Millionaire Farmers in India: What’s the Secret Behind Araku Coffee?
Once a region mired in poverty and conflict, the Araku Valley in eastern India has witnessed a remarkable transformation. By shifting from traditional slash-and-burn farming to growing high-quality coffee, the locals have seen their fortunes change dramatically. With Araku Coffee leading the way, farmers are now thriving, their beans fetching top prices in European markets. The once-struggling community is now a beacon of hope, showcasing the potential for agricultural innovation. But can this success story be replicated across rural India?
Can India become the world’s next food superpower? Picture this: a valley once marked by poverty and violence is now a symbol of prosperity, all thanks to coffee. The Araku Valley, nestled in the mountains on India’s east coast, used to be a place of despair. Its inhabitants, classified as “particularly vulnerable tribal groups,” relied on slash-and-burn farming to survive. Today, they grow high-quality coffee sold to affluent Europeans, transforming their lives and offering a glimpse of what rural India might achieve with the right policies.
India has come a long way since the 1950s and 1960s when it depended on food aid from abroad. Now, it’s a net exporter of food. Yet, big inefficiencies remain. Despite having a third more land under cultivation than China, India only harvests a third as much produce by value. Agriculture employs nearly half of all Indian workers, around two hundred and sixty million people, but contributes only fifteen percent of output and twelve percent of exports. In contrast, business services like call centers employ less than one percent of workers but produce seven percent of GDP and almost a quarter of exports.
Handouts of every kind distort incentives for farmers, weighing down production and propping up practices that degrade the land without making anyone richer. Farm incomes have remained around one-third of non-farm incomes for decades. Despite huge subsidies, regulations and trade restrictions lower gross farm revenues by six percent.
Imagine a car that only runs at a third of its potential speed. That’s Indian agriculture. If India could raise its agricultural yields to the global average, it would become a massive power in global commodity markets. For instance, India’s excess rice production would surpass the current global rice trade. Raising yields to match the world’s best would see India producing twice as much maize, three times as much cotton, and eight times as much rice and pulses as are traded internationally today.
Making farmers more prosperous would have a significant impact on India’s economy. Agricultural employment figures mask huge underemployment. Increasing incomes in the countryside would create demand for new goods and services, which would, in turn, create better jobs for India’s many surplus farmhands. They would earn better wages without having to move to overcrowded cities.
The success in the Araku Valley provides clues on how to proceed. In the late 1990s, the state government of Andhra Pradesh, aiming to reduce deforestation and boost incomes, supplied farmers with fast-growing silver oak trees. Later, they were given coffee seedlings to grow in their shade. Farmers like Kora Venkatrao grew the berries but often sold them to unscrupulous middlemen at low prices. Venkatrao’s fortunes changed in 2016 when he joined a cooperative run by Araku Coffee that taught farmers how to grow higher-quality berries and bought them at unheard-of prices. His income increased tenfold to over two hundred thousand rupees a year. His thatched hut became a concrete home with two bedrooms. He bought a motorcycle and started building up savings. Some two thousand farmers have become rupee millionaires, thanks to Araku Coffee’s focus on agriculture as a profit-making sector.
Successive administrations have viewed agriculture more as a means for welfare rather than an engine for growth. Efforts to double farmers’ incomes have often been counterproductive. For example, the decision to stop recognizing high-denomination banknotes in 2016 harmed the cash-dependent rural economy. The sudden lockdown at the start of the pandemic in 2020 drove millions of workers back to farms, reversing efforts to make agriculture more efficient. Sensible agricultural reforms were pushed through without consultation, leading to a year-long farmers’ protest and eventual repeal.
Optimists now wonder if a smarter approach might finally be adopted. A new agriculture minister, who previously served as a state chief minister, brought significant agricultural growth to his state by investing in irrigation, rural roads, and warehouses. He encouraged farmers to diversify into horticulture and made it easier for them to sell their produce outside of state-run marketplaces. This led to an impressive agricultural GDP growth rate of seven percent annually in the state compared to the national average of three point eight percent.
Can similar progress be achieved at the national level? Previous bungled reforms have made large swathes of agricultural policy too risky to tackle. The big issues of small landholdings and low mechanization rates remain. However, there are many other priorities. About half of Indian farmland has no water source other than rainfall. Only ten percent of perishable produce benefits from cold storage; significant amounts of cereals, vegetables, and fruit are lost after harvest. Most agricultural exports are raw, unbranded commodities, with less than ten percent of food produced getting processed compared to thirty percent in Thailand and seventy percent in Brazil. Addressing irrigation issues, improving infrastructure, and encouraging higher-value processing could be highly profitable moves, boosting agricultural output and supporting overall growth.
Some problems could be fixed easily. India spends around two trillion rupees on food subsidies and nearly as much on fertilizer subsidies but only ninety-five billion rupees on agricultural research and development. Spending on research as a share of agricultural GDP is less than 0.7 percent. The coming ravages of climate change demand greater investment; farmers need scientific breakthroughs to adapt.
There are also practices that should be reconsidered. Regular interventions in response to rising food prices, such as imposing limits on stock accumulation or suspending futures markets, disrupt the market. Export bans on wheat in 2022 and on most kinds of rice in 2023 are examples. These actions prevent farmers from profiting when prices are high and discourage traders from taking risks. Ironically, it’s mostly the better-off who benefit from these measures, as the poorest eight hundred million Indians receive free grain, so price changes affect them less.
Mr. Kumar, Araku Coffee’s boss, is about to open a second café in Paris. His company is expanding into other commodities, encouraging farmers to grow kidney beans and millets. But only the government has the power to truly transform Indian agriculture. The way to do that, says Kumar, is not through loan waivers or subsidies but by creating an ecosystem conducive to growth. In other words, by nurturing conditions in which a million Arakus can thrive.
So, can India become the next food superpower? The answer lies in whether it can shift from seeing agriculture as a welfare activity to viewing it as a profit-making enterprise. With the right policies and a focus on productivity and profitability, India could indeed transform its agricultural sector and, with it, the lives of millions. What would it take for a country to prioritize prosperity over poverty in its fields?
References
Filimonau, V., Krivcova, M., & Pettit, F. (2019). An exploratory study of managerial approaches to food waste mitigation in coffee shops. International Journal of Hospitality Management, 76, 48–57.
Sri, G. T., Rohini, A., Kumar, M. C., Devi, M. N., & Deepa, N. (2022). Araku Valley Coffee Production study in Visakhapatnam district of Andhra Pradesh, India. Asian Journal of Agricultural Extension, Economics & Sociology, 40(10), 140–148.
The world’s next food superpower. (2024). The Economist.
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Bangla podcast version of this story is available at Financial Rupkotha.
