Farmers Get 57.8% of the Food Rupee Spent at Home, Only 8.4% When Eating Out

The news

New Delhi. In an article in The Indian Express, Sudha Narayanan and Barun Deb Pal of the International Food Policy Research Institute (IFPRI), India, and Aditi Gautam of Michigan State University present what they describe as the first systematic estimate for all food, covering 2011-12 to 2023-24. Using India’s supply-use tables, which record transactions between every sector of the economy, they apply a method called the ‘Food Dollar series’ to trace each rupee back through retail, transport, processing and service to the farm. The ‘farm share’ is the portion that accrues to agriculture itself. When a consumer spent a rupee on food at home in 2023-24, as much as 57.8% accrued to the farm, up from 51.8% in 2011-12. For food eaten away from home, the farm share was just 8.4% and has been falling, from about 10% in the 2010s. The gap is expected, since restaurant preparation, service and trade absorb value along longer chains. India’s farm share is markedly higher than elsewhere; estimates for 61 countries over 2005-15 put the farm share of at-home food spending at about 27%, and in the United States the farm share of spending on food away from home is just 4%. Household food purchases are still dominated by unprocessed or minimally processed, perishable, high-value items. The share of households consuming any processed and packaged food (abbreviated ‘PPF’ by the authors) rose from 82.2% to 96.6% between 2011-12 and 2022-23, but such food barely rose as a share of monthly per capita consumption expenditure (MPCE). The processing industry is still dominated by low-margin milling, mostly unorganised and low in value addition. Eating out is about 13% of total food consumption, much lower than in the US and China. The authors expect the overall farm share to decline as these trends advance. They caution that a lower share can coexist with higher net returns: farmers earn just 3-5% of the retail price of gherkins, yet make more than from tomatoes, where their share is higher. A high share does not guarantee profit either: Amul’s cooperative dairy farmers have historically received more than 60% of the retail price, but rising feed costs can still squeeze their incomes. Their prescription is farmer ownership of downstream food, beverage and logistics enterprises, where future and better-paying jobs are likely to emerge. The syllabus link is GS3: food processing and supply chains.

Static syllabus linkage

1. The farm share measures where the consumer’s rupee goes, not what the farmer earns. The Food Dollar series was developed by the Economic Research Service of the United States Department of Agriculture to divide every dollar of consumer food spending between the farm and the ‘marketing’ activities after it: processing, packaging, transport, wholesale and retail trade, and food service. It uses input-output tables, which show how much each industry buys from every other, so it captures the whole food system rather than one commodity. It differs from the ‘price spread’ often quoted for onions or tomatoes, which compares farm-gate and retail prices of a single product. The farm share is a share of gross revenue; the farmer’s net income depends further on input costs such as seed, fertiliser, feed and labour.
2. Engel’s law explains why the farm share falls as countries get richer. Engel’s law states that as household income rises, the proportion spent on food falls, even if absolute food spending rises. Within food, richer households also buy more convenience, processing, packaging and eating out, so a larger part of each rupee pays for services rather than raw produce. India’s data come from the National Statistics Office’s Household Consumption Expenditure Surveys, which report monthly per capita consumption expenditure (MPCE), and from the supply-use tables compiled as part of the national accounts. A high farm share is therefore typical of economies where food is mostly bought fresh and cooked at home.
3. The Union government’s food processing push works through three main schemes. The Ministry of Food Processing Industries runs the Pradhan Mantri Kisan SAMPADA Yojana (2017), an umbrella Central Sector Scheme for mega food parks, cold chains and agro-processing clusters. The Pradhan Mantri Formalisation of Micro Food Processing Enterprises scheme (PMFME), launched in 2020 as a Centrally Sponsored Scheme, supports small, unorganised units through credit-linked subsidies and a One District One Product approach. The Production Linked Incentive Scheme for the Food Processing Industry (2021) rewards large firms for incremental sales and branding. Foreign direct investment up to 100% is allowed in food processing under the automatic route, and up to 100% under the government route for trading, including e-commerce, in food products manufactured or produced in India.
4. Farmer ownership downstream already has two Indian models. The Anand pattern of dairy cooperatives began with the Kaira District Cooperative Milk Producers’ Union in 1946, whose brand is Amul; the National Dairy Development Board, set up in 1965 at Anand, scaled it nationally through Operation Flood from 1970. Farmers own the collection, processing and marketing, which is why they receive a large share of the retail price. The second model is the Farmer Producer Organisation, registered either as a cooperative or as a producer company, a legal form introduced by the Companies (Amendment) Act, 2002 on the recommendation of a committee headed by Y.K. Alagh. The Central Sector Scheme for the formation and promotion of 10,000 FPOs was launched in 2020.

