ARECANUT IN THE NATIONALECONOMY

Prepared by:Dr. T.N. Prakash Kammardi,

Professor & Head and Honorary Director,Scheme on Cost of Cultivation of principal Crops of Karnataka (GOI),

Assisted by:Ranganath, L. and Ranjith Kumar, P.S., Research Fellows,

Department of Agricultural economics,University of Agricultural Science, Bangalore 560065.

Ph: 080-23620025 (O), Mob: 9448772202, email: prakashtnk@yahoo.com

nspite of the significant contributions that arecanut makes to the

Nation’s Economy, precise estimates in this regard are very much

lacking. This information gap is a cause for concern for those who are

involved in making policies and programs to protect the interests of

arecanut farmers and to promote arecanut economy in India. This

section provides available information regarding the area, production,

marketing, processing, demand, trade and so on related to areca nut

in India.

I. Area and Production

India is the traditional areca-growing country in the world. At the time of

partition, during 1947, nearly half of the area under arecanut was lost to

Pakistan. As a result, the country faced the shortage in supply of arecanut during

the early fifties. The increasing internal demand was made good by import of

arecanut from Sri Lanka and Malaysia in the beginning. Hence, the Government

had encouraged the expansion of area under arecanut cultivation on a large scale

and provided liberal financial assistance, through co-operatives and scheduled

banks, for its cultivation. Consequently, the production of arecanut increased

steadily and the country achieved the self-sufficiency by early 60’s.

I

As per the Ministry of Agriculture, GOI, the area under arecanut is around 4

lakh hectares with a production of around 4.78 lakh metric tons in 2009-10 in

India. Main arecanut growing states in the country are Karnataka and Kerala

which together account for 70 per cent of both area and production in the country.

Assam, West Bengal and Meghalaya are other minor arecanut producing states in

India. Details are given in the table 1 and graph 1.

Graph 1: Area of Arecanut in Different States in India (2009-10)

Table1: State wise Area and Production of Arecanut in India (2009-2010)

Sl.No. StateArea

(hectare) PercentageProduction

Percentage(metric tons)1 Karnataka 1,84,520 46.12 2,24,000 46.862 Kerala 97,170 24.29 112,140 23.463 Assam 69,970 17.49 62,700 13.124 West Bengal 11,390 2.85 21,160 4.435 Meghalaya 12,360 3.09 17,100 3.586 Tamil Nadu 5,030 1.26 10,390 2.177 Tripura 4,430 1.11 8,360 1.758 Mizoram 6,580 1.64 8,210 1.729 Andaman & Nicobar 4,100 1.02 6,000 1.2610 Maharashtra 2,200 0.55 3,600 0.7511 Goa 1,850 0.46 2,780 0.5812 Nagaland 200 0.05 1,300 0.2713 Andhra Pradesh 250 0.06 190 0.0414 Pondicherry 60 0.01 80 0.02

India 4,00,110 100 4,78,010 100Source: National Horticulture Board , GOI, (2009-10)

The area and production of arecanut have been increasing continuously in

India since 1991-92. Area under arecanut has increased to 4.01 lakh hectares in

2009-2010 which is almost twice that of the area prevailing in 1991-92 (2.2 lakh

hectares). Production of Arecanut during 2009-2010 was 4.78 lakh Metric Ton

(MT) which was around two times produced during 1991-92 (2.5 lakh MT).The

same is depicted in graph 2.

Graph 2: All India area and production of Arecanut since 1991

1.1. Karnataka Scenario

In Karnataka, as per the State Horticulture Department source, around 4.55

lakh acres (1.84 lakh hectare) is under arecanut cultivation which forms around

46 percent of all India total. Its contribution to total production is around 2.24

lakh a ton that forms 47 percent of all India production in 2009-10.

It is important to note that arecanut cultivation is undertaken with varying

extent in almost 28 out of 30 districts in Karnataka. Among which, Chikmagalur

district stands first in both area (20 %) and production (17%), Shimoga stands

second followed by Davanagere district. The top 7 districts viz. Chikmagalur,

Shimoga, Davangere, Dakshina Kannada, Tumkur, Chitradurga and Uttar

Kannada occupy 89 per cent of the area under arecanut and contribute around 91

per cent of areca produced in the state. The remaining 21 districts occupy around

11 per cent of the total area, which together contribute around nine per cent of the

production. The details are given in Table 2 and illustrated in graph 4.

Graph 4: Area of Arecanut in Different Districts of Karnataka (2009-10)

Table 2: Area Production and Yield of Arecanut in Different Districts ofKarnataka in 2009-10.

