Indian AgricultureSelf Sufficiency – A myth or reality?

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India- Brief demographic profile

Source: GOI-Ministry of statistics and programme implementation, Census of India, Ministry of Agriculture- Directorate of Economics and Statistics, bugdet.ap.gov.in# Based on 2005-06 data

Growth rate of land under sowing is abysmal which may cause lower production of agriculture items. The only option is yield improvement to

feed the growing population

1950 1960 1970 1980 1990 2000 2009

CAGR since 1950

CAGR since 2000

Gross Domestic Product Rs Crore 9719 15083 40405 110887 442134 1786526 4933183 11.14% 11.95%Agriculture Rs Crore 4801 6404 16747 34384 117796 409660 861753 9.20% 8.61%Manufacturing Rs Crore 1056 2009 5578 19840 74995 264114 780405 11.85% 12.79%Services Rs Crore 1162 2190 4744 12579 51238 233549 691221 11.44% 12.81%Others Rs Crore 2700 4480 13336 44084 198105 879203 2599804 12.35% 12.80%

Population Census Lakhs 3611 4392 5482 6833 8463 10286 11660 2.01% 1.40%Rural Lakhs 2987 3603 4391 5239 6291 7425 NA 1.84%Urban Lakhs 624 789 1091 1594 2172 2861 NA 3.09%Population CensusRural % 83% 82% 80% 77% 74% 72% NA NAUrban % 17% 18% 20% 23% 26% 28% NA NA

Per Capita Income Rs 267 326 675 1,630 4,983 17,980 37,490 8.75% 8.51%

Net Sown Area Million Hectares 119 133 140 140 143 141 #142 0.35% 0.08%Net Sown Area % 41.80% 44.60% 46.20% 46.00% 46.90% 46.30% NA

Agriculture as % to GDP % 49% 42% 41% 31% 27% 23% 17%

At current prices

India World ranking in production and consumption

Source: Based on crop year 2009 United States Department of Agriculture

India is the swing factor for rice, wheat, sugar and cotton on aglobal basis

Ranking RankingRice 2 After China 2 After ChinaWheat 3 After EU, China 3 After EU, ChinaSorghum (Jowar) 3 After Nigeria,USA 3 After Nigeria,MexicoMillet (Bajra) 1 1Sugar 2 After Brazil 1Cotton 2 After China 2 After China

Production Consumption

Growth rate of yields

Yield Kg per Hectare

Yield improvements are insignificant over the past six decades

Source: Ministry of Agriculture- Directorate of Economics and Statistics

1950-51 2002-03 2007-2008

CAGR since 1951

Rice 668 1744 2203 2.12%Wheat 663 2610 2785 2.55%Sorghum (Jowar) 353 754 981 1.81%Millet (Bajra) 288 610 1030 2.26%Sugar Cane 33422 63576 67531 1.24%Cotton 88 191 466 2.97%

Minimum Support Price (MSP) growth

Rs per Qtl

Increase in MSP fuelling rural economy but distorting cropping patterns

Source: www.agriculture-industry-india.com, Ministry of Agriculture- Directorate of Economics and Statistics

1992-93 2002 2006 2007 2008 2009 201017 year CAGR

3 year CAGR

Rice 270 530 570 580 645 850 950 7.68% 17.88%Wheat 330 620 650 750 1000 1080 NA 7.69% 18.44%Sorghum (Jowar) 240 485 525 540 600 840 840 7.65% 15.87%Millet (Bajra) 240 485 525 540 600 840 860 7.80% 16.78%Sugar Cane 31 62.05 79.5 80.25 81.18 81.18 107.76 7.60% 10.32%Cotton 800 1675 1760 1770 1800 2500 2500 6.93% 12.20%

Performance of companies having rural presence

* Proportionate for 12 Months for 2009. Data for year 2008 is not availble since company changed it year end closing during that period** For Maruti suziki domestic sales have been considered

Rural wealth creation has become the mainstay of the economy in general

Source: website of respective companies

Company Category Unit 2004 2005 2006 2007 2008 2009 CAGRHero Honda Two Wheeler Lakh Unit 20.70 26.21 30.01 33.37 33.37 37.22 12.45%Maruti Suzuki Cars Lakh Unit 4.21 4.87 5.27 6.35 7.11 7.22 11.39%

Bhart i MobilesCustomers in crores 0.71 1.18 2.1 3.9 6.42 9.67 68.59%

Turnover Rs CroresHindustan Uniliver * FMCG Rs Crores 10,888 11,975 13,035 14,715 NA 17,319 9.73%Tata Tea (standalone result) Tea Rs Crores 783 900 982 1071 1153 1379 11.99%

Why are yields not improving?