Why UPSC loves this

1. GS3 lists food processing and supply chains as a named topic. The syllabus asks about food processing and related industries in India: scope and significance, location, upstream and downstream requirements, and supply chain management. Mains questions have asked why food processing remains underdeveloped and how it can raise farm incomes. This article supplies a rare, quantified frame: the farm share of the food rupee, and why a high share is not necessarily good news.
2. Doubling farm incomes and marketing reform recur in Mains. Questions on farm incomes, APMC reform, e-NAM, contract farming and FPOs appear regularly. The gherkin and Amul examples are exactly the kind of concrete evidence examiners reward, showing the candidate understands that share and income are different things.
3. Prelims tests scheme architecture. UPSC has asked about the features of food processing schemes, FDI rules in food retail and processing, and the legal form of producer companies. Knowing which schemes are Central Sector and which are Centrally Sponsored is a common trap.

Analysis

1. India’s high farm share is a sign of a shallow food industry, not of a fair one. A 57.8% farm share looks like good news for farmers, but it mostly reflects how little happens to Indian food between the field and the kitchen: little processing, little packaging, little branded retail. Countries where farms receive about 27% are not necessarily exploiting farmers; they have food systems that add much more value after the farm. The authors themselves expect the share to fall as incomes rise. Policy should therefore target farmers’ absolute income and their stake in the value added, not defend a high share for its own sake. Treating a rising share as a success could even discourage the processing investment that creates jobs.
2. The value is moving to the restaurant, where the farmer is least present. The farm share of food away from home is 8.4% and falling, and eating out, now about 13% of food consumption, is the fastest-growing part of the food economy. Restaurants, cloud kitchens and delivery platforms buy through wholesalers and aggregators, and the farmer has no contract with them. As this segment grows, more of the national food rupee will accrue to services the farmer does not own. The practical response is direct supply links between FPOs and food-service chains, and farmer-owned ready-to-cook products, not an attempt to regulate restaurant margins.
3. Share and income are different, so input costs matter as much as margins. The gherkin case shows a tiny share can come with good profits, because contract farming delivers assured prices, inputs and exports. The Amul case shows a large share can still leave farmers squeezed if feed costs rise and retail prices do not follow. Much public debate on ‘middlemen’ assumes a lower farm share means exploitation, which the evidence does not support. A farmer is better served by lower input costs, better yields and stable prices than by removing an intermediary who may in fact be providing storage, credit and transport. The counter-view is that in many mandis, cartelised traders do extract rents, so the answer is competition, not the abolition of trade.
4. Farmer ownership downstream is right, but India’s FPOs are not yet equipped for it. The authors’ prescription, farmer ownership of food, beverage and logistics enterprises, is the logic of Amul applied beyond milk. But most FPOs are young, thinly capitalised and lack professional management, and processing needs working capital, quality certification and brand building. Milk succeeded because it is daily, perishable and needs collective chilling; grains and vegetables are harder to organise. The realistic path is for FPOs to start with primary processing, grading, sorting, cleaning and storage, and partner with private processors through equity or long-term contracts, rather than attempt branded consumer products at once.
5. The first systematic measure should become an official statistic. India’s arguments about farm prices have run on anecdote, typically a viral comparison of a vegetable’s farm-gate price with its city retail price. The authors note that until now there was virtually no systematic measure of the farm share of all food spending. Since the method uses supply-use tables that the National Statistics Office already compiles, the Ministry of Agriculture or MoSPI could publish such a series regularly, as the USDA does. Regular data would let policy test whether schemes like PMFME and the FPO programme actually raise the share of value that farmers capture.

Administrator's brainstorm