Mr. Vijay Sardana, Independent Director, ACE Commodities and Derivatives Exchange

Limited, an entrepreneur and an analyst, spoke on behalf of Solvent Extractors’ Association

(SEA).

He pointed out that the government policies, focused on wheat and rice, giving more

importance to carbohydrates. This will pose to huge challenges in the coming years.

BY 2025, Indian population will be 140 crore and average per capita income will be $3000.

Per- head calorie requirement is 2,700 per day. The requirement of oilseeds will be 80

million tonnes to produce 23.3 million tonnes of edible oil. How will this be supplied?

Land holding size will continue to shrink. Only 45% of the cultivated area will be irrigated.

At an average yield of 1.1 tonnes/ hectare, India will need 73 million hectares under oilseeds

to meet the average per capita edible oil requirement of 1kg pe month.

Irrigation will continue to be a limiting factor. There is limited scope to expand oilseed area.

India’s average oilseed yield of 1.1 tonnes/ ha is well below the average US oilseed yield of 2

tonnes per ha. Oilseed production by 2025 will be at the most 36 million tonnes against the

requirement of 80 million tonnes.

Therefore, India will continue to remain a net importer of vegetable oils with the vegetable

oil import bill likely to reach $40 billion by 2025.

The export subsidies provided by other countries will be beneficial to India which will

continue to remain a major net importer of agricultural commodities. The way forward is to

bring in High Yielding technology. There should be a seed strategy for India. India should

not be dependent on multinational seed companies, which will dictate terms, for its seed

requirement. There is also need to formulate a feed strategy for the country. The cost of

production of milk will continue to rise.

Mr. T.N. Datta, General Manager (SA&S Group) NDDB, Anand made a presentation on

Outlook of dairy sector. He said that with the rising level of income and urbanization demand

for milk and milk product is increasing at a faster rate. Milk now accounts for largest share of

food spend in urban India and next only to cereals in rural areas. He said that the Cabinet

Committee on Economic Affairs, Government of India, considered and approved the

National Dairy Plan I in February, 2012 for six year period (2012-13 to 2017-18). The main

objective of this plan is to meet the rising demand of milk by increasing productivity of milch

animals and linking rural milk producer to the organize milk producing centers.

He pointed to the critical nature of fodder supplies to milk production.

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Dr. Nilabja Ghosh, Associate Professor, Institute of Economic Growth, in her

presentation said that emergence of new marketing channels in agricultural commodities is

required to deliver higher prices and returns to the producers even while offering cheaper

commodities to consumers and other users. Markets have to become more efficient with the

inflow of modern methods, resources and motivated players.

Ms. Nidhi Nath Srinivas, Chief Marketing Officer, NCDEX, in her comments on the

oilseed and oils scenarios, focused on the policy flip- flops impacting the vegetable oil sector.

She wondered whether India should focus on becoming self- sufficient in vegetable oils or

making available vegetable oils at low prices to the consumers. Although there is talk on

encouraging oil palm cultivation, there are constraints such as high cost of production and

absence of market support. She questioned the logic of the imposing lower import duty on

edible oils and high duty on oilseeds. The policy flip flop has encouraged speculative activity

in the edible oil business.

The differential duty structure for crude vegetable oil and refined vegetable oils has

encouraged companies to set up refining facilities at all major port areas. The largest FDI in

food processing sector is in edible oil sector. All big multinational veg oil companies are

now operating in India. The high cost of moving vegetable oils from domestic production

centres to consumption areas has resulted in sickness in the domestic vegetable oil industry.

The oil meal is the saviour with increasing demand for oilseed meal both domestically and

for exports.

Giving an example of the increase in Bihar rabi maize production due to the involvement of

NCDEX, she said developing finance markets could trigger commodity markets.

Prof. K.V. Prabhu, Joint Director Research, Indian Agricultural Research Institute,

reflected on the various technological developments in the area of breeding of crop varieties

that can yield more and withstand some of the adverse natural conditions. He maintained that

taking the research findings to actual production has to become more efficient.

Dr. Mruthyunjaya, in closing referred to the need for greater coordination of efforts on the

supply side to make oilseeds and dairy sector more productive.

Session IV: Input and Sugar Sector Medium Term Outlook

Prof. Ashok Gulati, chaired the final session of the workshop.

