BECE-214

AGRICULTURAL DEVELOPMENT IN INDIA

Programme Code: BDP
Course Code: BECE-214
Assignment Code: BECE-214/AST/TMA/2017-18
Maximum Marks: 100
Answer all the questions

A. Long Answer Questions (word limit-500 words) 2 x 20 = 40 marks

1. Discuss the two conditions ‘necessary for the success of land reforms’.
Answer- Conditions Necessary for the Success of Land Reforms- The two hypotheses
called ‘farm-size hypothesis’ and ‘tenant-efficiency hypothesis’ are based on certain empirical
observations.
The first, called the farm-size
hypothesis, is based on the observation that ‘smaller farms yield larger output’ i.e. the farm-size
is inversely related to output (see also ‘keyword’). Implicit in this observation is the fact that on
smaller farms family labour would suffice, or even if some outside labour is hired there would be
effective supervision, whereas in larger farms, hiring of outside labour would be a necessity.

The second hypothesis, called the tenant-efficiency hypothesis, rests on the two empirical
observations
that:
● landlords owning larger farms would generally not do self-cultivation but lease out their
land to tenant farmers on a share-cropping arrangement; and
● the sharecropping arrangement is generally exploitative in nature killing the tenants
motivation to put in sincere labour. Therefore, a tenant-owner (i.e. a tenant given the
ownership rights to a small farm which he can self-cultivate) has the incentive
to contribute more than when he is working on a sharecropping arrangement.

Note that associated with both the incentive to produce more in the tenant-
efficiency hypothesis or the higher output yield associated with the farm-size hypothesis, there
is the common issue of maximising the output. Given that the implementation of land reforms
needs the state to act as regulator, the two hypothesis (also called as stylized facts) raises the
question of ‘whether the
policies (or the incentive structures) can be so framed/designed that the market
forces can generate the stimulus required for producing maximum output or alternatively
minimise the productivity losses’? Alternatively, although the ‘rent-
extraction’ (i.e. exploitative character of sharecropping arrangement) and the
‘incentive trade-off’ (i.e. if the tenant is offered the incentive to produce surplus
by ownership rights to his land) explanations provide a rationale for the above two hypotheses.
For instance, the quality of land is not homogeneous and the farmer’s ability vis-à-vis their skills
are also not
homogeneous. This means, under the condition of homogeneity assumption the two hypotheses
may ensure higher returns or output. But since such assumptions rarely prevail in reality, the
higher output realisation is often violated.

Thus, under conditions of homogeneity the case for ‘land reforms’ would be upheld but to the
extent that heterogeneity of factors invariably prevail, land reform measures will be
less effective. The policy challenge is, therefore, to establish suitable incentives by appropriate
institutional mechanisms so that the conditions necessary for higher productivity is generated in
the market.

It is relevant to note the argument made by the Peruvian economist Hernando de Soto. In his
publication ‘The Mystery of Capital’ published in the year 2000, Soto advanced the view that
with the ensuring of ‘property rights’ to a poor farmer’s land by the state, the farmer’s ability to
access institutional credit is increased. With this, the poor farmers are better empowered to
ensure
their own welfare, contributing in the process to both alleviation of poverty and promotion of
economic growth. In other words, establishment of suitable institutions would ensure the twin
concerns of equity and efficiency. However, since tenancy/land reforms cannot succeed without
the political support, it is necessary to simultaneously work on ‘political reforms’ along side the
‘institutional reforms’. The two together would then ensure the conditions necessary for the
success of ‘land reforms’.
The two conditions of political and institutional reforms, for the establishment of a good political
and institutional structure, identified as essential for the success of ‘land reforms’ are applicable
to any country/context in general.

