What’s the problem?
The year 2017 was marked by several farmers’ protests nationwide, with a few turning violent. Last month, in New Delhi, 184 farmer groups came together from Tamil Nadu, Maharashtra, Madhya Pradesh, Uttar Pradesh, Punjab and Telangana to take part in a ‘protest walk.’ The protest once again highlighted the plight of farmers and the extent of agrarian distress.
The agriculture sector is characterised by instability in incomes because of various types of risks involved in production, market and prices. The National Commission of Farmers (2006), chaired by M.S. Swaminathan, had pointed out that something “very serious and terribly wrong is happening in the countryside.” The agriculture growth rates have been unsteady in the recent past. While it was 1.5% in 2012-13, it rose to 5.6% in 2013-14. In 2014-15, the rate dipped to (-) 0.2%, while in 2015-16 it was 0.7%. The provisional estimate puts it at 4.9% in 2016-17. The trend reflects the distress in the agriculture sector.
Why the crisis?
The main reason for farm crises is the rising pressure of population on farming and land assets. Government data show the average farm size in India is small, at 1.15 hectare, and since 1970-71, there has been a steady declining trend in land holdings. The small and marginal land holdings (less than 2 hectares) account for 72% of land holdings, and this predominance of small operational holdings is a major limitation to reaping the benefits of economies of scale. Since small and marginal farmers have little marketable surplus, they are left with low bargaining power and no say over prices.
As farmers have been demanding “freedom from debt and remunerative price” through several platforms, they carry on fighting risks in production, weather and disaster, price, credit, market and those in policy.
While crop production is always at risk because of pests, diseases, shortage of inputs like seeds and irrigation, which could result in low productivity and declining yield, the lower than remunerative price in the absence of marketing infrastructure and profiteering by middlemen adds to the financial distress of farmers. Also, the predominance of informal sources of credit, mainly through moneylenders, and lack of capital for short term and long term loans have resulted in the absence of stable incomes and profits.
Further, it leads to defaults and indebtedness. Uncertain policies and regulations such as those of the Agricultural Produce Market Committee (APMC Act), besides low irrigation coverage, drought, flooding and unseasonal rains, are some other factors that hit farmers hard.
What about prices?
Farmers face price uncertainties due to fluctuations in demand and supply owing to bumper or poor crop production and speculation and hoarding by traders. The government’s economic survey for 2016-17 points out that the price risks emanating from an inefficient APMC market are severe for farmers in India since they have very low resilience because of the perishable nature of produce, inability to hold it, hedge in surplus-shortage scenarios or insure against losses.
Lakhwinder Singh, an agriculture expert at Punjabi University, Patiala, who has been mapping rural Punjab for decades, points out that along with the slowdown in agricultural growth, the costs of farm inputs have increased faster than farm produce prices. The cost of capital too has increased manifold over the years.
This turned agriculture into an unprofitable occupation and compelled farmers, especially the small and marginal, to borrow costly money from informal sources of credit, which deepened the crises.
While the farming sector has its own set of risks, like any other economic activity, to increase and ensure stable flow of income to farmers it is vital to manage and reduce the risks by analysing, categorising and addressing them.
