CMA Publication No - 239 Organic Input Production and Marketing in India – Efficiency, Issues and Policies D.Kumara Charyulu Subho Biswas September 2010 Foreword The Centre for Management in Agriculture (CMA) at the Indian Institute of Management, Ahmedabad (IIMA) is engaged in applied and problem solving research in agribusiness management as well as achieving broader goals of agricultural and rural development since its inception. As a result, over the years, CMA has developed an expertise in a large spectrum of issues in agribusiness sector including agri-input marketing, agro-processing, agri-food marketing, livestock, fisheries, forestry, rural and market infrastructure, agri-biotech sector, grass-root innovations, linking smallholder producers to emerging markets, international agricultural trade including the WTO issues, global competitiveness, commodity markets, food safety and quality issues, etc. CMA undertakes research projects of this kind not only on its own, but also at the request of its clientele group, which includes the Ministry of Agriculture, Government of India, other state and central government Ministries, international bodies, private corporations, cooperatives and NGOs. The present study is undertaken at the request of the Ministry of Agriculture to know the present status of the organic input units sanctioned under National Project on Organic Farming (NPOF) scheme since October, 2004. The project has different components like training programs, demonstrations, capacity building through service providers, setting up of organic input production units etc. Setting up of organic input units is an important component with a sizeable allocation under the project. For setting up of organic input production units, financial assistance is being provided as credit-linked and back-ended subsidy through NABARD and NCDC. Three types of organic input units i.e., vermi-hatchery units, bio-fertilizer units and fruit and vegetable waste compost units are being encouraged under the project. Broadly, the present study has covered five major issues. First, the study has presented an overview of organic farming in the World and in India. The SWOT analysis of organic farming to articulate, refine policy prospective and scheme has been reviewed. Second, the study has lucidly summarized the status of input production in India. Third, the study has also analyzed the capacity utilization and efficiency of organic input units under NPOF scheme and their determinants. Four, the study highlighted problems in procurement and usage of organic inputs by end- users in the study area. Five, study has presented a fairly comprehensive picture of economics and efficiency of organic farming vis-à-vis conventional farming systems in India. The study provided valuable insights for undertaking appropriate measures for expansion of organic farming in the country. I hope that findings of this study would be helpful for Ministry of Agriculture for possible modifications and effective implementation of the scheme as well as to organic producers and other stakeholders in organic produce supply chains in the country. Vijay Paul Sharma Ahmedabad Chairman Date: Centre for Management in Agriculture Preface GREEN revolution technologies involving greater use of synthetic agrochemicals such as fertilizers and pesticides with adoption of nutrient-responsive, high-yielding varieties of crops have boosted the production output per hectare in most cases. However, this increase in production has slowed down and in some cases there are indications of decline in productivity and production. Moreover, the success of industrial agriculture and the green revolution in recent decades has often masked significant externalities, affecting natural resources and human health as well as agriculture itself. Environmental and health problems associated with agriculture have been increasingly well documented, but it is only recently that the scale of the costs has attracted the attention of planners and scientists. Increasing consciousness about conservation of environment as well as of health hazards caused by agrochemicals has brought a major shift in consumer preference towards food quality, particularly in the developed countries. Global consumers are increasingly looking forward to organic food that is considered safe and hazard-free. Global demand for organic products remains robust, with sales increasing by over five billion US Dollars a year. According to the Organic Monitor, international sales estimates have reached 38.6 billion US Dollars in 2006; double that of 2000, when sales were at 18 billion US Dollars. India is bestowed with lot of potential to produce all varieties of organic products due to its agro-climatic regions. In several parts of the country, the inherited tradition of organic farming is an added advantage. This holds promise for the organic producers to tap the market which is growing steadily in the domestic market related to the export market. The important events in the history of the modern nascent organic farming in India were unveiling of the “National Programme