2. What are the main problems of agricultural marketing in India? Examine the steps
taken by the Government to make the marketing system more efficient.
Answer- Inadequacy of Agricultural Marketing System
The existing realities point out to many inadequacies in the Indian agricultural marketing sector.
These can be indicated as follows.
a) Inadequate/Improper Warehouses
There is a near absence of proper warehousing facilities in the villages. This compels the
farmers to store their produce in pits and mud vessels. Such unscientific methods of storage
lead to considerable losses of produce by wastage. To minimise their losses farmers tend to
dispose of their produce in the nearest local markets. This
creates an abundant supply yielding low and un-remunerative prices to the producers,
particularly the small producers as the large producers have the capacity to arrange for the
required storage facilities. While the setting up of central and state warehousing facilities has
improved the situation to some extent, there is every need to expand the facilities much more on
this front.
b) Lack of Grading and Standardisation - The practice of selling graded items which can
fetch better return is missing among
the small farmers. The common practice is to sell them in heaps of one lot with items of different
qualities mixed up. The low returns received as a result of this practice do not induce the
farmers to adopt better methods and practices for producing quality produce.
c) Inadequate Transport Facilities-
Good road connectivity to transport the produce to mandies (the places where
produce are sold in bulk) with adequate motorized transport facilities is a must. The practice in
India, particularly for small farmers, is to transport their goods in bullock carts. The feasibility to
transport items to far off places is greatly constrained by this means of transportation. In light of
this, even if the prices are low they generally sell
them at the nearest place. This is particularly so with perishable commodities. Even though the
situation is changing for the better, cases where such constraints are continued to be faced by
small farmers are not insignificant.
d) Presence of Large Number of Intermediaries- As we have seen above, the length of
marketing channel is not small or optimum to realise maximum returns to the producers. The
situation is particularly adverse due
to number of intermediaries or middle men operating in the names of village traders,
kutcha/pucca arhatiyas, brokers, wholesalers, retailers, money lenders, etc. This feature
reduces the returns to the farmers greatly. Estimates in this respect indicate that in the
aggregate, farmers get about 53 percent of final consumer’s payment; the share of middlemen
being 31 percent and the rest being other costs including marketing expenditures. For
vegetables and fruits, the corresponding percentage of producer’s returns is even worse (39
percent) with the share of intermediaries being still higher
(34 percent).
e) Malpractices in Unregulated Markets- The number of unregulated markets are still large in
India. Even in regulated markets, due to the ignorance and otherwise, several problems like
getting cheated in matters of under-weighing, arhat or pledging charges to be paid to the
arhatiyas, etc. continue
to exist. Many of these problems can be eliminated with proper information flow about regulated
market facilities. Notification of facilities available free of cost and those available for specified or
prescribed charges would help minimise exploitation of small farmers. Stricter monitoring of
operational facilities in regulated markets is also equally important. There is a long way to go in
establishing fair methods and practices in this regard in India.
f) Inadequate Market Information-
Very often, farmers do not get the right information about prices in the markets.
Taking advantage of this ignorance on the part of farmers, middlemen take undue benefit of the
situation. The situation is changing with the government making use of media like radio,
newspapers, etc. to announce and disseminate information on prices in markets. However,
there are problems of time lag and the consequent less reliable information reaching the sellers.
This leads to traders often paying less than the prices quoted by the government in the news
media.
g) Inadequate Credit Facilities-
Situations of distress sale by poor farmers arise because they do not have the required credit or
financial means to store their produce in anticipation of better prices in the markets at a future
date. The cooperatives which are meant to provide help to the farmers in this respect are not
very effective. The large number of small farmers who generally get left out from such organized
means of protecting their interests continue to suffer by having to pledge their produce to local
money lenders whose help they often take to tide over their difficulties. One way out of this crisis
is to expand storage facilities and offer pledging/credit facilities against agricultural
produce. But this has not caught up to the required extent in India.

Steps taken by government-

(a) Regulated Markets:

Regulated markets may be established with a view to eliminating unhealthy and unethical trade
practices and reducing various marketing charges with a view to benefitting the poor cultivator.
Quite recently, numerous regulated markets have been set up in various States to safeguard
the interest of the farmers.

(b) Expansion of Market Yards:

This is a vital necessity. This must be supported by a corresponding expansion of ancillary

facilities in the various existing markets and setting up new markets and market yards for
handling the phenomenal increase in market arrivals, particularly in those areas where the
Green Revolution has occurred (viz., Punjab, Haryana and western U.P.).

