In agriculture, we need index numbers to research patterns over time in terms of location, yield, output, productivity, prices, and so on. Also, the index helps to evaluate the results of the agricultural sector to that of other sectors. Exact figures of the area, yield, production, and so on are unfit for studying trends over time. Therefore, the index numbers develop after taking into account the changes in coverage and approximation methods. Ministry of Agriculture defines index number into two groups:
(a) Area, Production, and Yield Index Numbers, and
(b) Terms of Trade Index Numbers between Non-Agricultural and Agricultural
Index Area, Production, and Yield Data for Food Grains
The DESMO also creates national indexes in addition to state index numbers. To be consistent with the other sets of indexes such as the Index of Industrial Production, Wholesale Price Index, as well as other series of National Accounts Statistics, the baseline year for the current series of “Index of Area, Production, and Yield in Agriculture” is the triennium finishing 1993-94. Use of the average of area and production over the period studied helps to determine the base level area and production. It will balance out variability in area and production year over year.
The estimated production of a commodity in the period studied ending 1993-94 and the national average price of the product during 1993-94, as determined by National Accounts Statistics, measures the quantity of a commodity for production index. Because of the large fluctuations in State prices, this helps to set the base output at its average level by removing cyclical variability. It also measures the production with a single price for all States. The percentage of present year crop area compared to base year crop area is the index number of area for a specific crop for a given year.
The index of production
The measurement of an index of production is in the same way, using production figures rather than area figures. And, the index number of yield for a given crop is measured as a percentage of the index number of production divided by the index number of the region. The all-India indices are calculated independently of the State indices, despite the fact that these indices are calculated independently for each State.
Food grain items
Non-food grain items
Seeds that contain oil are Linseed, Castor seed, Safflower, Nigerseed, Soyabean, Sunflower, Coconut, and Cottonseed, Groundnut, Sesamum, Rapeseed, and Mustard, Linseed, Castor seed, Safflower, Nigerseed, Soyabean, Sunflower, Coconut, and Cottonseed (There are 9 oilseed crops, besides Coconut and Cottonseed.)
Fibers: Cotton, jute, mesta, and sunn hemp are examples of natural fibers (Jute and Mesta constitute a sub-group.)
Crops grown on plantations are Rubber, Coffee, and Tea.
Spices and condiments are Pepper, ginger, garlic, chilies, turmeric, areca nut, coriander, and cardamom are only a few of the spices used.
Fruits and vegetables: Potato, onion, banana, cashew nuts, tapioca, and sweet potato are some of the examples.
Other crops are Guar seed, sugarcane, and tobacco
Index Trade terms between agricultural and non-agricultural sector
The Ministry of Agriculture creates index numbers of terms of trade (ITT) between both the agricultural and non-agricultural sectors. It compares the rates of agricultural sector exports with rates of non-agricultural sector imports. It calculates the difference between the prices earned by farmers for produce sold. Also, it calculates the prices charged by them for goods purchased for final and intermediate use, as well as capital accumulation.
A value of ITT higher than 100 indicates that the Agricultural Sector has beneficial terms of trade. However, a value of ITT less than 100 implies that the Agricultural Sector has unfavorable terms of trade. From 1981-82 onwards, such indexes are available. The triennium ending in 1990-91 served as the foundation for the current sequence of ITT. The average of the Index of Prices Received (IPR) to the Index of Prices Paid (IPP) by the Agricultural Sector calculated as a percentage is a technique used to create ITT.
The Index of Prices Received (IPR) includes 39 essential agricultural crops and commodities produced across India. Also, it includes 9 livestock products. The weight for the index is the percentage of each commodity’s market price in relation to the total amount of marketed surplus for all goods.
The Agricultural Sector's Index of Prices Paid
The Agricultural Sector’s Index of Prices Paid (IPP) determines the goods and services purchased from the non-agricultural sector. It also determines their rates, for final consumption, intermediate usage, and capital accumulation. As a result, three different indices are calculated: IPP for final consumption (IPP-FC), IPP for final intermediate consumption (IPP-IC), and IPP for capital accumulation (IPP-CP). The total IPP focuses on a weighted average of the three-element indexes, with corresponding percentage weights of 73.54, 21.63, and 4.83.
The percentage of an index of prices earned by farmers in relation to the index of prices charged for final consumption, farm inputs, and capital investment calculates as the index of trade terms between both the agricultural and non-agricultural sectors.
Various uses of Agricultural indexes are:
- Insurance of the crop
- Used for government policies
- Used for research, survey, and Education
- For product price and consumption evaluation
- Problems and solutions related to price stability
- For administrative data of import and export
- Changing trends in the agricultural sector
The available index numbers of area, output, and yield for each state develops to include all crops. Since not all crops are valuable in every state, the State Indexes are likely to offer an inaccurate image. The index of trade terms has been examined to fulfill its intended function. There do not seem to be any flaws in the development of the series. The Ministry of Agriculture’s construction of State Indexes in addition to the all-India series of Index Numbers of Area, Production, and Yield is a welcome feature. However, it is critical that the State Indexes provide an accurate picture of the State with regard to particular parameters.