Can Diversification Towards High Value Commodities Strike Gold For Farmers?

Farmer at Malda, West Bengal. Source: (Flickr): Divya Pandey, IFPRI
Farmer at Malda, West Bengal. Source: (Flickr): Divya Pandey, IFPRI

Konark Sikka former intern with IFPRI-South Asia office

Despite small land holding, agriculture’s falling share in national income, and limited scope of transfer of labor to non-farm sectors, agriculture still plays a significant role towards food security and poverty reduction. A recent IFPRI discussion paper on Agricultural Diversification and Poverty in India looks into hypothesis and assesses options for improving the outcomes of the farmers through crop diversification into high-value crops (HVCs) that boost incomes, generates employment, and reduce poverty. The estimates in the paper show that over 5 percent reduction in farm poverty in India can be achieved through crop diversification.

Overall, about 22 percent of farm households in India grow at least one HVC crop. In this study, the authors use Generalized Propensity Score Matching and Dose Response Functions to establish ranges within which crop diversification would effectively reduce poverty. The authors suggest that for marginal farmers, the allocation of land towards cultivation of HVCs needs to rise from the current rate of 39 to around 50 percent, in order to pull such farmers out of poverty. Expectedly, larger the land size, a smaller proportion of land allocated to high value crops is needed for this purpose.  However, increasing area need not be the only option with marginal farmers, since there often is an inverse relationship between farm size and productivity.

In moving towards HVCs, small and marginal farmers face several constraints such as lack of access to credit, input, seeds, high yielding varieties, technology and information, and limited markets in rural areas. For marketing their produce in urban areas they have to bear additional costs  for transporting.

Studies reveal that, with rise in income, urbanization, consumers preferences are shifting from cereals towards high value produce. With a rise in demand of HVC there is potentially a transformational shift of the agri-food marketing system that would involve movement towards  vertical coordination away from spot markets. Vertical coordination would be needed to improve  access to inputs, services, and output markets, and a reduction in marketing and transaction costs.

The authors conclude that diversifying crops with the cultivation of more high value commodities, which have a growing market in the urban areas of the country, could provide farmers with the much needed extra income. Contract farming will help in connecting small holder farmers in the supply chains that would enhance their livelihood.  Further they add, with better infrastructure and improved supply chain coordination, the same increase in income could also be achieved with lower levels of diversification.


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