About ICRISAT ICRISAT Science with a human face The International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) is a non-profit, non-political organization that does innovative agricultural research and capacity building for sustainable development with a wide array of partners across the globe. ICRISAT’s mission is to help empower 600 million poor people to overcome hunger, poverty and a degraded environment in the dry tropics through better agriculture. ICRISAT belongs to the Alliance of Centers of the Consultative Group on International Agricultural Research (CGIAR). Company Information ICRISAT-Patancheru ICRISAT-Liaison Office ICRISAT-Nairobi ICRISAT-Niamey (Headquarters) CG Centers Block (Regional hub ESA) (Regional hub WCA) Patancheru 502 324 NASC Complex PO Box 39063, Nairobi, Kenya BP 12404, Niamey, Niger (Via Paris) Andhra Pradesh, India Dev Prakash Shastri Marg Tel +254 20 7224550 Tel +227 20722529, 20722725 Tel +91 40 30713071 New Delhi 110 012, India Fax +254 20 7224001 Fax +227 20734329 Fax +91 40 30713074 Tel +91 11 32472306 to 08 [email protected] [email protected] [email protected] Fax +91 11 25841294 ICRISAT-Bamako ICRISAT-Bulawayo ICRISAT-Lilongwe ICRISAT-Maputo BP 320 Matopos Research Station Chitedze Agricultural Research Station c/o IIAM, Av. das FPLM No 2698 Bamako, Mali PO Box 776, PO Box 1096 Caixa Postal 1906 Tel +223 20 22 33 75 Bulawayo, Zimbabwe Lilongwe, Malawi Maputo, Mozambique Tel +263 83 8311 to 15 Fax +223 20 22 86 83 Tel +265 1 707297/071/067/057 Tel +258 21 461657 Fax +263 83 8253/8307 [email protected] Fax +265 1 707298 Fax +258 21 461581 [email protected] [email protected] [email protected] www.icrisat.org 533-2008 Citation: Parthasarathy Rao P, Joshi PK, Shravan Kumar and Kavery Ganguly. 2008. Agricultural Diversification in Andhra Pradesh, India: Patterns, Determinants and Implications. (Published jointly with the International Food Policy Research Institute, IFPRI). Research Report no. 2. Patancheru 502 324, Andhra Pradesh, India: International Crops Research Institute for the Semi-Arid Tropics. 100 pp. Acknowledgments The authors are thankful to Dr Ashok Gulati, Director Asia, the International Food Policy Research Institute (IFPRI), for his guidance and constructive suggestions during the course of this study. We also thank Dr MCS Bantilan, Global Theme Leader, Institutions, Markets, Policy and Impacts (IMPI), ICRISAT, for her support and encouragement in carrying out the study. Special thanks are due to Drs PS Birthal, Principal Scientist, Global Theme Crop Improvement (GTCI) and Ch. Ravinder Reddy, Visiting Scientist, GTCI, ICRISAT, Patancheru, and Dr Shiv Kumar, Senior Scientist, National Centre for Agricultural Economics and Policy Research (NCAP), New Delhi for their comments on an eariler draft that helped bring out this report in its present form. It goes without saying that any errors of omission rests solely with the authors. Funding support from IFPRI and ICRISAT are gratefully acknowledged. Citation: Parthasarathy Rao P, Joshi PK, Shravan Kumar and Kavery Ganguly. 2008. Agricultural Diversification in Andhra Pradesh, India: Patterns, Determinants and Implications. (Published jointly with the International Food Policy Research Institute, IFPRI). Research Report no. 2. Patancheru 502 324, Andhra Pradesh, India: International Crops Research Institute for the Semi-Arid Tropics. 100 pp. Acknowledgments The authors are thankful to Dr Ashok Gulati, Director Asia, the International Food Policy Research Institute (IFPRI), for his guidance and constructive suggestions during the course of this study. We also thank Dr MCS Bantilan, Global Theme Leader, Institutions, Markets, Policy and Impacts (IMPI), ICRISAT, for her support and encouragement in carrying out the study. Special thanks are due to Drs PS Birthal, Principal Scientist, Global Theme Crop Improvement (GTCI) and Ch. Ravinder Reddy, Visiting Scientist, GTCI, ICRISAT, Patancheru, and Dr Shiv Kumar, Senior Scientist, National Centre for Agricultural Economics and Policy Research (NCAP), New Delhi for their comments on an eariler draft that helped bring out this report in its present form. It goes without saying that any errors of omission rests solely with the authors. Funding support from IFPRI and ICRISAT are gratefully acknowledged. Agricultural Diversification in Andhra Pradesh, India: Patterns, Determinants and Implications P Parthasarathy Rao, PK Joshi, Shravan Kumar and Kavery Ganguly International Food Policy Research Institute New Delhi Office December 2008 Authors P Parthasarathy Rao Principal Scientist, Global Theme Institutions, Markets, Policy and Impacts (GT IMPI), ICRISAT, Patancheru 502 324, Andhra Pradesh, India PK Joshi Director, National Centre for Agricultural Economics and Policy Research (NCAP), New Delhi (formerly Research Fellow, International Food Policy Research Institute, IFPRI, New Delhi Office) Shravan Kumar Scientific Officer, GT IMPI, ICRISAT, Patancheru 502 324, Andhra Pradesh, India Kavery Ganguly Research Associate, IFPRI, New Delhi Office Table of Contents Executive Summary ......................................................................................................... vii 1. Introduction .....................................................................................................................1 Background ..................................................................................................................................1 Objectives and hypotheses ..........................................................................................................3 Organization of the study .............................................................................................................3 2. Agricultural Diversification ............................................................................................4 Defining agricultural diversification .............................................................................................4 Performance of the agriculture sector ..........................................................................................4 Relative importance of high-value commodities ..........................................................................6 A disaggregated analysis of high-value commodities ................................................................10 Impact of agricultural diversification on farm economy ..............................................................16 3. Drivers of Agricultural Diversification toward High-Value Commodities ................21 Growing demand ........................................................................................................................21 Urbanization ...............................................................................................................................22 Per capita income ......................................................................................................................24 Regression results .....................................................................................................................25 4. Modern Supply Chain and Vertical Coordination ......................................................29 Supply chains .............................................................................................................................29 Innovation in marketing: Rythu bazaar (farmers’ market) ..........................................................31 Vertical coordination/contract farming initiatives in HVCs ..........................................................32 Case studies of vertical coordination/contract farming in Andhra Pradesh ................................34 5. Food Processing and Agri-Retailing Industry ...........................................................40 Structure of the food processing industry ..................................................................................40 Constraints faced by the food processing industry ....................................................................44 Policies to promote food processing industries ..........................................................................46 Food retail industry in Andhra Pradesh ......................................................................................48 6. Constraints to Diversification and Food-processing/Retailing ................................53 Credit .........................................................................................................................................53 Cold storages .............................................................................................................................54 Quality standards and SPS issues .............................................................................................55 7. Policy Implications .......................................................................................................57 References ........................................................................................................................63 Appendix – Tables ............................................................................................................69 Appendix ...........................................................................................................................82 List of Figures Figure 1.1: Relative shares of selected sectors to GDP, Andhra Pradesh (at 1993-94 prices) .. 2 Figure 1.2: Share of agriculture sub-sectors