The ‘demand' side of agriculture

It is generally assumed that the demand side of agriculture is all very well and the idea is to get the supply side to work by making investments in rural roads, electricity, irrigation and now cold chains.

There is also a whole range of research and extension action, designed to keep the supply side moving and raising output at affordable prices.

For a large and populous economy like ours, domestic demand is the driver for agriculture. Exports are important, but domestic demand offers greater opportunities. It is useful to seek policies that can influence demand and raise farm incomes faster.

The quantum of demand is linked to growing income and population. The composition of demand may also change, as lifestyles change along with income.

Some of the supply-side responses to these changes are in the processing and logistics of the agricultural marketing chain, but there is alteration in the composition of output as well.

High-value farm output

When there is rising demand for higher-value farm output, farm income would increase faster, as there is an increase in volume as well as price of the produce.

There are other ways in which farm income may increase. Subsidisation of food does raise demand for basic food output.

Improving marketing chains will get the farmers higher share in the retail price. But it is the increase in the demand for ‘high value output' that can raise income levels faster and in a sustained manner.

Not all changes in the economy are necessarily benevolent to agriculture. The technological changes may make some agricultural produce less relevant. The impact of technological changes in fibres has not been positive to jute producers. The disposable paper and plastic plates made banana leaves dispensable.

Agro-based industry has increasingly become food-based, as the industrial use of farm produce for other purposes is challenged by cheaper substitutes. Cotton has held on.

One area where agriculture retains the potential to challenge industrial produce is bio-fuels. But food, feed and flowers will remain the main driver of agriculture.

In the case of food, the changes under way may be in the form of increasing demand for better quality food, or differently cooked food or simply, more food.

The intermediaries between the farmers and the consumers may also introduce better grading and standardisation of the produce at the farm level and transfer technologies of production such as seeds or nutrients.

These changes are likely to be relatively small in scale initially but increase as the income levels of consumers increase. We need policies that strengthen these links.

Diversification

Changes in lifestyle are ushered in primarily by growing urbanisation. With urbanisation, availability of food that can be purchased in small quantities, stored easily and cooked easily would attract greater demand.

Fresh looks, standardisation in looks and quality would fetch better price. New foods would attract urban consumers. There may be quicker convergence of tastes across income groups in the urban setting than in rural settings.

Although rural life was synonymous with nutritious food, the urban population may yet embrace better nutrition. Diversification of the food basket is likely to be faster in the urban setting.

Diversification of food in terms of rising share of fruits, vegetables and livestock products is one change in demand that the farm sector would have to re-orient its supplies to. While there are the inevitable supply-side bottlenecks, demand may rise sharply and quickly as a result of shifts in tastes and preferences.

What might facilitate diversification of the food basket are the improvements in consumption infrastructure.

Urban population growth will spur demand for higher value food items. Sustained growth of farm income will require urban growth and support for diversification of the food basket by the consumers.

Creating better urban infrastructure for the food industry will help the farm sector.

A change in consumption patterns is likely to benefit small as well as large farmers so long as they can make the changes in their output composition.

Urbanisation will make demands on land and water, but will also raise the demand for high-value farm output.

(The author is a Senior Research Counsellor, NCAER. The views are personal. >blfeedback@thehindu.co.in )