For years the Araku Valley, deep in the mountains on India’s east coast, was mired in poverty and rocked by Maoist violence. The government classifies most of its inhabitants as “particularly vulnerable tribal groups”; for generations they relied on slash-and-burn farming to scrape by. But now locals grow high-grade coffee that is sold at high prices to posh Europeans. Araku Coffee, the company that processes and markets their berries, runs cafés in fancy bits of Bangalore, Mumbai and Paris. The valley’s transformation is an agricultural success story. It is also a glimpse of what—with the right policies—the rest of rural India might achieve.

Indian agriculture has come a long way since the “ship-to-mouth” days of the 1950s and 1960s, when the country depended on food aid from abroad. It has long since become a net exporter of stuff people eat. Yet big inefficiencies persist. Although India has a third more land under cultivation than China, it harvests only a third as much produce by value, according to analysis by Unupom Kausik of Olam, an agri-business listed in Singapore. Agriculture employs almost half of all Indian workers—some 260m people—but contributes only 15% of output and 12% of exports (see chart 1). By contrast, business services such as call centres and it companies employ less than 1% of workers but produce 7% of gdp and almost a quarter of exports.

Handouts of every kind warp incentives for farmers. These giveaways weigh down production and prop up practices that degrade the land, all without making anyone much richer. Farm incomes have hovered at around one-third of non-farm incomes for decades. A study published in 2018 by the oecd, a club of mostly rich countries, found that despite huge subsidies the net effect of regulations and trade restrictions was to lower gross farm revenues by 6%.

Making even modest progress might produce outsize gains. Yields in India are lower than the global average for almost all produce. Merely raising them to the average would make India a massive power in global commodity markets: India’s excess rice production would be greater than the current global rice trade, reckons Mr Kausik. Should it raise yields to match the world’s best, India would be producing twice as much maize, three times as much cotton and eight times as much rice and pulses as is traded across borders today.

Making farmers more prosperous would also have a big knock-on effect for the rest of India’s economy. Agricultural employment figures mask huge underemployment. Pushing up incomes in the countryside would create demand for new goods and services, which would in turn create better jobs for India’s many millions of surplus farmhands. They would have the chance to earn better wages without having to decamp to the country’s booming but overcrowded cities.

Success in the Araku Valley (pictured) offers hints about how to proceed. In the late 1990s the state government of Andhra Pradesh, hoping to reduce deforestation and boost incomes, supplied farmers there with fast-growing silver oak trees. A few years later they were given coffee seedlings to grow in their shade. Locals such as Kora Venkatrao, who farms three acres, grew the berries as best they could. But they often sold their produce to unscrupulous middlemen at well below the market price.

Mr Venkatrao’s fortunes changed in 2016, when he joined a co-operative run by Araku Coffee that taught farmers how to grow higher-quality berries—then bought them for unheard-of prices. His income has since increased ten-fold to over 200,000 rupees ($2,400) a year. His thatched hut has become a concrete home with two bedrooms. He has bought a motorcycle and started building up savings. Manoj Kumar, Araku Coffee’s boss, says that some 2,000 of his farmers have become rupee millionaires. His secret? “Seeing agriculture as a profit-making, revenue-making, export-earning sector.”

The problem is that this is not how successive Indian governments have approached agriculture. Policymakers are inclined to view it as a conduit for welfare. They struggle to see it as an engine of growth. During his first term Narendra Modi, the prime minister, pledged to double farmers’ incomes. Yet many of his policies have ended up working against this goal. Consider, for example, the decision in 2016 to stop recognising high-denomination bank notes that made up 86% of India’s currency by value, for fear that they were enabling corruption and tax evasion. That extraordinary experiment damaged the cash-dependent rural economy.

A sudden lockdown at the start of the pandemic, in 2020, drove millions of workers away from cities and back to farms, reversing efforts to make agriculture more efficient. That same year, Mr Modi’s Bharatiya Janata Party (bjp) produced a set of sensible agricultural reforms but rammed them through parliament without consultation, setting off a year-long farmers’ protest that eventually forced their repeal.

Lately optimists have dared to wonder if the bjp—chastened by its poor performance in recent elections—might be stumbling towards a cleverer approach. Since his embarrassment at the polls Mr Modi has appointed a new agriculture minister, Shivraj Singh Chouhan, who previously served as chief minister of Madhya Pradesh, a state in central India. Under Mr Chouhan, Madhya Pradesh invested in irrigation, rural roads and warehouses. It sought to nudge farmers towards horticulture and made it easier for them to sell their produce in venues other than state-run agricultural marketplaces. All this bore fruit: the state’s agricultural gdp grew at an annual average rate of 7% between 2005 and 2023, roughly the period of Mr Chouhan’s rule, compared with 3.8% nationally.

The question now is whether Mr Chouhan can drive similar progress at the national level. The bjp’s previous, bungled attempts at reform have made large swathes of agricultural policy too toxic for the central government to tinker with. Mr Chouhan also cannot do much about the very big problem of small landholdings (the average Indian farm covers only a bit more than one hectare) and the resultant low rate of mechanisation.

But he could prioritise many other things. About half of Indian farmland has no access to water other than from the sky. India has enough cold storage for only about 10% of its perishable produce; the government reckons that up to 6% of cereals, 12% of vegetables and 15% of fruit are lost after harvest. Most of India’s agricultural exports are raw, unbranded commodities. Less than 10% of food produced in the country gets processed, compared with 30% in Thailand and 70% in Brazil. So tackling patchy irrigation and weak infrastructure, and encouraging higher-value processing, would all be profitable moves. Boosting agricultural output would support overall growth, too (see chart 2).

Some problems could be fixed with the stroke of a pen. Each year India splurges about 2trn rupees on food subsidies and nearly as much again on fertiliser subsidies, but spends just 95bn rupees on agricultural research and development. Spending on research as a share of agricultural gdp is less than 0.7%. The coming ravages of climate change all but demand greater investment: farmers will find it impossible to adapt without scientific breakthroughs.

There are also things that the government should simply stop doing. It regularly intervenes when food prices rise, for example by imposing limits on stock accumulation or by suspending futures markets. It banned exports of wheat in 2022 and most kinds of rice in 2023. All this prevents farmers from making money when prices are high and discourages traders from taking risks. It is mostly the better off who benefit: the poorest 800m Indians get free grain from the government, so changes in its price 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. Many of its coffee farmers also grow pepper; the firm is encouraging people working in other parts of India to grow kidney beans and millets. But only the government has the power to truly transform Indian agriculture. The way to do that, says Mr Kumar, “is not loan waivers, it is not subsidies, it is to see how we can create an ecosystem which is conducive” to growth. In other words, to nurture conditions in which a million Arakus can grow.