Loan waivers for farmersLoan waiver schemes by the Central and State Governments

NREG schemeThe recently launched NREG Scheme provides guaranteed

employment for 100 days and a minimum wage of Rs. 100 per day

MSP which covers 70% populationGovernment ensures Minimum Support Price (MSP) for almost all

major crops. MSP increases every year thereby disjointed of market realities.

Progressive land fragmentationEvery successive generation drastically increases fragmentation

and mitigates use of modern farming techniques to improve productivity and yields. If land parcel boundaries were to be removed, India will have 7% more cultivable area.

Improper fertiliser usageThe imbalanced subsidy on urea has resulted in excessive usage

and has depleted the land of phosphates and other micro-nutrients

Why is supply not catching up?

Land for agriculture decliningLimited cultivable land which is further lessened by more lucrative alternate

usage like SEZs etc.

Continuance of agriculture a major problemThe new generation is far better educated and is richer. Agriculture does not

interest them and is a national issue.

No efforts by Government to improve water table or irrigationAcross India, the water table is declining at an alarming rate and land is

becoming less and less fertile as evidenced by increased fertiliser usage for same output. No concerted efforts are in place either by the Government or at the grass root level.

Resistance to change The typical farmer is completely averse to any change in farming techniques

or use of newer seeds etc.

Crop SwitchingFarmers habitually switch crop based on the revenue that he gets from

revision in support prices

Domestic demand & supply - foodgrains

Source: USDA upto 2007Foodgrains include Wheat, Rice,Barley,corn,millets and sorghum

Million Tonnes

Foodgrain availability is assumed at 0.75% increase since there will not be any drastic increase in land availability or the yields

Consumption increase is taken at 2.5% year on year which is its historical rate of increase

Considering the above factors it seems that we are heading towards a deficit in overall foodgrain availability in next 3 to 4 years.

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Opening Stock 16 12 16 18 23 31 1 1 Production 185 195 203 216 219 184 219 220 222 224 225 Imports 0 7 2 1 0 0 - - - - - Availability 201 213 221 235 241 214 219 222 222 224 225 Consumption 184 192 196 202 208 213 218 223 229 235 241 Exports 6 5 7 10 3 1 - - - - - Closing Stock 12 16 18 23 31 1 1 (2) (7) (11) (15)

Stock to Use% 6% 8% 9% 11% 15% 0% 1% -1% -3% -5% -6%Increase Yon Y

% incr Y on Y

1968 15 22%1976 19 21%1978 14 14%1981 17 16%1984 22 18%1989 29 23%1993 11 7%1997 17 10%2002 14 7%2004 36 22%2008 13 6%

Max increase 36 23%

MMT

^

India’s consumption in most of the years has been equal to or more than the production. If the yield does not improve, India will head for deficit in 3 to 4

years

Domestic demand,supply & stocks since 1960 -foodgrains

Source: USDA upto 2007, company estimate thereafterFoodgrains include wheat, rice,barley,corn,millets and sorghum

507090

110130150170190210230250

-10%-5%0%5%10%15%20%25%30%35%

P ro duct io n C o nsumptio nSto ck to use

Green Revolution

^

Domestic demand,supply & stocks since 1960 – Milled Rice

Source: USDA upto 2007, company estimate thereafter

Rice, Milled 2005 2006 2007 2008 2009 2010EOpening Stock 11 9 11 11 14 18 Production 83 92 93 97 99 78 Imports - 0 - 1 - - Availability 94 100 104 109 113 96 Consumption 81 85 87 90 94 97 Exports 5 5 6 5 2 Closing Stock 9 11 11 14 18 (1)

Government will increase MSP to augment production causing even more distortions

Source: USDA upto 2007. Production for 2010 assumed 20% lower and consumption at historic growth rate of 3%

3 0

4 0

5 0

6 0

7 0

8 0

9 0

10 0

- 5 %

0 %

5 %

1 0 %

1 5 %

2 0 %

2 5 %

3 0 %

3 5 %

P r o d u c t io n C o n s u m p t io nS t o c k t o u s e

G r e e n R e v o lu t io n

Million Tonnes

^

India will have lowest inventory of wheat

Domestic demand,supply & stocks since 1960 – Wheat

1 0

2 0

3 0

4 0

5 0

6 0

7 0

8 0

9 0

1 0 0

- 5 %

0 %

5 %

1 0 %

1 5 %

2 0 %

2 5 %

3 0 %

3 5 %

4 0 %

4 5 %P r o d u c t i o n C o n s u m p t i o nS t o c k t o u s e

Green Revolution

Wheat 2005 2006 2007 2008 2009 E 2010 EOpening Stock 4 2 5 6 8 11 Production 69 69 76 79 81 64 Imports 0 7 2 0 - Availability 73 78 82 84 88 76 Consumption 70 73 76 76 77 77 Exports 1 0 0 0 0 Closing Stock 2 5 6 8 11 (1)

