The challenges of Indian agrarian crisis

Though agriculture now accounts for less than 15% of gross domestic product (GDP), it is still the main source of livelihood for nearly half our population. Agriculture is still the core of our food security. With over 1.3 billion mouths to feed, imports will not solve our problem if there is a severe drought and food shortage.

However, the rising frequency of farmers’ agitations in Tamil Nadu, Maharashtra, Madhya Pradesh and elsewhere and the high incidence of farmer’s suicides are symptoms of a deep malaise in the sector.

What are the roots of this crisis?

Fragmentation of land: Demographic pressure has pushed down the land: man ratio to less than 0.2 hectares of cultivable land per head of rural population. It has also progressively pushed down the size structure of landholdings. Around 83% of rural households are either entirely landless or own less than 1 hectare of land. Another 14% own less than 3 hectares. At the opposite end, less than 0.25 of rural households own more than 10 hectares of land and a minuscule 0.01% own over 20 hectares.

Shortage of money: Landless or marginal farmers lack the resources to either buy or lease more land or invest in farm infrastructure—irrigation, power, farm machinery, etc.—to compensate for the scarcity of land.

Weather: The large majority of small farmers are dependent on the rains. A weak monsoon or even a delayed monsoon—timing matters—means a significant loss of output. Soil fertility, pests and plant diseases is another risk.

Price variations: Farmers are usually at the mercy of traders. The better the crop the lower would be the price. Net income sometimes collapses if there is a very good crop of perishables. The highly distorted and exploitative product market is the second most important factor responsible for the misery of the small farmer.

MSP: small farmers usually do not benefit from the government assured MSPs. It mainly benefits the large traders who sell grain to the government. Small farmers typically do not have enough marketable surpluses to justify the cost of transporting the crop to government corporations in the towns. Their crop is usually sold to traders at rock bottom post-harvest prices in the village itself or the nearest mandi.

APMCs: Agricultural Produce Market Committees (APMCs), which were supposed to protect the farmer, have had the opposite effect. Farmers have to sell their produce through auctions in regulated markets controlled by cartels of licensed traders, whose licences give them oligopolistic market power. These cartels fix low purchase prices, extract large commissions, delay payments, etc. According to a study, the farmers may typically get as little as 25% of the price that consumers finally pay. A consolidated mark-up of 300%.

Migration: The rural youth, especially young males, are migrating to the towns and cities for a better future. But their dreams are quickly shattered. There is not much employment growth anyway and they lack the skills required for a decent job. What remains is a burgeoning army of unemployed, miserable and frustrated young men.

Other Reasons

Increasing debt burden

1. The share of institutional loans disbursed to agriculture and allied sectors has risen from 9% in 2000-01 to 31.4% in 2015-16.

2. The amount of short-term institutional loans for agriculture exceeds the total cost of inputs including hired labour. This indicates that a part of crop loans is spent on non-agricultural purposes.

3. According to NSS surveys on Investment and Debt (NSS-I&D), loans taken by cultivators from non-institutional sources is rising faster than from institutional sources.

4. Much of the growth in household demand in rural India has been debt-ridden and not supported by growth in income.
Reasons behind

increased debt?

1. Modern agriculture requires investment in farm machinery and inputs like seed, fertiliser, agri-chemicals, diesel and hired labour.

2. Savings generated from unremunerative crop enterprise are inadequate for such investments.

3. Rising expenses on health, education, social ceremonies and non-food items put additional financial demand on farm families.

Loan waiver scheme?

1. States like Uttar Pradesh, Maharashtra, Punjab and Karnataka have rolled out farm loan waiver schemes for immediate reliefto farmers.

2. The demand for such measures is spreading to other States too.

3. Ultimate goal is to lessen the debt burden of distressed and vulnerable farmers and help them qualify for fresh loans.

4. The success of the loan waiver lies on the extent to which the benefits reach the needy farmers.

Drawbacks of loan waiver scheme

1. It covers only a tiny fraction of farmers. According to 2012-13 NSS-SAS, 48% of the agricultural households did not have any outstanding loan.

2. Out of the indebted agricultural households, about 39% borrowed only from non-institutional sources.

3. The farmers investing from their own savings and borrowing from non-institutional sources are equally vulnerable, but are outside the purview of loan waiver.

