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The Araku Valley, deep in the mountains of India’s east coast, has been impoverished and rocked by Maoist violence for years. The government classifies most of the valley’s residents as “particularly vulnerable tribal” and for generations they have relied on slash-and-burn agriculture to survive. But now locals grow premium coffee beans that they sell to Europe’s upper classes at premium prices. Araku Coffee, which processes and sells the beans, operates cafes in upscale neighborhoods in Bangalore, Mumbai and Paris. The valley’s transformation is an agricultural success story — and a glimpse into what other rural parts of India can achieve with the right policies.
The Araku Valley, deep in the mountains on India’s east coast, has long been impoverished and shaken by Maoist violence. (Andreas Kind on Unsplash)
Indian agriculture has come a long way from the ship-to-mouth days of the 1950s and 60s, when the country relied on foreign food aid. India has long since become a net exporter of food for its people. But big inefficiencies remain. India has one-third more arable land than China, but produces only one-third as much output, according to an analysis by Unupom Kaushik of Singapore-listed agriculture company Olam. Agriculture employs nearly half of India’s total workforce, about 260 million people, but accounts for only 15% of output and 12% of exports (see Figure 1). In contrast, the business services sector, such as call centers and IT companies, employs less than 1% of the workforce but generates 7% of GDP and nearly a quarter of exports.
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Handouts of all kinds distort farmers’ incentives. They support practices that suppress production and degrade the land, but no one is getting any better off. Farm incomes have remained at about one-third of non-farm income for decades. Despite huge subsidies, the net effect of regulations and trade restrictions has reduced total farm income by 6% according to a 2018 study by the OECD, which is dominated by wealthy countries.
Even small gains could pay off big time. India’s yields are below the world average for almost every agricultural commodity. Just bringing them up to average would make India a huge force in global commodity markets. Kaushik estimates that India’s rice surplus would exceed the current amount of rice traded by the world. If India could raise its yields to the world’s highest levels, it would produce twice as much corn, three times as much cotton, and eight times as much rice and pulses as traded across its borders today.
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Prosperity for farmers would have huge ripple effects on the Indian economy as a whole. Farm worker figures hide massive underemployment. Higher rural incomes would create demand for new goods and services, which would in turn create better jobs for India’s millions of surplus farmers. Farmers would have the opportunity to earn better wages without having to migrate to bustling but overcrowded cities.
The success of the Araku Valley (pictured) offers a hint at how to proceed. In the late 1990s, the Andhra Pradesh government, hoping to cut back on deforestation and boost incomes, provided farmers with fast-growing silver oak trees. A few years later, they were given coffee seedlings to grow in the trees’ shade. Locals like Kola Venkatrao, who owns three acres of land, did what they could to grow the berries. But they often sold them to unscrupulous middlemen at far below market price.
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Venkatrao’s fortunes changed in 2016 when he joined a cooperative run by Arak Coffee, which trains farmers to grow high-quality berries and buys them at bargain prices. Since then, his income has increased tenfold to more than 200,000 rupees ($2,400) a year. His thatched hut was replaced by a two-bedroom concrete house. He bought a motorbike and started saving. Arak Coffee president Manoj Kumar says about 2,000 of his farmers have become rupee millionaires. The secret? “Look at agriculture as a profit-generating, income-generating and export-generating sector.”
The problem is that successive Indian governments have not approached agriculture in this way. Policymakers have tended to see agriculture as a conduit for welfare and have struggled to see it as an engine of growth. Prime Minister Narendra Modi promised to double farmers’ incomes during his first term. But many of his policies ended up working against this goal. Take, for example, his 2016 decision to stop accepting high-denomination banknotes, which make up 86% of India’s currency, for fear they would encourage corruption and tax evasion. This unorthodox experiment damaged the cash-dependent rural economy.
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Sudden lockdowns at the start of the pandemic in 2020 forced millions of workers to return to farms from cities, undermining efforts to make agriculture more efficient. That same year, Modi’s Bharatiya Janata Party (BJP) drafted a series of sensible farm reforms, only to ram them through Parliament without consultation, sparking a year of farmer protests and ultimately forcing them to be scrapped.
Lately, optimists have ventured to wonder whether the BJP, chastened by its recent electoral failure, is stumbling over a smarter approach. Since its electoral embarrassment, Modi has appointed Shivraj Singh Chouhan, who served as chief minister of Madhya Pradesh, a state in central India, as its new agriculture minister. Under Chouhan, Madhya Pradesh has invested in irrigation, rural roads and warehouses. The state has pushed farmers towards horticulture and made it easier to sell their produce outside the state-run agricultural markets. All this has paid off: the state’s agricultural GDP grew at an average annual rate of 7% from 2005 to 2023, almost the entire length of Chouhan’s rule, against the national average of 3.8%.
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The question now is whether Chouhan can push for similar progress at the national level. The BJP’s failure to reform so far has made much of agricultural policy too harmful for the central government to touch. Chouhan also can’t do much about the enormous problem of small landholdings (the average Indian farm is just over one hectare) and the resulting low rates of mechanization.
But he could prioritize many other things. About half of India’s farmland has no way to get water other than from the sky. India has only about 10 percent of its fresh produce in refrigerated storage. The government estimates that up to 6 percent of grains, 12 percent of vegetables, and 15 percent of fruits are lost after harvest. Most of India’s agricultural exports are unprocessed, unnamed goods. Less than 10 percent of the food produced in India is processed, compared with 30 percent in Thailand and 70 percent in Brazil. Tackling uneven irrigation and weak infrastructure, and encouraging more value-added processing would therefore all be beneficial moves. Increased agricultural production would also support overall growth (see Figure 2).
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Some problems can be solved with the stroke of a pen. India spends around 2 trillion rupees on food subsidies and almost the same amount on fertilizer subsidies every year, but only 95 billion rupees on agricultural research and development. Research expenditure as a share of agricultural GDP is less than 0.7%. Future onslaughts of climate change will require much larger investments. Farmers will not be able to adapt without scientific advances.
There are some things the government should simply stop doing. When food prices rise, the government routinely intervenes, for example by imposing stockpiling limits or suspending futures markets. The government banned wheat exports in 2022 and most types of rice in 2023. These measures prevent farmers from making money when prices are high and discourage traders from taking risks. The beneficiaries are mostly the wealthy: the poorest 800 million Indians get grain for free from the government, so price changes affect them less.
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Arak Coffee’s president, Kumar, is opening a second cafe in Paris. The company is branching out into other produce: Many of its coffee farmers also grow pepper, and the company is encouraging workers in other parts of India to grow beans and millet. But only the government can truly transform Indian agriculture. The way, Kumar says, is “not through loan waivers or subsidies, but how do we create an ecosystem that leads to growth” — in other words, by creating the conditions to grow a million araks.
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