Why we need to follow India’s example

India’s agriculture has achieved fast growth thanks to a combination of research and development, and forward-thinking policies.

Global farming - Dr Koos Coetzee

To feed our growing population we have to increase the speed of agricultural development, especially the development of large-scale commercial farms that can afford to use the latest technology. But the agriculture sector is in a recession, shrinking by annualised values of 18%, 19,7%, 12,6% and 14% in the four quarters of 2015, according to Statistics SA.

The sector’s contribution to the GDP for 2015 contracted by 8,4%. The drought, high input prices and weaker product prices had a negative effect on farmers, and for the first time in many years, South Africa must import maize.

Commercial farmers are also discouraged from investing in improved production by a plethora of laws that increase the cost of doing business. The agriculture department focuses most of its efforts on the emerging sector, and commercial farmers receive relatively little support.

In the department’s budget speech, the “continued dominance of large players in the sector” was cited as a “challenge”. Clearly, government’s goal is transformation at all cost. Even so, its performance in transforming agricultural land is nothing to be proud of. Only 136 000ha were put under cultivation through government programmes in 2015.

Stark contrast

The poor performance of South Africa’s agriculture sector is in contrast to India’s agriculture sector. Between 1980 and 2008, output grew by an average of 3,1% a year. About 66% of the growth was achieved by the introduction of new technologies and other efficiency improvements.

Policy reforms such as the supply of electricity to farmers for irrigation, the promotion of micro-irrigation schemes and provision of soft loans to finance these, and the streamlining of marketing chains also contributed to higher production. Between 2004 and 2008, growth accelerated to 7,5%.

A recent study by the USDA identified investment in agricultural research as a major driver of the long-term growth in productivity. India uses the university land-grant system, proven in the US as an efficient way of conducting agricultural research. Cost-benefit analysis shows that investment in public agricultural research and development (R&D) yields an 18-fold return.

Higher productivity was achieved even though India’s contribution to agricultural research (0,4% of the agricultural GDP) is still relatively low compared with countries such as Australia (3,6%) and Japan (4,8%). Private sector R&D have also contributed to agricultural development. The main portion of this has been spent on the development of new crop varieties.

Cumbersome rules
Many studies internationally and in South Africa have shown that investment in agricultural research creates growth and development. In the recent budget, R813 million was allocated to the Agricultural Research Council; this is 0,9% of the 2015 agricultural GDP, compared with First World figures of 3% and more. Out of the total agricultural budget, very little is spent on the development of new technology; transformation projects take up the bulk of the money.

In India, private sector R&D has played a major role. This is also true in South Africa, but cumbersome laws often prevent companies from obtaining approval for new technologies. Increased expenditure on agricultural research is a prerequisite for the future growth of South Africa’s agriculture sector. We would do well to follow India’s example of increased R&D expenditure, streamlining value chains and developing irrigation schemes.

A more coordinated approach to R&D is also needed. In the US, the research structure centres around the land-grant universities where R&D is combined with higher education. This is a good example to follow.

Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not
reflect MPO policy.