4. Provides only a partial relief because half of the institutional borrowing of a cultivator is for non-farm purposes.

5. Many household has multiple loans either from different sources or in the name of different family members, which entitles it tomultiple loan waiving.

6. Loan waiving excludes agricultural labourers who are weaker than cultivators in bearing the economic distress.

7. It severely erodes the credit culture, with dire long-run consequences to the banking business.

8. Scheme is prone to serious exclusion and inclusion errors, as evidenced by the Comptroller and Auditor General’s findings in the Agricultural Debt Waiver and Debt Relief Scheme, 2008.

Implementation errors

1. According to the CAG report, 13.46% of the accounts, eligible for the benefits under the scheme were not consideredby the lending institutes while preparing the list of eligible farmers.

2. In 8.5% of the cases, the beneficiaries were not eligible for either debt waiver or debt relief but were granted the benefits.

3. Around 28% of the beneficiaries were not issued debt relief certificates which would have entitled them to fresh loans.

Other issues with loan waiver scheme?

1. Implications for other developmental expenditure, having a much larger multiplier effect on the economy.

2. A similar amount spent on improvement of agriculture infrastructure and other developmental activities would create a base for future growth and development of the sector.

3. Loan waiving can provide a short-term relief to a limited section of farmers;

4. It has a meager chance of bringing farmers out of the vicious cycle of indebtedness.

5. There is no concrete evidence on reduction in agrarian distress following the first spell of all-India farm loan waiver in 2008.

Sustainable solutions

1. More inclusive alternative approach is to identify the vulnerable farmers based on certain criteria and give an equal amount as financial relief to the vulnerable and distressed families.

2. Raise income from agricultural activities and enhance access to non-farm sources of income

3. Strengthen the repayment capacity of the farmers by improving and stabilizing their income.

4. Improved technology, expansion of irrigation coverage, and crop diversification towards high-value crops are appropriate measures for raising productivity and farmers’ income.

5. Another major source of increase in farmers’ income is remunerative prices for farm produce.

6. More public funding and support

7. Removal of old regulations and restrictions on agriculture to enable creation of a liberalised environment for investment, trading and marketing.

8. States must undertake and sincerely implement long-pending reforms in the agriculture sector with urgency.

Condition of landholdings and irrigation in country

1. Number of farmers: There are about 145 million landholdings in the country. With about 92% of them being wholly owned and self-operated, we may assume that we have about 130 million farmers

2. Irrigated vs Rain-fed area: With more than 40% of our cultivated area of 175 million hectares being irrigated, there is a clear distinction between farmers with irrigation and those with rain-fed acreages

3. Vulnerability: While farmers who have access to irrigation are better placed, those who are in rain-fed and drought-prone areas are most vulnerable

4. More area, less productivity: They occupy 60% of the cultivated area but contribute only 45% of the total agricultural production

5. Consequences: These are the farmers without the financial wherewithal to withstand the vagaries of nature. A single crop failure due to drought, flood or similar reasons can destroy them

Problems faced by our farmers

Crop insurance programmes

1. Crop insurance programmes have not been able to recover farmers’ investments in most cases

2. This is due to lack of accurate farm-level data that can be used to settle claims

3. Satellite and remote sensing technologies are for the future

Economics of demand and supply

1. Planted acreages have little to no connection with projected demand

2. With every recurring phenomenon of high production that is in excess of demand, there is the consequent (and drastic) fall in prices

3. When a farmer plants a crop, he does not know what the likely market price of his produce will be

4. The government’s minimum support price (MSP) gives him some direction, but it operates only with some crops
No commodity-based farmers’ organisation

1. In other countries, such organisations advise farmers on global projections of demand and supply for specific crops and help in moderating acreages in line with projected demand

2. There is no commodity-based farmers’ organisation in the country to address these issues

3. Neither are there platforms for farmers to highlight issues to key stakeholders such as policymakers, economists and scientists