for Organic Production” (NPOP) in 2000 and “National Project on Organic Farming” (NPOF) in 2004. The NPOF scheme has components like capacity building through service providers; financial support to different production units engaged in production of bio- fertilizers, fruit and vegetable waste compost and vermi-hatchery units and human resource development through training on certification and inspection, production technology etc. The establishment of production units under this scheme is being provided as credit-linked and back-ended subsidy by NABARD and NCDC. Around 455 vermi-hatchery units, 31 bio-fertilizer units and 10 fruit and vegetable waste units were sanctioned across different states by NABARD till May, 2009. But, NCDC has so far sanctioned only two bio-fertilizer units in Maharashtra state. At this juncture, it is very interesting to know what the present status of these units, what the production and capacity utilization of each unit and suggestions for enhancing capacity utilization etc. The present study revolves around the following issues: What is the capacity utilization and efficiency of organic input units sanctioned under NPOF scheme? What are the constraints in establishment of units and identification of problems in marketing of organic inputs? What are the constraints in procuring and using organic inputs by the farmers? What are the suggestions for effective implementation of project? Chapter 2 of the report reviews the status of organic farming in the World and India, SWOT analysis of organic farming and briefly summarizes the government policies in India. Chapter 3 gives the present status of organic input production in India. In Chapter 4, brief review, analytical framework and specification of DEA model are presented. Empirical results including productivity and efficiency of sample units are examined. Costs and returns of vermi-compost production across different states and regions are compared. Problems in establishment of units and constraints in production are discussed. Finally, suggestions for promoting of organic input production units are discussed. In Chapter 5, presents the eight cases on three types of organic input units. Chapter 6 highlights the different marketing channels exists for marketing of organic inputs in the study area. The problems in procurement and usage of organic inputs are discussed. Chapter 7 analyzes the economics and efficiency of organic farming vis- à-vis conventional farming in different states of India. Finally, the summary and conclusions of the study and policy implications are summarized in Chapter 8. The average capacity utilization of vermi-hatchery units was only 50.8 per cent which indicates nearly half of its full potential. The estimated mean technical, allocative and economic efficiencies of sample units were low. Strengthening of both input and output marketing channels is the need of the hour for rapid expansion of organic farming in the country. D.Kumara Charyulu Subho Biswas Contents Foreword Preface Acknowledgements List of Abbreviations List of tables List of graphs/figures Page no Chapter 1 Introduction 1 1.1 Sustainability development 1 1.2 Need for sustainable farming system 3 1.3 Scope of the study 11 1.4 Plan of the study 11 Chapter 2 An overview of organic farming 13 2.1 Status of organic farming in the world 18 2.2 Status of organic farming in India 23 2.3 SWOT analysis of organic farming 25 2.4 Underlying issues and conceptual framework 57 2.5 Government policies for development of organic farming in India 59 Chapter 3 Status of organic input production in India 79 3.1 Need for quality organic input 79 3.2 Capital incentive subsidy scheme for promotion of organic inputs 80 3.3 Status of organic input production 84 Chapter 4 Productivity and Efficiency of organic input units in India 95 4.1 Analytical framework 95 4.2 Brief review of literature 97 4.3 Specification of model 106 4.4 Sampling strategy 110 4.5 Empirical Results 112 Chapter 5 Cases on organic input units 142 Chapter 6 Marketing of organic inputs in India 187 6.1Channels for marketing of organic inputs 188 6.2 Problems in procurement and usage of organic inputs 191 6.3 Issues in marketing of organic inputs 196 Chapter 7 Economics and Efficiency of organic farming in India 197 7.1 Economics of organic farming vis-à-vis conventional farming 200 7.2 Efficiency of organic farming in India 212 7.3 Factors influencing efficiency in organic crops 226 7.4 Suggestion for expansion of organic farming 228 Chapter 8 Summary and conclusions 231 8.1 Main findings and conclusions 234 8.2 Policy Implications 241 Bibliography 244 Appendix i -iv Acknowledgements Several individuals and organizations have helped us immensely during completion of this study. Acknowledging each and every individual would be impossible but we would amiss if we don’t mention few individuals and organizations without whose support and help it would have been difficult for us to complete this study. First and foremost we would like to thank Ministry of Agriculture, Government of India, for their generous financial support for this study.