The reforms Indian agriculture needs

Pic courtesy: rediff.com 

Farmer protests show no signs of ending. For almost ten months now farmers have been protesting at the New Delhi borders. While the protesting farmers are not giving up on their basic demand calling for the repeal of the three central laws, the Centre remains adamant saying that it is willing to accept amendments to the three laws but complete withdrawal is out of question. 

As the stalemate continues, a question that is being repeatedly asked is if the three laws are not acceptable for farmers, then what kind of agricultural reforms would be required. After all, even before these laws were introduced Indian agriculture was (and is still) passing through a terrible crisis. Just withdrawing the laws would mean returning to a status quo which in any case is not going to help the farming community struggling to somehow survive.   

That Indian agriculture is passing through an appalling crisis was never in doubt. But the latest report of the Situational Assessment Survey 2018-19 which looked into agricultural households and incomes in rural India only comes as an acknowledgement of the worst fears. This comprehensive study, based on an extensive survey, clearly shows that the income of an agricultural household from crop cultivation alone has been on a steady decline. In fact, an average farm household in 2018-19 earned more from wages than from crop cultivation.  

This survey report should in fact tell us why farmers are braving weather extremes to stay put at New Delhi borders. After all, as I have always maintained, the compound anger the protesting farmers carry is the result of continuous neglect and apathy they have lived with. Agriculture has been deliberately kept impoverished to keep economic reforms viable. That’s how the economic design was cast. In other words, the entire burden of keeping food prices low has been borne by farmers, which means in real terms, farmers alone have been subsidising the country. 

These are the same farmers’ whose hard work and labour results in a record harvest year after year, allowing the government to pat itself on the back, taking credit for a record production. In 2018-19, farmers produced 187.75 million tonnes of milk, 174.63 million tonnes of paddy and 102.19 million tonnes of wheat. In addition, farmers produced 320.47 million tonnes of horticultural crops, including fruits, vegetables, spices and plantation crops. But despite the bountiful harvests, farmers have remained at the bottom of the economic ladder. To keep food inflation low, and to hasten migration to the cities which are need of cheap labour, agriculture has been very conveniently sacrificed. 

For macro-economists, agricultural growth helps raise the quarterly as well as the annual GDP figures. So much so that even during the lockdown, when economy contracted, agriculture remained the only saviour registering a positive growth throughout. Agriculture, in other words, had lived up to its reputation of being the mainstay of the economy. But that is where the appreciation and acknowledgement ends. Mainline economists and policy makers have remained not even remotely concerned of the continuing plight of the farming community.   

Despite all the subsidies and programmes that are announced from time to time, which gives a false impression of agriculture being hugely supported, the latest Producer Subsidy Equivalent estimates prepared by the Organisation for Economic Cooperation and Development (OECD) shows that in reality India had negatively taxed its farmers in the past two decades. 

This brings me back to the question as to what kind of reforms does agriculture need. After all, agriculture continues to be in the throes of a serious crisis and has been crying for attention. The immediate need is to pull farmers out of the poverty trap by making farming a viable proposition. This is possible only if policy makers are willing to take some bold steps to realise the Prime Minister’s vision of Sabka Saath Sabka Vikas.

Since this question is asked again and again, and even at the cost of sounding repetitive let me reiterate that the three pillars of reforms that Indian agriculture desperately need are:  

1) Make Minimum Support Price (MSP) a legal right for farmers. Just like Spain brought in a law in Feb 2020 to make trading below the cost of production illegal for agricultural, horticultural, livestock and animal husbandry, it is high time India too brings in a legal provision making trading below the MSP to be illegal, and prescribe suitable penalties for defaulters. At present, while MSP is announced for 23 crops every year, effectively it is implemented for only two crops – wheat and paddy. This provision has to be extended for all the crops for which prices are announced. It does not however mean that the entire farm produce has to be procured. It only means setting a benchmark price below which farm gate prices for farmers are not allowed to fall. This has to be accompanied by a direct income support programme for marginal farmers with less than 1 hectare landholding. 

2) Expand the network of APMC regulated mandis. At present, we have approximately 7,000 APMC mandis. Although a lot of discrepancies have emerged in the way APMCs are managed, the need is to make corrections and not to throw away the baby with the bathwater. In fact, to minimise distress sale and ruthless exploitation by trade, markets need to come closer to the farm. India therefore needs 42,000 mandis if a market has to be provided within 5 km radius. Private sector should be invited to set up mandis to operate under the same APMC marketing norms. This will inculcate healthy competition. 

3) Replicate the Amul dairy cooperative model for fruits, vegetables, pulses and oilseeds to begin with. Instead of inviting corporate into agriculture, strengthen the cooperatives. This will need appropriate public sector investments, and structural changes in agricultural marketing set up. And let’s not forget. When consumers buy milk from dairy cooperatives, nearly 70 to 80 per cent is the share of farmer in the end consumer price. In America, where free markets operate in agriculture, only 8 per cent is farmers share in the end consumer price. What we need is perfecting a system that provides 70-80 per cent of the end consumer price to farmers. #

Source: Making farming viable key to pull farmers out of debt trap. BizzBuzz. Sept 17, 2021. https://epaper.bizzbuzz.news/Home/MShareArticle?OrgId=17924a99c3e 

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Farmer of no value in value-chains

Pic courtesy -- from the web

Inaugurating the National Convention of the National Growers Federation – group of associations of coffee growers in Karnataka – at Bangalore, I asked how much would be a farmers share from a hot cup of coffee that consumers normally drink in a trendy coffee outlet. It took them sometime to work out the cost, so much so that they even looked at some international analysis, and what they presented a day later would simply sound unbelievable.