(c) Cooperative Marketing Societies:

I here is need to set up such societies. Some progress has been achieved in this direction. In
India, the cooperative marketing structure consisted of more than 7,000 co-operative marketing
societies during 1999-00, covering all important agricultural markets in the country. The total
value of agricultural produce marketed by co-operatives amounted to Rs. 22,500 crores in 1999-
00, as against Rs. 169 crores in 1960-61.

(d) Storage Facilities:

An extension of storage facilities at the farm land and Storage and Warehousing Corporation,
with a view to constructing and managing a. whole network of warehouses in all towns and
mandis. The co-operative societies get necessary financial and. technical assistance from the
Government for promoting warehouses in villages.

Moreover, the National Co-operative Development Corporation has been set up for planning,
promoting and financing the programme of augmenting storage capacity of co-operatives at
various levels. The storage capacity of 150 lakh tones had already been constructed in the co-
operative sector by the end of March 2000 as against a capacity of 8 lakh tones in 1960-61.

(e) Credit:

Steps may be taken to provide cheap credit to farmers, especially from institutional sources like
commercial banks and co-operatives. Co-operative societies are providing credit facilities to
farmers with a view to improving their economic conditions, protecting them from the exploitative
practices of village moneylenders and for helping them to get reasonable prices for their
produce.

(f) Transport Facilities:

Expansion of transport facilities between the villages and mandis seems to be the need of the
hour. Rural transport has been given emphasis in the five year plans and quite some progress
has been made in this direction.

B. Medium Answer Questions (word limit-250 words) 4 x 12= 48 marks

3. Bring out the impact of agricultural price rise on the economy in general.
Answer- To understand the impact of agricultural prices, we must be clear about which price is
being referred to as there are a host of prices for the same product at different stages of its
journey from the farmer to the final consumer. In this, the first is the ‘farm gate price’.
This is the price that the farmer gets from the buyer who in many cases is a local trader. From
the local trader, the produce passes through layers of intermediaries to reach the wholesaler.
The wholesaler sells at the wholesale price to the retail seller, who in turn,
sells at the retail price to the ultimate consumer. Therefore, when one talks of ensuring
remunerative price to the farmer, one is referring to the ‘farm gate price’. But due to the wide
‘price spread’ between the farm gate price and the ultimate price paid by the consumer to the
retailer (which means there is a profit realised by the various intermediate players), the farmer
ends up getting a low share of the consumer price. Thus:
Final price paid by the consumer = farm gate price + margin of the local buyer + margin of the
wholesaler and other traders + margin of the retail seller + transport and storage cost + taxes.

However, other things remaining optimum, it is only a higher farm gate price which would
ensure a higher income to the actual producer/farmer. It is important to note in this context that
fixing the prices of farm products as in the case of MSP for food grains, or ensuring a better
farm gate price for other crops, besides ensuring higher income to the farmers also has other
significant repercussions. If farmers are left to the mercy of free functioning of the market the
agrarian economy may become unstable. This is because farmers who own small pieces of land
(less than 2 hectares) or farmers who are referred to as ‘marginal and small farmers’ constitute
a sizable majority of Indian farming population (86 percent in 2002-03). When price of output
falls, usually the producer reduces the supply so that low price does not affect him adversely.
But when the producer is poor he cannot afford to cut or hold back the supply. This is what is
referred to as ‘distress selling’. As a result, due to higher supply, price falls further depressing
the income of the poor farmer. Quite often, they suffer
because of the collusive behaviour of traders who by acting in a coordinated manner often
manage to influence the price of agricultural products. This collusion may be so strong that the
traders extract crop from farmers at low price. Low farm gate price adversely affects the poverty
and inequality in the economy.

4. Discuss the determinants of agricultural growth/diversification.

Answer- Determinants of agricultural growth/diversification- There factors affecting
agricultural development are varied. They encompass: physical,
technological, economic, socio-cultural, institutional, organisational and political
factors. All these factors operate at different levels like: household, village, district, state, nation
and the world as a whole. Depending on how they are managed, these factors can have both
favourable and adverse effects on development. For instance, if the human resources of a
country are not properly developed by proper nutrition, health care, education and training, they
are not productively utilised. Such resources become liabilities and obstacles to development.

