Improving supply of animal products

The government, once every five years or so, conducts a livestock census, counting all domesticated animals. The 20th livestock census was conducted last year (the 19th was in 2012, and the first in 1919), and some provisional data is now available. Even as we await the final report, the provisional numbers, though sketchy, are useful to improve our understanding of the agricultural economy. Livestock, after all, is now well over a third of agricultural output, and accounted for nearly half the incremental output between 2012 and 2016. 

Growth in the number of animals for each of the livestock categories was significantly lower than the output growth reported by the Central Statistical Organisation (CSO) between these two censuses. For example, the number of cattle was nearly unchanged in this period, but milk continued to grow at an annualised rate of well above 5 per cent. Similarly, the annual pace of growth in mutton output (4 per cent) was higher than the rate of growth in the number of goats and sheep (up only 1 per cent annually), and pork output grew faster than the number of pigs (which fell 20 per cent from the 2012 level).

Given the recent debate on the accuracy of GDP statistics, many would be tempted to again question the CSO’s output assessments. But this discrepancy has a somewhat more credible and meaningfully more positive explanation, in our view. In milk, for instance, the bovine population (cows and buffaloes) has been nearly unchanged since 1997, but the number of males has been falling, and that of females has been going up: In the 2017 census, the number of male cattle declined by 31 per cent to 47 million, the highest ever, and that of females increased by 18 per cent to 145 million, an increase of 22 million, also the largest ever. The number of milch cattle (that is, female cows and buffaloes excluding young ones that have not calved yet, or the older ones that are beyond breeding age) was 5 per cent more than in 2012. With the number of higher milk-yielding cross-breeds up by nearly 30 per cent, average output per animal increased substantially too (by nearly 5 per cent annually), explaining the 33 per cent growth in milk output in this period.

Given that human efforts in livestock rearing generally move in proportion with the number of animals, this means an improvement in efficiency and incomes when looked at on a “per person” basis, and partly explains the resilience in milk supply despite price growth slowing sharply: It has been less than 5 per cent for nearly four years now. The drop in the number of male cattle points to greater farm mechanisation (and thus more output per worker): The fodder that was earlier consumed by 21 million males for ploughing and transportation, which are no longer needed, is now being converted into milk by the 22 million females that have replaced them.

Illustration: Ajay Mohanty

 
There is another fascinating trend that suggests a lowering of the cost of production. Whereas livestock in India increased by only 4 per cent between the 19th and 20th censuses, the numbers in Jharkhand increased by 31 per cent, and in Odisha, Bihar, Telangana, and West Bengal by between 24 per cent and 26 per cent. The livestock count in other states declined by 3 per cent over this five-year period. 

The increase in Telangana is likely due to the recent state government scheme to distribute 8.4 million sheep to herder families. But the increase in Bihar, Jharkhand, West Bengal, and Odisha, in our view, is primarily due to a substantial improvement in last-mile infrastructure, in the form of better rural roads, electricity, phones, and credit. These improve awareness and affordability, as well as market access to sell the output. A few years back, in my hometown of Bokaro, Jharkhand, I noticed eggs placed in two different trays and priced differently. When I asked why, the shopkeeper said (in Hindi) “this is Jharkhand egg, and this other is Tamil Nadu egg”, pointing to the origins of these eggs. For years, I learnt, eggs used to come from Tamil Nadu, but it was only recently that local commercial egg production had started. In our view, the increase in livestock numbers in states that have significantly lower per capita incomes than the national average also points to a decline in the average cost of production, and suggests that inflation in these products could remain low.

There are also some numbers that we had expected would resolve what we think is an inconsistency, but did not: The number of buffaloes remained unchanged when we had expected them to go up. As reported by the APEDA (Agricultural and Processed Food Products Export Development Authority), growth in carabeef (buffalo meat) export volumes between 2011-12 and 2016-17 was 34 per cent, translating into about 11 million buffaloes. This is in the same ballpark as the 43 per cent increase in the number of buffaloes slaughtered during this period as reported by the Animal Husbandry Department. But both these are inconsistent with the unchanged number of buffaloes in the livestock census. While the details for 2018 are not available to us, in 2012 only 16 million of the 109 million buffalo population were males, and of those nearly 11 million were less than two years old, when their use for meat would be sub-optimal. We have been unable to model where the 10-12 million buffaloes slaughtered annually come from. 

Continued dietary changes with improving incomes, particularly due to the improving affordability of output sourced from livestock (milk, meat, eggs), means steady demand growth. The higher efficiency of livestock production that this provisional data points to, as well as the development of a livestock industry in the erstwhile less developed (that is, low-cost) states, suggests an adequate capacity build-up to meet this demand. Geographical diversification also provides some resilience to local supply disruptions that can emerge from disease- or weather-related events. The combined weight of animal products in the consumer price index is about 11 per cent, and while the inflation rate in these products has risen slightly in recent months after falling to all-time lows late last year, it is unlikely to stay elevated.

That said, productivity needs to rise much more for generating surpluses at a cost that increases domestic demand and is also globally competitive, so that the sector generates more export income.
The writer is Co-Head of Equity Strategy, Asia Pacific and Equity Strategist, India, Credit Suisse



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