The Input Scenarios in the Medium-term

Dr. Vaishali Chopra, Senior Manager, Robobank made a presentation on Outlook for

Input Sectors. Pointing to the encouragement of use of urea rather than combination of NPK

nutrients and use of micronutrients through subsidy policy, there is an imbalance in the use of

chemical fertilisers. Due to lack of appropriate policy, India is not in a position to be close to

self-sufficiency in fertilizer sector. For balanced use of fertilizers India needs to promote

micro nutrients and the use of P and K.

For plant protection she said there is immense scope and industry needs to capture the

opportunities that will become available when many formulations will move out of patent

protection in the coming years.

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She said farm machinery sector needs better technology /automation in sowing, breeding and

harvesting because of emergence of labour shortage in agriculture. For Horticulture Sector

also we need specialized machinery.

She raised the possibility of large potential for commercial hiring of machinery on time

sharing basis which can be a game changer for the small farms and also for the agricultural

machinery sector.

Dr. Mruthyunjaya, Former Director, NCAP in his comments on Outlook for Inputs said

we need to consider the role of non- conventional inputs also. He listed i) time as a resource

(has opportunity cost), ii) Technology is generally taken for granted, we need cost efficient

technology, iii) skill of the farmers and farm labour or other participants ion the farm sector

as invaluable input that can bring about greater efficiency, iv) Innovations which provide for

an impetus to growth, v) Scale of operation and vi) Governance as a important non-

conventional inputs. He argued that adequate attention to these inputs is necessary to improve

the efficiency of the conventional inputs.

Medium-term Outlook for the Sugarcane and Sugar Sector

Mr. Roshan Lal Tamak, Business Head, Sugar, Olam Agro Industries, Gurgaon, made a

presentation on the Outlook for Sugarcane and Sugar Sector. He said India is the Second

largest producer of Sugar in the World after Brazil. But its per capita consumption is as low

as 20kg per annum as compared to 50 kg in Brazil.

In India sugar production is divided between the cooperative and private sectors but private

sector is growing fast.

42% of the sugarcane area falls in Uttar Pradesh, where sugar productivity per hectare of cane

grown is low. Sugar production in India has stagnated at around 24 million tonnes during the

last decade primarily because of the adverse effects of high State Administered Prices (SAP)

for the sugarcane in UP on the one hand and unviable sugar prices in the market and due to

climatic conditions in Maharashtra. He said sugarcane yield is the highest in Tamil Nadu at

100 tonnes per hectare where as it is the lowest in UP at 55 tonnes per hectare largely because

of State and climatic factors.

Sugar consumption in India is increasing at the rate of 3% per annum and is expected to cross

30 million tonnes by 2020.

For the development of the sugar sector he said the government should implement

Rangarajan Committee recommendations which suggested sugar linked formula for

sugarcane. Government has recently raised ethanol blending norm from 5% to 10% which is

benefits utilization of cane in a more financially viable manner. The sugar industry should

also look at power generation from waste material for its improving its profitability.

Commenting on the sugarcane sector Ms. Nidhi Nath Srinivas, said Sugarcane producers in

UP have no choice but to sell their produce to only one sugar mill falling in the area. In States

like Karnataka, Tamil Nadu and Andhra Pradesh mills bid for the sugarcane, wherever it is

produced in the state. Because of this industry has no incentives for raising cane yields in UP.

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Commenting as Chair Prof. Gulati, said sugarcane crop of UP is a 9 months crop and cannot

be compared with yields in the other states where the crop is in the field for 13 months.

Further water usage and water cost are much higher in Maharashtra where farmers pump

ground water for irrigation from great depth.

He said India is spending Rs. 70,000 crore on urea subsidy and needs a policy correction.

The issue of Ethanol pricing was also raised indicating how ethanol demand is helping the

sugar industry.

Dr. Gulati said it will be better policy option for India if it adopts Fair and Remunerative

Price for sugarcane as suggested by CACP and Revenue Sharing as suggested by the

Rangarajan Panel.

Vote of Thanks

Dr. Shashanka Bhide, NCAER, offered the vote of thanks to the Ministry of Agriculture

and FAO for their sustained support for the project on Agricultural Outlook Reports

undertaken by NCAER. He also thanked the speakers, discussants, chairs and all the

participants who contributed to the discussion and made the workshop a valuable forum for a

broad-based discussion on the outlook for a number of food commodities. He also thanked all

the members of the project team at NCAER who supported the background work for the

workshop.

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