Agriculture is not just agriculture...
When one thinks of Agriculture, the picture that emerges in the mind is of farms and farmers. Agriculture is generally understood primarily as farming and crops. But the sector Agriculture as used in an economic sense is much broader. Technically the sector is Agricultural and allied activities. And thus, in addition to agriculture as is generally understood (or crops), it in addition also includes Livestock, which includes Milk as well as Meat and Poultry. It also includes Forestry and Logging and Fisheries and Aquaculture. Admittedly, some of these activities overlap – thus the same household might do farming and have livestock. But that need not always be the case.
As of March-2020, Crops comprised just 56% of the value-added (GVA) from Agriculture and Allied Activities. Livestock is the second-largest component constituting almost 30% of the GVA from Agriculture. Forestry and Logging constitute 8% and Fishing constitutes just 6%. Thus, almost half of the output from Agriculture comes from activities (Livestock, Forestry, Fisheries) not conventionally understood as being agriculture.
The reason for this distinction is that the different components of Agriculture are growing at dramatically different rates. And what we see as growth in Agriculture is an average of these disparate growth rates. Thus, Fishing and Aquaculture while being the smallest component, is growing the fastest. In the last 5 years, GVA from this sector has grown at 9% Cagr in real terms. This is more than twice the growth rate of the growth in Agriculture. Livestock is the second-fastest-growing component with over 8% Cagr in the past 5 years. Forestry and Logging has grown by just over 4% in the past 5 years. And Crops or Farming sector has grown at just under 2% Cagr, less than half the pace of the broader Agriculture and allied activities sector.
As a result of these sharply divergent growth rates, the share of Crops in the GVA from Agriculture has fallen by 6ppt in the last 5 years. The share of Livestock has increased by 5ppt and that of Fisheries by 1ppt (on a low base).
The above discussion is relevant for two reasons:
First, this changing production pattern is in a sense reflective of changing demand pattern. As income levels are rising people are consuming more protein-rich items – livestock and fisheries. But equally, this suggests the ability of these two sectors to augment supply in response to higher demand.
Crops as a component of Agriculture is amongst the more regulated sectors in the economy. In contrast, livestock and fisheries are far less regulated. There is no price control on the output of either of these sectors, there is no MSP. There are no Mandi’s nor is there the APMC. The inputs used by the two sectors are not regulated. It is then no surprise that in this scenario with very few supply-side regulatory restrictions, the output can increase in sync with demand keeping prices in check. Thus, between FY15-20, prices of Foodgrains rose by 24% in absolute terms, while those of Fruits & Vegetables rose by 19%. In contrast prices of Milk products rose 16% and those of Meat, Fish rose just 13% (all prices basis WPI Index).
Second, the changing mix has made the sector resilient. Historically, the Agriculture sector has been subject to the vagaries of the monsoon. In a year of bad monsoon, Agriculture output would drop sharply, and inflation rise. But with the share of Crops (which is the part of Agriculture most dependent on monsoon) falling, the vulnerability to monsoon has reduced. While Crops are still dependent on monsoon with Irrigation coverage at just around 50%, the part of Agriculture not as dependent on monsoon has increased. This partly explains why the volatility in the agriculture output has fallen in the last 10-15 years.