4. Existing farmer organisations are aligned with political or other special interest groups

High-input cost of farm labour

1. The cost of labour has risen due to social welfare programmes and minimum wage levels

2. Also, the problem is the availability of labour at the right time and at the right cost

3. At peak times, like sowing, transplanting, harvesting, etc., it is very difficult to get sufficient farm labour

4. One solution to address this is greater reliance on technology

5. It can be through farm mechanization, the use of weedicides or genetic engineering, that can lower input and time costs

6. Farmers should be encouraged to use such labour-saving options instead of being burdened with the social objective of protecting rural employment and being denied access to new technology

Agricultural Produce Market Committee Act

1. APMC Act prohibits farmers from selling their produce in any mandi (grain/commodity market) other than their designated one

2. This makes farmers vulnerable to middlemen and vested interests

3. They are exposed to global prices but are not provided with access to cost-efficient technologies and information systems

4. Karnataka has united all mandis in the state on an electronic platform and this has reportedly improved farmers’ selling prices by 38%

5. This should be replicated nationally

Agricultural extension system

1. It has collapsed in many parts of the country

2. The farmer is forced to depend on the advice of agri-input dealers and commercial organisations instead

3. Some organisations are attempting to use information and communication technology-based methods to give technical
advice to farmers

Banks

1. Banks need to get more generous with credit in rural areas where the stranglehold of private moneylenders continues to wreak havoc

Other problems

1. Lack of rural infrastructure, reliable power, cold-storage, roads and transport systems, etc., continue to cripple farm operations and increase costs

Suggested solution

1. We need to overhaul our thinking and approach towards addressing farmers’ challenges which are complicated and structural in nature

2. Waiving farm loans is a lazy option for governments and a costly option for the banking system

What can be done?

An idea that has gained much traction in recent days is cooperative farming. This is already popular in France, Germany, Romania, Kyrgyzstan, Nicaragua, Kenya, and Bangladesh among others. There are several variants of cooperation ranging from collective action in accessing credit, acquiring inputs and marketing to production cooperatives that also include land pooling; labour pooling; joint investment, joint water management and joint production.

Advantages of cooperative farming

The advantages of aggregating small farms into larger, voluntary, cooperatives include greater capacity to undertake lumpy investment in irrigation and farm machinery, more efficient farming practices, greater bargaining power and better terms in the purchase or leasing of land, access to credit, purchase of inputs and the sale of produce.

Focus on the marginal farmer

1. There are rising cases of farmer suicide

2. The reasons for this vary: cotton crop has been whittled by whiteflies, basmati’s market price has declined, the local moneylender has hiked up rates to 20%

3. A larger number of small farmers rather than marginal farmers reportedly committed suicide in States like Maharashtra, Telangana and Karnataka

4. Somehow, small farmers are also bedeviled by the agricultural crisis

On input costs

1. Agriculture in States like Punjab is typically a monoculture of wheat and paddy

2. When input costs associated with fertilizers, crop-protection chemicals and seeds rose, along with fixed costs associated with agricultural equipment such as tractors and submersible pumps, agriculture became economically unviable

3. Prices have risen — of arhar seeds and staple crops like paddy and sugarcane, of fertilizers and plain barley

4. Hiring a labourer can now cost at least 20/hour, excluding rates when NREGA is prevalent, compared to 6-9/hour previously

5. Animal hire rates have also increased in a similar manner

6. The cost of labour, associated with both animal and machine labour, has also undergone a substantial jump
Re-tailoring agriculture

1. Solving this crisis requires an inclusive approach

2. Our policies should encourage integrated pest management, an approach that focusses on combining biological, chemical, mechanical and physical means to combat pests with a long-term emphasis on eliminating or significantly reducing the need for pesticides

3. State seed policies should focus on encouraging contract farming, along with identification of new genotypes for treating pest and disease syndromes, as well as adverse weather conditions

4. Precision-farming techniques like Systematic Rice Intensification can help increase seed production in this regard
5. Our farm equipment policy needs to be retailored with a focus on manufacturing farming equipment and implements that are currently imported

Structural changes

1. We need to ensure that institutional financing is available and accessible and benefit provision is simplified while disbursed funds are effectively monitored

2. States should seek to establish early warning signals, monitoring farmers who go past set limits and seek unsustainable loans

3. Village-wise lists of deeply indebted farmers must be prepared annually to identify farmers on the flight path to penury and potential suicide