Sl.No. District

Area

(acres)Percentage

Production

(Ton)Percentage

Yield

(Kg./acre)

1 Chikmagalur 1,07,110 19.91 56,572 17.38 528

2 Shimoga 94077 17.49 52781 16.21 560

3 Davanagere 73480 13.66 40159 12.33 548

4 DakshinaKannada 68938 12.81 49323 15.15 716

5 Tumkur 55145 10.25 37220 11.43 676

6 Chitradurga 42320 7.86 21523 6.61 508

7 Uttar Kannada 39503 7.34 37933 11.65 960

8 Other Districts 57282 10.59 30080 9.16 488

Karnataka 5,37,855 100 3,25,591 100 612

Source: - Department of Horticulture, Government of Karnataka (2009-10)

1.2. Rapid Area Expansion

Like any other prudent decision makers, arecanut farmers have been

responding positively to price stimulus by bringing additional area under

cultivation whenever there are good prices in Karnataka. This has been happening

since early 80’s as the prices started moving in upward trend in the state. A study

by Gajanana (1985) points out that the farmers in South Kanara (Dakshina

Kannada) district have added 30 per cent more area under cultivation for every 50

percent increase in the prices of arecanut.

This had further accelerated during the decade after the establishment of

the Central Areca nut and Cocoa Marketing and Processing Co-operative(CAMPCO) Ltd in 1973 as the farmers could get an assured marketing network

thru the CAMPCO ltd. The trend is being continued even today. As per a recent

study by Yadav (2007), the area response by the farmers for price stimulus is

positive and significant in both traditional as well as non traditional regions

growing arecanut in the State. The graph 3 shows area and production increase

in arecanut in Karnataka over the years. If the same trend continues, arecanut

production in Karnataka may increase enormously in the near future in

Karnataka.

At present, the arecanut has got its presence in almost 140 out of 175taluks in Karnataka. Among them, Kadur stands first in both area andproduction, followed by Channagiri and Bhadravati taluks overtaking thetraditional taluks that have been growing the arecanut from the beginning.

However, an accurate estimate of the expansion of area under arecanut at

the all India level is difficult to obtain. Unlike in the Southern states, arecanut

cultivation in Assam and North Eastern regions, is unsystematic and carried out

as a ‘forest crop’. This imposes a severe constraint in getting accurate estimates of

area and production of arecanut in the country. Even in Karnataka available

information confirms that area under arecanut is not only increasing in the

traditional cultivating regions (like Malanad and Costal areas) but also in the non-

traditional regions like Doddaballapura (Bangalore rural) as well as in the

command areas (like Tungabhadra regions) in the state. This is happening by

replacing either field crops such as paddy (in the traditional regions and command

areas) or ragi or pulses (in the non-traditional regions) in the state. Due to

differences in the land revenue which is higher for arecanut, this expansion, in

majority cases, is unaccounted and not included in the revenue records.

A reconnaissance survey indicates that the extent of unaccountedexpansion of arecanut varied from 34 percent in Sringeri and Sulya taluks,48 percent in Shimoga to almost 110 percent in Doddaballpura taluke(Prakash, 2002).

This unaccounted area expansion again acts as a bottleneck to obtain

accurate production estimates so as to formulate suitable policies and programs to

stabilize arecanut economy in India.

Graph 3: Area and Production of Arecanut in Karnataka (2009-2010)

1.3.World Scenario

Similar ‘information gap’ exists at the global level. As per the Food and

Agriculture Organization (FAO), the world production of arecanut was around

8.54 lakhs metric tons with a total area of around 7.03 lakh hectares in the year

2006. India’s share in production comes to 55 per cent and that of Indonesia 17

per cent, Bangladesh 10 per cent, China 8 per cent, Myanmar 4 per cent and

Thailand was around 2 per cent. The share of Sri Lanka, in total production of

arecanut in the world is hardly 1.6 per cent and that of Nepal, Malaysia, Maldives

and Kenya as per this source, is very negligible.

But, according to the Directorate General of Commerce, Intelligence and

Statistics (DGCI & S), Ministry of Commerce, GOI, India imported around 50

thousand metric tons, which formed almost 50 per cent of the total consumption

of arecanut during 1960. It was also stated in the Paulose Committee Report (1973

pp. 2) that the import was coming mainly from the two countries, Malaysia and Sri

Lanka. If this information was correct then it is difficult to believe how these two

countries have become insignificant producers in the recent years! Country wise

area, production and productivity of arecanut in 2006 is given in Table 3 and

Illustrated in graph 5.