Source: USDA upto 2007. Production for 2010 assumed 20% lower and consumption at same levels

Million Tonnes

Low cane supply caused by massive crop switching…

(million tonnes) SY 02 SY 03 SY 04 SY 05 SY 06 SY 07 SY 08 SY 09 SY 10E SY 11E

Opening Stock (A) 10.7 11.3 11.6 8.5 4.0 * 3.6 9.2 8.1 2.3 0.0

Production (B) 18.5 20.1 14.0 12.7 19.3 28.3 26.3 14.7 14.0 21.0

Total Availability (A+B) 29.2 31.5 25.6 21.2 23.3 32.0 35.6 22.8 16.3 21.0

Demand – Total 17.9 19.9 17.5 18.5 19.6 22.7 27.5 22.5 23.4 24.6

- Domestic 16.8 18.4 17.3 18.5 18.5 21.0 22.5 22.5 23.4 24.6

- Export 1.1 1.5 0.2 0.0 1.1 1.7 5.0 0.0 0.0 0.0

Imports 0.0 0.0 0.4 2.1 0.0 0.0 0.0 2.0 0.0 0.0

Closing stock 11.3 11.6 8.5 4.8 3.6 9.2 8.1 2.3 (7.1) (3.6)

Closing stock-Month 7.6 7.0 5.8 3.1 2.2 4.9 3.5 1.2 (3.6) (1.7)

Stock -to- use Ratio (%) 63.3 58.4 48.5 26.1 18.5 40.6 29.5 10.2 (30.3) (14.5)

Source: Indian Sugar Mills Association (ISMA) – October 2008, Company estimates

* Adjustment made as per Central Excise Certificate

Massive crop switching caused by inordinately high induced MSP for Wheat

Volatility in Sugar Cycle increasing…

High induced MSP for alternate crops induces more volatility in sugar cycles

(12.00)

(10.00)

(8.00)

(6.00)

(4.00)

(2.00)

-

2.00

4.00

6.00

8.00

10.00

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Absolute Difference in Sugar Production Year on Year

Year

Diff

eren

ce in

pro

duct

ion

Mill

ion

Tone

s

1,196 1,163 1,195 1,311 1,363 1,388 1,385 1,338 1,178 1,420 1,692 1,795 1,425 1,485 2,068

… leading to sugar crisis and recovery will take much longer as demand grows even more

Typical Sugar Cycle (5-7 Years)

Lower sugarcane production

Increase in sugar prices

Higher & prompt

payment to farmers

Increase in area under cultivation

Lowersugar

production

Decline in sugar prices

Lower profitability

Delayed payments to farmers

Highersugar

production

46%

60%

48% 45%

58%64% 63%

58%49%

26%

41%

-15%

19%38%

-30%

10%

30%

(30.0)

(20.0)

(10.0)

0.0

10.0

20.0

30.0

40.0

SY95 SY96 SY97 SY98 SY99 SY00 SY01 SY02 SY03 SY04 SY05 SY06 SY07 SY08 SY09 SY10 SY11Mill

ion

tonn

es

Inventory (as a % of Consumption) Production Consumption

2-3 years up cycleBHL Prices* (Rs./Qtl)

* BHL free sugar prices^ 9MSY09 actual realization for BHL

Source: Indian Sugar Mills Association (ISMA) – October 2008, Company estimates

^

Unprecedented inventory levels

This can and will happen to other crops then what?.........

Wheat & rice or sugarcane ??

Irrational MSP without economic fundamentals will cause severedistortions

ECONOMICS OF SUGARCANE VERSUS RICE-WHEAT

-One Wheat and one paddy crop can be done during the year-Wheat- Nov to April and Paddy – July to September-For Sugarcane, state advised price (SAP) as per Uttar Pradesh state government is considered. SAP 2010 is assumedSource: Company

Yield/Acre Cost of culva-MSP

Rates/Qtl.Revenue/

Acre Profit/Acre Av.Profit /(Qtls.) tion/Acre (Rs) (Rs.) (Rs.) (Rs.) Annum/Acre

Sugarcane (Plant) 225 20405 140 31500 11095Sugarcane (Ratoon) 200 13190 140 28000 14810Wheat 20 11010 1080 21600 10590Paddy 24 11280 900 21600 10320

Crop

12953

20910

Year 2009

Yield/Acre Cost of culva-MSP

Rates/Qtl.Revenue/

Acre Profit/Acre Av.Profit /(Qtls.) tion/Acre (Rs) (Rs.) (Rs.) (Rs.) Annum/Acre

Sugarcane (Plant) 225 20405 180 40500 20095Sugarcane (Ratoon) 200 13190 180 36000 22810Wheat 20 11010 1080 21600 10590Paddy 24 11280 980 23520 12240

21453

22830

Crop

Year 2010

Future ???

India sorely needs

The 2nd Green Revolution

Thank You