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Business News/ Opinion / What India can learn from Chinese agriculture
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What India can learn from Chinese agriculture

Modi would do well to remember Mao's dictum of 'walking on two legs', which envisaged a balance between agriculture and industry

Over the past few decades, rapid agricultural growth has allowed the Chinese growth engine to pick up pace without stoking inflation. Photo: Indranil Bhoumik/MintPremium
Over the past few decades, rapid agricultural growth has allowed the Chinese growth engine to pick up pace without stoking inflation. Photo: Indranil Bhoumik/Mint

According to one of his ministers, Prime Minister Narendra Modi wants India to have a China-like dominance in manufacturing. China’s success in manufacturing holds several lessons for India but China’s performance in agriculture is no less remarkable. Over the past few decades, rapid agricultural growth has allowed the Chinese growth engine to pick up pace without stoking inflation.

Unlike the advanced economies of Western Europe and North America, farm growth in China has been driven by small landowners rather than by industrial farming. As per National Sample Survey Organization data, the average size of operational holdings in India fell to 1.2 hectares in 2010-11 from 2.3 hectares in 1970-71. China’s average holdings are even smaller. According to the 2000 World Census of Agriculture, the average size of Chinese holdings was 0.6 hectares. Thus, farming in both countries is dominated by small farmers.

Despite the similarities, Chinese agriculture has fared better than Indian agriculture on most counts over the past few decades. Both India and China are among the world’s top three producers of important crops such as rice, wheat, cotton and maize, but China produces much more from each hectare of land than India does.

In the early 1960s, farm sector indicators of India and China looked similar, but since then China has left India behind. According to Food and Agriculture Organisation (FAO) data, the ratio of value of agricultural production (in constant 2004-06 international dollars) in China and India was 0.99 in 1960. By 1990, this ratio became 1.66 and 2.23 in 2010. As the chart below shows, the widening gap is due to faster growth of agriculture in China.

It is worth noting that much of this growth has been achieved by improvement in yields and not increase in agricultural area. Agricultural area is defined as the sum of arable land, land under permanent corps and permanent meadows and pastures. Data from FAO shows that Chinese agricultural area has stagnated after increasing till the 1980s, as the second chart shows.

Given the constraint on further expansion of area under cultivation, improving yield holds the key to increasing agricultural production in the future. Yield gap between India and China has continued to increase since 1960s. The chart below shows the divergent trends in cereal yield for the two countries. It is this phenomenon that has helped China surge ahead of India in agricultural production.

China’s farm success has been driven by heavy public investments in the sector. In China, the rate of growth of net capital formation in agriculture was in excess of 20% over the last decade. An FAO study shows that the bulk of the increase in investment has come from the public sector.

High farm growth has translated into rapid reduction in poverty as well. Several studies attribute China’s dramatic decline in rural poverty to faster farm growth. According to official estimates, rural poverty levels are as low as 2.5% in China.

But despite the decline in poverty, inequality in China has grown sharply in recent years. The rural-urban income gap has widened primarily because of faster growth in urban areas. While China has performed better in terms of rate of growth of agricultural output, India seems to have a better record in terms of inequality between agricultural and non-agricultural sector. A simple way of measuring this is to find out what has been happening to the share of agriculture in gross domestic product (GDP) and employment. Agriculture’s share in the former falling at a faster rate than the latter would mean that those engaged in agriculture are seeing a decline in relative income. The chart below shows the ratio of agriculture’s share in value added to its share in employment for India and China.

One should guard against inferring from the above chart that those engaged in agriculture in China are worse off in absolute terms than their counterparts in India. Given the fact that urban and non-agricultural incomes have grown at a much faster rate in China than in India, the extent of relative inequality between the rural and urban sectors seems to be greater there. Greater social security coverage in urban areas might have aggravated this inequality further in China.

The issue of rural-urban inequality is not just of academic interest. Recently, rural-urban tension was seen in China. There are studies which estimate that around 200,000 incidents of mass unrest were recorded in China in 2012, and 55-60% of these were related to land acquisition. Even a fraction of such protests can have serious ramifications for a democracy like India.

Another crucial issue regarding agriculture is that of self-sufficiency in food. Despite performing better than India in terms of agricultural production, China has witnessed a rise in agricultural imports. This is in contrast to India’s increasing agricultural exports, which now constitute around 10% of its total exports. The two charts below show the divergent trends in agricultural trade surplus of China and India.

An examination of cross-sectional and time series data on per capita cereal consumption might provide an answer to this mismatch. As incomes rise in a given economy, there is a diversification of dietary basket. Diversification of dietary basket is commonly understood to lead to a decline in the share of cereal production as demand for other food items increases. FAO data shows this to be true for China, where the share of cereals in total production has come down from around 37% in 1961 to 20% in 2013. For India, this has changed from 33% to 25% during the same period.

However, this does not mean that there is a decline in cereal consumption levels because although the direct demand for cereal consumption in staple form declines, the indirect demand in the form of feed increases with rising incomes. This is in contrast to the commonly misunderstood notion that cereal demand declines with increase in income, which is only true for the direct demand component. The per capita GDP of China is more than four times that of India. Still its per capita domestic demand for cereals is more than that of India’s. The figures are much higher for developed countries like the US, as shown in the chart below.

What this means is that as per capita incomes rise in India, cereal demand is likely to increase, in line with the historical experience of other countries. Given the fact that cultivated area cannot be increased, such dietary diversification will necessitate either a large increase in yields or imports. The latter seems to be happening in China’s case. But while China has large merchandise trade surplus that allows it to import food in large quantities without causing a serious balance of payments problem, India does not enjoy such a luxury.

China’s overall economic success cannot be understood without a careful reading of its agricultural sector. The manner in which China put in place incentives for small farmers and supported them through sizeable public investments in agriculture and rural electrification holds important lessons for India. At the same time India, must guard against policies responsible for large-scale rural discontent, which can have drastic consequences in a democratic set-up.

China’s trajectory shows that India will face either rising food insecurity or falling net export earnings in agriculture unless it is able to improve productivity growth rapidly.

In his quest to put India on the same pedestal as China in manufacturing, Modi would do well to remember Mao’s dictum of “walking on two legs", which envisaged a balance between agriculture and industry.

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Updated: 09 Jun 2015, 10:35 PM IST
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