For every cup of hot coffee that costs consumers Rs 250 on an average in any upwardly mobile coffee bar/lounge, the farmers share is only Re 1.

It didn’t however startle me. More so at a time when the international prices of coffee is a third of what it was about 13 years ago. The commodity futures market for coffee has remained depressed making the lives of producers more tenuous, forcing growers in many countries, especially the younger generation, to abandon plantations. In India, coffee prices have been on the decline for almost three decades thereby further aggravating the crisis in the picturesque coffee belt. To overcome growing debts, estimated at over Rs 8,000-crores, many growers have turned their homes into ‘home stays, some have abandoned plantations and many have moved out.    

Earlier, a British Economic Survey report had computed a farmer’s share in a cup of coffee costing an average of 2.50 pound sterling, at only 10 pence. In other words, the coffee value chain, whether in India or in Britain, offers little or no succour to the coffee growers. Strangely, while all other stakeholders in a value chain end up making profits, it is the primary producer who is left to bear the brunt. “Unlike producers of commodities such as oil and natural gas, coffee farmers have long suffered from being at the wrong end of the value chain - receiving only a small fraction of the retail price of their crop,” says a Reutersnews agency report. Knowing that commodity future trading has played havoc with coffee growers’ livelihoods, the Financial Times had even sought a mechanism to stable coffee prices, which only shows that trading in futures market is no answer to the declining farm incomes across the globe.

Coffee is not the only agricultural commodity to be on the wrong side of the value chain, most other agricultural products fare equally badly. Several studies have shown that in case of bananas grown in Central and Latin American countries and traded in America/European Union, farmers share from every dollar worth of sale of bananas is a paltry 2 pence. Even for the best of the value chains, workers earn around 5 to 7 per cent of the total value of bananas while the retail pockets 36 to 43 per cent of the value. This is true for all agricultural commodities. It is the retail trade that walks away with a disproportionate share of the profits. In the case of milk, some dairy farmers in UK say that they receive at best 19 cents from every litre of milk consumers buy, which is not even enough to cover the cost of production.

To illustrate how farm prices have been declining over the years, the US National Farmers Union worked out a farmer’s share from what the consumers normally spend on a Thanksgiving dinner. Accordingly, a farmer gets just 12 cents from every dollar consumers spend. The US Department of Agriculture (USDA) has meanwhile also worked out that in 2018 for every dollar a consumer spent on food, farmers share of the profit pool was only 14.8 cents, which has seen a five per cent decline over the previous year. Interestingly, USDA analysis shows that while more than 85 per cent of every food dollar spent in the country goes for marketing, processing, wholesaling, distributing and retailing, farmer’s share is too low.  

NFU says for one pound (0.45 kg) of tomatoes costing $ 3.19 in the retail, farmer gets only $0.54; for five pounds of potatoes retailing at $2.30, a farmer’s share is only $0.70; and for two pounds of bread costing $2.10 to the consumer, farmer share is only $0.10. Similar illustrations by the Indian Council of Agricultural Research (ICAR) are required showing what percentage of the retail price of vegetables, fruits and food products actually are passed on to farmers thereby helping consumers to understand the reasons behind growing indebtedness in agriculture leading to farm suicides and deepening of agrarian distress. Take the case of poultry eggs, a newspaper report quoted the Indian Poultry Equipment Manufacturers’ Association saying how in the past one year, the producer ends up making a loss of Re 1 on every egg consumers buy.

If becoming part of a value chain is an effective way for ensuring what is called ‘price discovery’ then there is no reason why farmer’s share in a food product available in the market should be declining. Further, linking these value chains with commodity futures trading is no assurance of price stability or a higher price as the coffee experience has shown. This is because to gain competitive advantage and high profit levels, companies are squeezing farmer’s price.

Since the farmer too needs a stable and appropriate income to survive, to maintain his family, to pay the health and education bills like all of us, the challenge is to find a workable mechanism that ensures the continuous viability of a farming enterprise. My first suggestion is to draw from the experience of Amul milk cooperative, which claims to pay dairy farmers nearly 80 per cent of the end consumer price, and to expand the cooperative farming network to include vegetables and fruits to begin with. The other approach should be to announce a minimum support price or intervention prices for every farm commodity, linked to inflation, and then credit the difference between the market price and the support price into farmer’s account as deficiency payments.

As far as the value chains are concerned, a cess on value added products can go towards providing direct income support for farmers. For this, it is time to look into a policy suggestion made by a Kerala Cabinet minister K Krishnankutty, who has himself been a farmer leader. Calling it Actio Apportum, his suggestion is to create a fund by fixing a cess on a value added product, say Re 1 on every kg of rice, and from the amount generated, which will vary depending on the profit margin, an income support can be provided for farmers. #   

Farmer of no value in chain. The Tribune. Jan 17, 2020
https://m.tribuneindia.com/news/farmer-of-no-value-in-chain-27300?fbclid=IwAR3cP9boJAAdATgih6A0NAutSQU9DAyl4n_dhI63b2_5hQoICQiL_wPvH6k

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