Table 3: Country wise Area, Production and Productivity of Arecanut (2009)

CountryArea

(hectare)Production(metric ton)

Yield(Kg / ha)

India 400040 489000 1222

Indonesia 125000 52000 416

China 59000 162000 2745Bangladesh 79000 56000 709

Mynamar 36000 57000 1583

Thailand 16000 26000 1625

Malaysia 800 1300 1625

Maldives 40 330 8250

Nepal 2000 3600 2

Sri Lanka 12000 20000 1667

Kenya - 90 --World 729880 867320 1188

Sources: Directorate of Arecanut and Spices Development, (DASD) Calicut & Food and Agriculture

Organization (FAO), Rome

It should be noted that the average productivity of arecanut inChina is 225% higher than that of India and it is a whooping 700%higher in Maldives

Graph 5: Area of Arecanut in Different Counties 2009

II. Investment, Livelihood and Employment

Investment made by farmers on perennial plantation crops like arecanut is

very substantial. A precise estimation of such investment at the aggregate level is

not readily available. This eludes the attention of the policy makers to frame

policies and programs to protect the interests of the farmers. There are two ways

through which private investments from the farmers have been made on arecanut.

Arecanut requires around 8 years period to get established and to bear economic

yield. On an average an investment of around 2.75 to 3.00 lakh rupees (in

current prices) is required to raise one acere arecanut garden in Karnataka

(Prakash, 2004). This includes the cost of seedlings, input, labour to land revenue

and rental value of the land. Another form of investment is on the permanent

items such as fencing, machinery, equipments and processing yards, which put

together works out to around Rs. 50,000 in traditional arecanut cultivation

region (Rajashekarappa, 2001). As mentioned earlier, there is around five lakh

acere area recorded under areanut in Karnataka.

A rough estimation of the total investment made on arecanut gardensby the farmers comes to around fifteen thousand crore rupees (in currentprices) in Karnataka.

Similar information on the extent to which areanut provides income and

livelihood security is also crucial. With an average size of holding less than 2

acers, there are around three lakh farm families involved in arecanut cultivation

in Karnataka.

In addition, arecanut cultivation generates high employment both at

production as well as processing stages. On an average, each acere of areanut

employs around 250 human days for cultivation and another 200 human days for

processing annually in Karnataka (Mallikarjuniaha and Prakash, 1987). In this

way, arecanut provides employment to around 10 lakh laborers round the year at

the farm level itself in Karnataka. In addition, for grading, marketing and

preparation of value added products like scented supari, arecanut provides

employment in the urban as well as semi urban areas. There are 15 lakh petty pan

shops earning a good income by selling beeda and other value added arecanut

products in different parts of India.

In these ways, a very rough estimation points out that the arecanutprovides income and livelihood security to more than thirty million peoplein India!

It is very important to note that even during the days of collapse in the

prices of many plantation crops; arecanut has provided the income and livelihood

security to farmers and workers depending on it without many interventions by

the government in South India. This is mainly due to excellent marketing

arrangements where both co-operatives and private agents are playing very crucial

roles in Karnataka.

III. Internal Demand, Exports and Imports Surge

Though arecanut production is location specific, its consumption is wide

spread throughout the country. Prior to the 80s, the arecanut was consumed

mostly in the raw forms to prepare either traditional tambula or the beed.Production was not even sufficient to meet even internal demand up to 1965.

3.1. Consumption of Arecanut in India

Emergence of the value added arecanut products such as Scented Supari,and Ghutka had given real boost to the arecanut economy in India. When the era

of “value addition” through the large scale commercial processing of arecanut

began, the diversified products in attractive packets and labels started flooding

the retail markets though out India. Value added arecanut products promised a

lucrative enterprise in view of its increasing consumption by all groups, in nook

and corner of India. This enhanced the choice and convenience of the consumers,

as a result of which the consumption of arecanut especially in the northern

states such as Uttara Pradesh, Gujarth, Delhi and Maharastra increased by many

folds.

Demand for arecanut products has increased steadily in India. Arecanut

being a ‘habitual’ item, its consumption, is income elastic and price inelastic’; i.e.

for an increase in the income, its consumption increase more than proportionately

and for a given level of price raise, proportionately less reduction in consumption

takes place. Consumption of arecanut in India has increased from 2.50 lakh tons

during 1991-92 to around 5.2 lakh tons in 2009-10 with annual growth rate of

around five per cent. The projected demand of arecanut by 2020 is estimated to be

more than six lakh tones in India.