However, if they are properly developed and utilised, they become great assets and major
factors contributing to development. Knowledge about the nature and magnitude of the impact
of various determinants on agricultural development is necessary for
agricultural development to proceed efficiently and effectively. At a more specific level, good
‘rural infrastructure’ is recognised as critical in enhancing agricultural output and productivity.
Under this comes many specific
factors like: roads, irrigation, electric supply, banking, communications, etc. A
more specific variant of agricultural infrastructure is ‘social infrastructure’
encompassing factors like: education and health facilities, extension services and information
dissemination systems, participatory mechanisms, investments in agricultural research and
technology (R and T), etc. Among the major deficiencies in rural infrastructure affecting the
progress of agricultural development, in all developing economies in general, is the inadequate
financial institutions for mobilising
saving and disbursing credit. The role of public investment is yet another widely recognised
factor which greatly impacts agricultural development. Public investment in agriculture for
establishing facilities like cold storage, marketing outlets, etc. plays a crucial role in developing
economies where large proportion of farming community belong to the ‘small and marginal
farmers’ class whose income and living conditions border at poverty level. There is
acknowledged evidence in the
Indian context that in the post-liberalisation period, the proportion of public investment as a
proportion of total gross capital formation has declined steeply.

In this context, for capital constrained countries, the PPP (public private partnership) models of
attracting investment is considered a viable option to improve the infrastructural facilities that
are so vitally required for agricultural development.

5. What policy options exist for combating the issue of ‘food inflation’?
Answer- The rising trend in international food prices continued, and even accelerated, in 2008.
U.S. wheat export prices rose from $375/ton in January to $440/ton in March, and Thai rice
export prices increased from $365/ton to $562/ton. This came on top of a 181 percent increase
in global wheat prices over the 36 months leading up to February 2008, and a 83 percent
increase in overall global food prices over the same period. Increased bio-fuel production has
contributed to the rise in food prices. Concerns over oil prices, energy security and climate
change have prompted governments to take a more proactive stance towards encouraging
production and use of
biofuels.
1 This has led to increased demand for biofuel raw materials, such as wheat, soy, maize and
palm oil, and increased competition for cropland. Almost all of the increase in global maize
production from 2004 to 2007 (the period when grain prices rose sharply) went for biofuels
production in the U.S., while existing stocks were depleted by an increase in global consumption
for other uses.
2 Other developments, such as droughts in Australia and poor crops in the E.U. and Ukraine in
2006 and 2007, were largely offset by good crops and increased exports in other countries and
would not, on their own, have had a significant impact on prices. Only a relatively small share of
the increase in food production prices (around 15%) is due directly to higher energy and
fertilizer costs.
3 The observed increase in food prices is not a temporary phenomenon, but likely to persist in
the medium term. Food crop prices are expected to remain high in 2008 and 2009 and then
begin to decline as supply and demand respond to high prices; however, they are likely to
remain well above the 2004 levels through 2015 for most food crops. Forecasts of other major
organizations (FAO, OECD, and USDA) that regularly monitor and project commodity prices are
broadly consistent with these projections. Predictions of high food price in the medium run are
further strengthened when we factor in the impact of policies aimed at achieving energy security
and reduced carbon dioxide emissions, which may present strong trade-offs with food security
objectives.

Policy options -
The discussion above brings forth the importance of ‘foodgrain stock
management’ underscored as the first policy option. The second is ‘increasing
agricultural output and productivity’ by a comprehensive strategy with a focus on
technology, improved water management, rural infrastructural development, agricultural
diversification, food security, private sector investment in marketing and agro-industry
development, etc. In this context, the success of Gujarat is offered as a salutary example of how
such a comprehensive approach could work. A third policy option suggested is
to ‘delink the safety net from direct public procurement of wheat and rice’ by
increasing the role of the private sector in foodgrain marketing. This option is not meant to be an
end to subsidized distribution of food but only aimed at increasing the efficiency in management
by minimizing losses. A fourth option is to focus on development of market based tools for
management of risks’. Due to volatility in exchange/interest rates, commodity prices has
reached unprecedented peaks. This is not likely to ease owing to uncertain political and
economic conditions which has become common to contend with. This has generated renewed
interest among borrowers and policy planners contend with.

