Global food security and food inflation are closely linked to economic development and agricultural production of the two Asian giants, China and India, as they comprise over 30 per cent of the world population. High GDP growth rates and rising income levels in these countries have increased the demand for high nutrition and calorie intake, putting further pressure on a sector which is critical to the livelihood of a vast majority of the citizens of these agrarian giants.
Compared to India, China's grain production is double that of India despite lesser arable land and similar area of irrigated land. China has a liberal agriculture import policy whereas India's agri-import policies are restrictive. India's fragmented land holding has led to low mechanisation. China faces different challenges. China's collective land-ownership system is a major constraint on farm borrowing, leading to poor economies of scale. China's ratio of investment in agriculture to agri-GDP is similar to India, however, since 2000, China has invested significantly in agri-parks and dairy towns, which are fully integrated models right from cultivation to processing (financed by the agri-banks). Both countries address food-security challenges using policies which are both congruent and different on multiple fronts.
China and India face periodic drought-like conditions or floods across regions. China's fresh-water storage capacity is about 1,000 cu. m per capita , five times that of India. China's depletion of ground water table is lower as compared to many parts of India (because of tube-well abuse). Compared to China, Indian agriculture would require more water by 2050, but its water footprint would deplete faster, especially in the Ganges and other major river basins.
India also continues to grapple with the river-linking project in terms of environmental impact issues. On the other hand, China is already implementing many large-scale water projects (Three Gorges Dam, north-south aqueducts using Yangtze's water). Indian policy makers approach to the fresh-water storage and sustainability issue has been mired with slow decision-making and legal opposition by environmentalists. However, India scores better on micro-irrigation with its Government subsidy schemes.
GRAIN RESERVE AND AGRI-STORAGE
India and China build significant grain reserves each year. India's grain reserve is around 50-60 million tonnes (20-22 per cent of annual production) whereas in China it is about 150-180 million tonnes (35 per cent of annual production). Due to this huge reserve, the food system is less dependent on flows from the global market and helps China contain food inflation in tough years. In terms of grain-storage infrastructure, China has the capacity to store up to 200 million tonnes of wheat and paddy, while India's capacity is 87 million tonnes.
In India, there is an erosion of value of approximately 7-8 per cent (about 18 million tonnes) of total food production worth about $6 billion annually, due to unscientific and insufficient storage and supply-chain inefficiencies. Given China's large trade surplus and foreign currency reserves, any grain imports would not have material impact on their fiscal position. India may face a sharp currency depreciation and ballooning balance of payments if it were to resort to large-scale grain imports. Hence, India needs to enhance storage capacity and increase buffer stock to at least five to six months.
PRODUCTIVITY AND POLICY MAKING
The stated objective of both countries' agricultural policy is to achieve self-sufficiency and food security. China has surged ahead on productivity through the use of high-yielding seed varieties, extensive use of fertilisers and pesticides (twice of India by per-hectare use). China has also focused significantly on cash crops, helped by stagnation of grain consumption and increasing consumption of fruits, vegetables, milk, milk products and meat. The Chinese Government has, since the 1970s, invested significantly into agricultural research and development (R&D), especially to create high-yield varieties of rice, wheat and maize.
After the first green revolution , India's agriculture R&D has been academic and localised instead of supporting productivity at national levels.. China accounts for over 70 per cent of world's fresh-water aquaculture production and its livestock production has grown over 8 per cent annually for the last decade.
During the 1990s, China encouraged import of large amounts of new genetic material for hog, beef, poultry and dairy industries from the US, Japan, Canada and New Zealand, which has improved the quality of the genetic stock in China's livestock.
While India and China have some congruency on policy front including a State-enforced minimum support price, there are notable differences in respect of wholesale agri-markets, agriculture subsidies and cooperative financing system for agriculture.
Land ownership is individual in India but collective in China. While the Chinese Government provides direct subsidies to its farmers, subsidies in India are indirect. Compared to India, China has well-developed commodity exchanges and futures markets and tighter rules for converting or selling crop land for non-agricultural use. Unlike India, China has a price ceiling to minimize the effects of food inflation.
In India, less than 3 per cent of fruits and vegetables produced is processed while total processing in the agriculture sector is less than 8 per cent. By contrast, 40 per cent of food consumed in China is now processed (80 per cent in Western nations). Lack of economies of scale due to size restrictions on industry (under Small Scale Industries rules), supply-side constraints for agri-inputs because of rules governing large-scale corporate farming, and paucity of dry and cold storage infrastructure are the key shortcomings of the Indian food-processing industry.Since many sections of food processing were reserved for the small sector, there are hardly any large food-processing companies in India. On the other hand, over 70 of China's 500 largest companies are in the food-processing sector (in India this would be at most 15), and this industry is growing rapidly.
India's agri-trade with the rest of the world is limited with agri-exports of $25 billion (10 per cent of total exports) in financial year 2011 and agri-imports of $8 billion (less than 3 per cent of total imports). Restrictive agri-import policies in India partly fuelled by insecurity of domestic cultivators (political motivations) and some genuine and misguided concerns of disease import have led to inflationary pressure on key food articles.
Bulk of India's agri-exports are rice, oil meal, cotton and spices (commodities with limited value addition) and bulk of the imports are pulses, edible oils and sugar. China, on the other hand, has a liberal agricultural import policy and is among the world's largest importers of commodities, including edible-oil seeds and even cattle.
According to China's Custom statistics, agri-imports for 2010 were $65 billion and exports were over $30 billion, taking the agri-trade value to over three times that of India. China's agri-trade deficit has been growing but is balanced by exports of manufacturing and electronic goods. This has enabled it to maintain food inflation under 6 per cent as compared to the consistent 10-plus per cent for India.
India and China are similar in terms of issues and policy challenges in agriculture. Both countries, due to their strong economic growth, are also experiencing inflationary pressures on food.
However, India's total fertility rate of 2.6 (China's is 1.6) poses greater challenges as India's population will continue to grow faster and remain young longer, demanding high-nutrition food.
Like China, India needs to focus on livestock, poultry and aquaculture (all key sources of protein), focus on R&D in agriculture by increasing budgetary allocations, promote farm mechanization through producer cooperatives, focus on replenishing aquifers through scientific water-harvesting in villages, avoid pitfalls of excess use of fertilisers and pesticides liberalise agri-trade policies to manage food prices and focus on economies of scale and integration in food processing.
The writer is President and Managing Director (Corporate Finance and Development Banking), YES Bank.
The Hindu Businessline