The compound annual growth rate of production is around 4.20percent which is less than that of consumption which is growing at the rateof around five percent annually in India. This is a happy sign for Arecanuteconomy, as a whole, in India.

However, foreign trade with in which import of arecanut is growing at a very

high rate of around 23 percent compared to the export whose annual growth rate

is just around 10 percent in recent years. This must give sufficient cause for

concern for farmers, co-operatives and policy makers in India. The Coefficient of

Variation (CV) which explains annual fluctuations also calculated for production

consumption and trade in India. As seen in the table below, the trade (import and

export) has been fluctuationing heavily (around 80% of the mean value) over the

years. Such a huge fluctuation especially in imports has very destabilizing impacts

not only on arecanut economy but also on income earning capacity of farmers

producing arecanut in India. Hence proper preventive measures are needed

immediately in this regard. The details of production, consumption and trade are

given in table 4 and the same is represented in graph 6.

Table 4: Production, Consumption and Trade of Arecanut in India(in Metric Tons)

(1991-1992 to 2009-2010)

Year Production Export Import Consumption1991-92 2,51,000 658 0 2,50,3421992-93 2,56,300 629 0 2,55,6711993-94 2,71,100 525 0 2,70,5751994-95 2,89,700 823 545 2,89,4221995-96 2,95,500 406 5,091 3,00,1851996-97 3,07,700 513 9,565 3,16,7521997-98 3,35,500 664 10,823 3,45,6591998-99 3,09,800 533 6,707 3,15,9741999-00 3,34,400 734 11,695 3,45,3612000-01 3,73,100 712 29,350 4,01,7382001-02 4,09,300 1,483 14,788 4,22,6052002-03 4,09,300 1,555 21,452 4,29,1972003-04 4,39,200 1,809 27,957 4,65,3482004-05 4,52,700 3,695 32,124 4,81,1292005-06 4,83,100 4,113 53,275 5,35,3312006-07 4,83,300 2,268 76,678 5,37,0672007-08 4,76,000 1,472 21,299 4,95,8272008-09 4,81,300 1,518 41,797 5,21,5792009-10 4,78,010 1,757 39,527 5,15,780CGAR(%) 4.19 10.04 22.47 4.75CV(%) 22.96 77.28 80.24 25.92

Source: National Horticulture Board and DGCI & S, KolkattaCGAR- Compound growth Rate and CV Co-efficient of Variation

Value addition helped farmers to get good prices. For instance, in a span of

just 15 years, from 1985 to 2000, the increase in the price for raw nuts was more

than 500 percent and the area under arecanut has almost doubled in Karnataka.

This enabled the small farmers with one acre area under arecanut to earn an

assured income sufficient enough to lead a decent standard of living. If

unaccounted area is taken in to account the annual arecanut production may

exceed five lakh tons in India. With a modest average price of rupees five thousand

per quintal, the income that the farmers cultivating arecanut receive, would easily

exceed rupees 2500 crores (at current price) annually in India. As a result of this

income generation, the consumer durables such as bike, TV, fritz and cars, which

are other wise confined only to the urban upper middle class, became common

household items in the regions growing arecanut in India.

Graph 6: (a) Production and Consumption of Arecanut in India.

(b) Export and Import of Arecanut in India.

A study by Preeti (1998), also highlights that there is a significant improvement

in the socio-economic status of arecanut farmers during the early 90’s. For

instance, farmers especially large farmers, have began to spend more on items like

LPG gas, electric appliances, phone connection, purchase of four wheelers, house

construction and even to purchase of agriculture land after the price boom.

At the retail levels, Ghutkas are sold at an average price of Rs. 800 per kg

where as the price of scented supari is around 400 per kg. When areca nut is used

for beedas it fetches a price of around 500 per kilogram. In this way, arecanut gets a

value addition ranging from 350 percent to 600 percent when consumed ultimately.

And hence, it is up to anybody’s imagination that the huge contribution that the

value added areca nut products could make to the country’s National Income.

A simple estimation indicates that arecanut contributes around 15,000crore rupees annually to the National Income of India.

3.2. Export of Arecanut

Not only our neighboring SAARC countries but also Middle East and other

Muslim countries have become an assured destination for the value- added arecanut

products. Demand for these products has been fast increasing globally, especially

among the people of Indian / Asian origin. Export of arecanut products from India

has almost tribbled in a span of 20 years since 1991. India’s export currently reaches

more than 40 countries in the world. During 2009-10 India exported nearly 1750

tons of arecanut in the forms of splits nuts (13%), whole nuts (37%) and value added

forms like scented Supari (50 %). Major destinations of these items are Malaysia,

Maldives, UAE, Nepal, UK, Sri Lanka, South Africa, Canada and Kenya.