6. Discuss the important factors affecting the cropping pattern.

Answer- Cropping pattern of any region depends upon many factors e.g. physical and technical
factors, economic factors as well as on the government policies and actions.
1. Physical and Technical Factors:

These include the physical characteristic as soil, climate, weather rainfall etc. In the dry regions
where the rainfall is scanty and where there is high uncertainty of monsoons, the dependence is
on jowar and bajra. Water logging areas cultivate rice.

Cropping pattern also depend upon irrigation facilities. Wherever water is available, not only can
a different crop be grown but even double or triple cropping will be possible. When new
irrigation facilities are provided, the whole method of cultivation may change. It is possible that
because of lack of capital, agricultural pre-requisites, better implementation, improved seeds
and finance for getting fertilisers, it might not have been the right crop that was being grown; but
given these facilities, the cropping pattern may change.

2. Economic Factors:

Economic motivation is the most important in determining the cropping pattern of the country.
Among the various economic factors affecting crop pattern, the following are important:

(i) Price and Income Maximisation-

Price variations exert an important influence on acreage shifts. The variation in the inter-crop
prices led to shifts in acreage as between the crops. The maintenance of a stable level of prices
for a crop provides a better incentive to the producer to increase the output than what a very
high level of price does, if there is no uncertainty of this level being maintained over a number of
years.

(ii) Farm Size: There is a relationship between the farm size and the cropping pattern. The
small farmers are first interested in producing food grain for their requirements. Small holder
therefore devotes relatively small acreage to cash crops than large holders.

(iii) Insurance against Risk: The need to minimise the risk of crop failures not only explains
diversification but also some specific features of crop patterns.

(iv) Availability of Inputs:

Seeds, fertilizers, water storage, marketing, transport etc. also affect the cropping pattern.

(v) Tenure: Under the crop sharing system, the landlord has a dominant voice in the choice of
the cropping pattern and this helps in the adoption of income maximising crop adjustments.

3. Government Policies: The legislative and administrative policies of the government may
also affect the cropping pattern. Food Crops Acts, Land Use Acts, intensive schemes for paddy,
for cotton and oilseeds, subsidies affect the cropping pattern.

The real difficulty in adopting a better cropping pattern is that the farmer may not have the
requisite capital to invest now or posses the know-how for better procurements.

C. Short Answer Questions (word limit 100 words) 2x6=12 marks

7. Agricultural Insurance- Agriculture is among the most profitable investments since it has
huge returns gained after a very short time. With million of dollars as investment for animal and
crops, farmers find themselves risking to get profits. To be on the safe side, farmers take
agriculture insurance to safeguard their investments. There are many companies offering such
services to farmers.

Insurance for agriculture involves paying out premiums to the insurance company. The
insurance company offering such services visits your farm, inspects the crop and animals as
well as the structures. When evaluation is complete, the farmer gets the quote on which to pay
the premium. Taking agriculture insurance is an important part of investment and give farmers
protection against any misfortune in future.

An important benefit of buying agriculture insurance premiums is that farmers get peace of
mind. Natural disasters are unpredictable since they can happen any time. For those who have
bought insurance premiums, they get peace of mind in that if anything happens to their
investment, they are sure of compensation from the company providing insurance packages.

8. Quantitative Restriction- Explicit limit, or quotas, on the quantity of a good that can be
imported or exported during a specified time period. This restrictions may be applied id a
“selective” basis, with the varying limits set according to the country of origin, or o quantitative
global basis that only specifies the total limit and thus tends to benefit more efficient suppliers.
Quantitative restrictions are frequently managed through quotas a system of licensing.

Article XI of the GATT requires the general elimination of quantitative restrictions. Article XIII
requires non-discriminatory application of such restrictions. Procedures for Quantitative
Restrictions, adopted by the Council for Trade in Goods on 3 July 2012, establishes the
procedures that members should follow to notify quantitative restrictions. The decision also
allows members to notify restrictions imposed by other members.