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 

READ MORE - The reforms Indian agriculture needs

Farmers are being penalized to grow food

With an income of Rs 27 (US $ 0.37) per day, an average Indian farmer fares worse than a labourer. 

Pic courtesy: downtoearth.org.in 

A few years after the World Trade Organisation (WTO) came into existence in 1995, I was invited by The Ecologist, London, to write an essay comparing the Indian farmer with a European farmer. The idea being to see how the Indian farmer, considering the relatively low cost of production in India, had gained economically after the opening up of international trade. 

This was the general impression that mainline economists had created to justify the need to join the trade agreement, despite the growing farmers’ opposition, with one of them going to the extent of terming the immense opportunities that WTO Agreement on Agriculture will provide for farmers as a ‘big bang’ opening. With agricultural exports expected to boom, farm incomes were slated to increase thereby transforming the face of Indian agriculture. With no such evidence available, and not finding any merit in the correlation, I actually ended up comparing an Indian farmer with a European cow. 

Almost 26 years after the WTO was launched, the latest report of the National Statistical Organisation (NSO) on agricultural households and incomes in rural India, released last week, paints a rather gloomy picture. This Situation Assessment Survey (SAS) was conducted in 2018-19. While the survey report hasn’t drawn any correlation between a farmer and a cow, what it has clearly brought out is no less frightening -- an average Indian farmer fares much worse than a labourer. If 75 years after Independence, farmers are earning more from wages than from crop cultivation, it only shows that the overarching economic design of keeping farm incomes deliberately low so as to accelerate rural to urban migration, because cities need cheap labour, is on track. 

In 2012-13, when the last SAS was conducted, an agricultural household earned 48 per cent of the income from crop cultivation; which declined to 38 per cent under the 2018-19 survey. During the same period, share of farm income from wages alone rose from 32 per cent to 40 per cent. Increasingly, wages have begun to form a larger chunk of an average agricultural household income, a trend that will hopefully continue in the years to come. Calculated on the basis of ‘paid out expenses’ the total monthly income has been computed at Rs 10, 218 for an agricultural household. Compared to Rs 6,426 per month in 2012-13, and adjusted for inflation, it represents a nominal increase of 16 per cent. Using the ‘paid out expenses and imputed expenses’ approach, average income per agricultural household has been shown as Rs 8,337 in 2018-19. For this, the imputed expenses mean the input coming from home, unpaid labour, own machinery, own seed etc.   

Nevertheless, as far as crop cultivation is concerned, an average agricultural household earned Rs 3,798 in 2018-19. In real terms, when adjusted for inflation, the earnings from cultivation declined by 8.9 per cent between 2012-13 and 2018-19. Further, broken on a per day basis, a newspaper has in an interesting analysis, worked out the income from crop cultivation at Rs 27 per day. Even a MANREGA worker earns more. It only establishes what I have been saying for long – farmers are in reality being penalised to grow food. And in any case, income from cultivation is certainly less than the earnings from an average lactating cow on a per day basis, given the farm gate price of approximately Rs 30 per litre. 

Obviously, the lesser the farm income, the more is the effort to draw credit, sometimes from multiple sources. The average farm debt increased to Rs 74,100 in 2018-19 from Rs 47,000 in 2012-13. About half of the agricultural households, 50.2 per cent to be exact, carried outstanding loans. Strangely, Mizoram sees a whopping increase of 709 per cent in outstanding farm loans, followed by Assam and Tripura in the Northeast.  

More recently, Parliament was informed that by the end of March 2021, outstanding farm loans totalled Rs 16.8-lakh crore, with Tamil Nadu topping the chart. 

Considering that nearly 77 per cent of the agricultural households are self-employed, what is worrying is that 70.8 per cent of the landholdings are less than 1 hectare. Only 9.9 per cent of the landholdings are between one to two hectares. An agricultural household has been defined as a household receiving more than Rs 4,000 as value of produce from agriculture and allied activities with at least one member engaged primarily in farm activities in a year. 

With only 0.2 per cent of the rural households having more than 10 hectares of land, it belies the narrative being drummed up accusing the farm protests to be the work of big farmers.  

Big or small, the denial of rightful income to farmers’ goes well with the policy thrust being exercised by successive governments over the past few decades to push people out of agriculture. Following the World Bank/IMF emphasis on shifting population from rural areas, also resonating with the dominant economic thinking that increasing urbanisation pace will lead to faster economic growth, keeping agriculture deliberately impoverished creates conditions for farmers to abandon farming and move out. I will not be surprised if the findings of the SAS 2018-19 are used by mainline economists to call for policy changes to hasten the process of urban migration. 

This has to be reversed. While India’s foodgrain production has hit a record 308.65 million tonnes in 2020-21, with production increasing year after year, farm incomes certainly have been on a downward spiral. Take a look at the Producer Subsidy Estimate prepared by the Organisation for Economic Cooperation and Development (OECD) for the 20 year period, from 2000-02 to 2018-20. It tells us that India along with Vietnam and Argentina, are the three countries that are negatively taxing their farmers. In terms of percentage of gross farm receipts, India is taxing its farmers approximately to the tune of minus five percent. 

Farmers are aware that the central laws the government is promising will further exacerbate the agrarian crisis. What they are asking for is a rethinking in farm income policies, whereby farming, without non-farm wages to supplement farm income, becomes an economically-viable enterprise on its own. #

Source: All pain, no gain for farmers. The Tribune. Sept 15, 2021 https://www.tribuneindia.com/news/comment/all-pain-no-gain-for-farmers-311197

READ MORE - Farmers are being penalized to grow food