Interestingly, the demand is increasing gradually in the developed world also

including USA, UK, Canada, Australia, Thailand, Singapore and France, that too for

the products such as Ghutka and Panmasala. The panmasala and scented supariare exported to countries like UAE, Afghanistan, Canada, Mexico, Saudi Arabia,

Singapore, UK etc. The UAE has been major market for Indian panmasala, accounts

for 50 per cent of export from India in recent years. The UK, Canada, Saudi Arabia

and USA stand next to UAE in import of Indian panmasala.

3.3. Import of Arecanut into India

Various promotional measures were introduced by the State as well as Central

governments to increase the production of arecanut during the 70’s. These helped in

the gradual expansion of area, increased production and ultimately resulted in self

sufficiency in the consumption of arecanut inIndia. From 1974-75 to 1993-94 there

was no import of arecanut into the country. But, the situation had changed there

after. As a result of liberalizing the economy during the early 90’s and signing of

GATT agreement, the import of arecanut in to India has started increasing at an

alarming rate. The annual rate of increase in import of arecanut has crossed 22 %

since 1995. The details are given in the table 4.

Arecanut imports in 2006-07 has touched an all time high of 76,760tons at a unit cost of less thani rupees 15 per kg ! . This is equal to around 15percent of Country’s production and almost 35 percent of arecanut producedin Karnataka.

Such an unregulated imports had a very deleterious effect on the stability of

the economy and well being of the farmers producing the arecanut in the country.

Nearly 40,000 quintals of arecanut valuing around 100 crore rupees have been

imported to India in the recent years (2009-10) from eight Asian countries and an

African country i.e. Tanzania. Nearly 43 % imports were in the whole nut form, 32 %

in the split form and remaining 25 % import was in other forms. Nearly half of the

imports came from Indonesia. Bangladesh (15 %), Nepal (13 %), Myanmar (6 %) and

Thailand (5 %) are the other major countries exporting arecanut to India in recent

years.

IV. Conclusions

The above analysis clearly demonstrates that the arecanut at the

macro level has been playing diverse roles and contributing in multiple

ways to the economic development of India. Ultimately, these must result

in welfare and well being of the farmers producing the arecanut.

However, the recent collapse in the prices and severe pests and disease

attack on palms in the traditional areas are threatening the very

sustenance of arecanut economy in India. The situation called for

“intervention” by the Government, in the form of Minimum SupportPrice (MSP) that provided, to some extent, much needed stability to

arecanut economy in the State. Nonetheless, the recurrent

pronouncements to ban some of the value added areca products like

Ghutka and Panmasala add salts to the injury and has put in jeopardy,

the very livelihood security of millions of farmers and workers depending

on arecanut cultivation and trade in the country. This calls for rigorous

policy interventions, thorough R & D efforts, coherent planning and

program initiatives to resurrect arecanut economy in India.

V. Reference

Faulose Committee Report 1973, The Price Structure of Arecanut and other AlliedMatters, The Government of Mysore.

Gajanana, T.M., 1985, An Analysis of Supply Response of Arecanut in Karnataka, M.ScThesis (Unpublished), submitted to University of Agricultural Sciences,Bangalore.

Mallikarjunaiah, K.G., and Prakash, T.N., 1988, Processing and Marketing of Arecanutin Shimoga District, Research Report submitted to Director of Research,University of Agricultural Sciences, Bangalore.

Prakash, T.N., 2002, Cost of Cultivation of Arecanut in Karnataka, Research report,Department of Agriculture Economics, University of Agricultural Sciences,Bangalore.

Prakash, T.N., 2004, Cost of Cultivation of Arecanut in Karnataka, Research report,Department of Agriculture Economics, University of Agricultural Sciences,Bangalore.

Preeti, N. S., 1998, Economic Analysis of Arecanut Cultivation and its Impact on nonFarm Economy in Shivmoga District of Karnataka, M.Sc. Thesis(Unpublished), submitted to University of Agricultural Sciences, Bangalore.

Rajashekarappa, M.T., 2001, Impact of Crop Losses due to pest and Diseases on CostStructure of Arecanut Cultivation, M.Sc. Thesis (Unpublished), submitted toUniversity of Agricultural Sciences, Bangalore.

Yadav, C.G., 2007, Area Expansion and Output Projection of Arecanut - An EconomicStudy in Karnataka State. M.Sc. thesis (Unpublished), submitted to Universityof Agricultural Sciences, Bangalore.