4. The National Bank for Agriculture and Rural Development, along with the local administration, should be tasked with analysing such lists for macro and local policy interventions, along with devising timely loan restructuring initiatives, insurance claim settlements and better counseling

Farm suicides get attention of Supreme Court

1. Source: A study conducted across 13 States by the Union Agriculture Ministry throws up the all-too-familiar reasons that drive farmers to suicide

2. Reasons: Frequent crop failure, vagaries of the monsoon, absence of assured water resources, attacks of pests and diseases, debts, farming and social causes

3. Union Home Ministry’s National Crime Records Bureau (NCRB) reports up to 2015 reveal identical causes of suicides among farmers — bankruptcy, farming-related issues, family problems, illness, drug abuse or alcoholism

4. Centre views: In an affidavit filed by the Agriculture Ministry in the Supreme Court last week, the Centre agrees with the court that the deaths of farmers are an “unfortunate issue”

5. But it can only formulate a line of action to resolve the issue, the actual implementation at the ground level is the responsibility of the individual States

6. SC hearing: The court is scheduled to hold a hearing on May 1 on this affidavit filed on the basis of a petition filed by the organisation, Citizens Resource and Action Initiative (CRANTI), against Gujarat

7. The court expanded the ambit of the petition to farmers’ suicides across the country and had asked the Centre on March 27 to provide an action plan to end the human tragedy

8. The affidavit suggests crop insurance, crop and enterprise diversification, government intervention through minimum support price (MSP) covering cost of production plus a reasonable profit margin, establishing farmers’ welfare cells as support groups and regulating informal credit market as remedies

9. Alternate view: There is a disconnect between the Centre and States, which leaves the farmer empty-handed
10. “It is clear that the Centre controls most important policies pertaining to farm livelihoods whether it is MSP, credit, crop insurance, disaster compensation, trade policies and so on”

11. “Often, the States are not consulted on these matters. The MSP is not realised by most farmers. Credit is being cornered by non-farmers”

12. “Many of these policies are actually going against farmers’ interests. Unless these are addressed, farm suicides can’t be prevented”

13. The government affidavit: However, points to relief measures such as the Pradhan Mantri Fasal Bima Yojana

14. It provides farmers’ full insurance and had 390.02 lakh farmers covered and 386.75 lakh hectares insured with a sum of 1,41,883.30 crore during Kharif 2016

15. The Agriculture Ministry said 172.94 lakh farmers had been covered with a total sum of 69,851.37 lakh crore during Rabi 2016-17

16. It said the government had increased the target of agricultural credit from 9 lakh crore to 10 lakh crore in Budget 2017-18

17. The Reserve Bank of India has allowed State and district level banks to take a lenient view on rescheduling of loans if crop loss is 33% or more

18. The government has highlighted the Kisan Credit Card scheme and the e-National Agricultural Market Scheme to “create a single unified market for the State and ultimately for the nation for agricultural commodities”.

Supreme Court for policy to curb farmer suicides

1. Supreme Court: The Centre should address the “serious issue” of farmers taking their own lives and implement a comprehensive policy to be adopted by the State governments for preventing the tragedy

2. Govt: Soon coming up with a comprehensive policy to address the problems of the farmers

3. The policy would address crop loss or crop failure and a compensation for farmers

4. Other steps: Insurance cover has been increased for the farmers

5. Earlier, it was for those who took agriculture loan but now it has been extended to all the farmers

6. No need for middlemen: Now the government is directly procuring food grains from the farmers at the minimum support price and they did not need to take the help of middlemen or market

Way ahead

The cooperative approach also has its problems, such as internal conflict, free riding, etc., but farming communities have also found institutional solutions to these problems. The conditions for success of such cooperative approaches include

voluntariness, cooperative units of small groups, relative socioeconomic homogeneity of cooperating households, transparent and participatory decision-making, checks and penalties against free riding, and group control over the fair distribution of returns.

Conclusion

The agrarian crisis is morphing into a social nightmare. Its time for a complete overhaul. There are many lessons of successful cooperative farming in India and abroad that will have to be learned for the institutional transformation of our small farmer economy into cooperative farming systems on a national scale to address the agrarian crisis.

By Gudipati Rajendera Kumar