India, the new commodity ogre

In 2002, India had massive grain stocks of 63 million tones, much of which was exported at a loss. But today wheat stocks are almost zero, and the government has decided to import three million tonnes.

Worse, the Met Office forecasts a bad monsoon, with precipitation likely to be just 93% of normal. This could mean a major drought. So, food imports could gallop upward.

Why has India gone from food surpluses to deficits? Because its population has risen while food production has stagnated or fallen for six years (see chart). Grain output in 2005-06 is estimated to be no higher than the 209 million tones reached six year ago. Wheat production peaked at 76.4 million tones in 1999-00, and then declined (the current harvest is estimated at 72-73 million tones). Rice production peaked at 93.3 million tones in 2001-02, and is estimated at 87-88 million tones this year. The output of pulses has stagnated at 13-14 million tones. Only coarse grain production has risen a bit, thanks to new hybrid varieties.

Why has grain production stagnated? One reason is the failure of agricultural universities to come up with new, higher-yielding varieties. But a more important reason is environmental degradation. Free rural power has encouraged farmers to pump groundwater to grow water-guzzling crops in environmentally incorrect low-rainfall areas (rice in Punjab, sugar cane in Maharashtra). This unsustainable pumping has sent water tables plummeting, lakhs of wells and tubewells have run dry, and farmers with dry wells have committed suicide. Yet Ministers say it is politically impossible to charge farmers for power, let alone groundwater depletion. The richest farmers with the deepest tubewells still have water, but many others face a water crisis. One consequence has been stagnant or falling food production.

This sounds a tragedy, but also has the seeds of an opportunity. Indian farmers have little future if they stick to growing foodgrains on plots that grow ever smaller as the population rises. India\’s countryside has 600 million people dependent on 250 m. hectares of farmland, an average of less than half a hectare per person. This limited land cannot yield prosperity if sown with cereals. But it could bring prosperity if sown with high-value crops such as fruits, vegetables, flowers and medicinal herbs.

India must switch from cereals to high-value crops. This will improve incomes and reduce environmental degradation at the same time. Fruit, medicinal herbs, bio-diesel crops (jatropha and jojoba) and most flowers and vegetables need much less irrigation than rice or sugarcane. India\’s wide variety of climates can harnessed to grow a wide range of high-value crops. These will have a good export market, apart from meeting the domestic demand of a growing middle class.

Diverting land from cereals to high-value crops will mean that India has to import food. Back in the 1960s this would have been viewed as a disaster. But if we import food while exporting high-value commodities, we will be replicating successful economies like Chile, Israel and Italy, which export farm products (fruit, wine, olives, speciality seeds), and import food.

However, in many ways, China may be a more appropriate comparison. China has greatly improved incomes by moving people out of agriculture into industry and services. India must do the same.

As China prospers, its 1.2 billion people are increasing their consumption of every commodity from oil and copper to food and fibres. Once a major oil exporter, China is now the fastest-growing oil importer. Even so, its per capita consumption of all commodities is a small fraction of Japan\’s or America\’s. China\’s population is so high relative to its area that, as its household consumption rises, it cannot possibly grow or mine all that it needs. Its fast-rising appetite for commodities has sparked a commodity boom that has greatly benefited exporters in Africa, Latin America and Australia. China pays for these comfortably through manufactured exports.

Like China, India has a very high population relative to its area. By 2020, India too will be unable to grow or mine most of the commodities it needs. Like China, it will begin swallowing the commodity output of the whole world to meet its needs. This year\’s wheat imports are just the beginning of the trend. You ain\’t seen anything yet.

Foodgrain output (million tonnes)