Why a price increase alone won't help farmers

While other developing countries are moving towards modernisation of agriculture, Indian agriculture is cluelessly plodding ahead.   | Photo Credit: Ritu Raj Konwar

Agricultural distress is often viewed as a short-term phenomenon in which farmers look for support from various quarters on account of being unable to get a gainful return due to price crash, poor marketing facilities, rising credit burden, increasing cost of inputs and frequent occurrence of natural calamities. A prolonged unrest in rural India — such as the decision of Andhra Pradesh farmers not to sow in the 2011 kharif season and mark a ‘crop holiday’ protest — will have serious consequences for food security.

Agricultural distress has become a permanent feature due to the failure of not only elected governments to find a lasting solution but also local institutions such as community or social networks which are supposedly weakening because of increasing individualisation. The consequence is that helpless farmers are increasingly pushed to the brink of committing suicides.

A tipping point

The distress seems to have reached a tipping point, with scenes of dejected farmers throwing agricultural produce such as vegetables and milk on the roads becoming a routine feature in recent years. Rather than addressing the genuine problems of farmers, politicians are unfortunately busy scoring points over the deaths of innocent farmers.

Are demands of our farmers unjust? Not really. They want a reasonable price for their produce, better marketing facilities, institutional credit, irrigation, quality seeds and fertilisers, procurement during times of market glut and a social safety net during natural calamities. These are the basic inputs and services farmers need to continue to engage in agricultural production. Many committees and commissions constituted in the past have looked into India’s farming conditions. Their recommendations have been shelved by successive governments.

The non-availability of remunerative prices to farmers on agricultural produce is a vexed issue and emerges as the prime issue in various research studies wherein farmers are asked to rank production constraints. Will a rise in the minimum support price (MSP) solve the problem? Some critics argue that a rise in the MSP will lead to increase in food inflation, while others that it will augment farmers’ income. Both arguments rest on the mistaken notion that the MSP is a remunerative price. It is actually an insurance price, a floor price of sorts. Besides, a vast majority of the farming population is unaware of its existence.

The Government of India has an MSP for 23 crops, but official procurement at the MSP is effectively limited to rice and wheat, and that too concentrated in a few States only. Awareness about the MSP is limited to States such as Punjab, Haryana and Andhra Pradesh where such procurement takes place. According to the National Sample Survey’s (NSS) Situation Assessment Survey of Agricultural Households 2013, even for paddy and wheat, less than one-third of farmers were aware of the MSP; for other crops, such awareness was negligible. Further, a substantial proportion of crops are sold to local private traders and input dealers to whom the resource-poor marginal and small landholders are obligated to sell their crops due to tie-up with credit.

Since 2004, successive governments claimed to have increased institutional credit flow to the agricultural sector through increased budgetary allocation on crop loans. According to NSS data, over 40% of farmers still rely on non-institutional lenders, who mostly happen to be moneylenders-cum-traders and input dealers. Further, analysis of credit disbursement data from the Reserve Bank of India reveals that out of total advances to agriculture, the share of indirect finance has increased substantially over time, while that of direct finance to farmers has declined. This means that at the macro level, it would appear that there is an increase in credit flow to the agricultural sector but this has actually accrued to agro-business firms/corporations and not directly to the farmers. Consequently, marginal and small farmers continue to rely on traders and input dealers. Unless the fundamental problems of crop and regional bias of MSP policy, government procurement and access to institutional credit are addressed, mere increase in MSP will not benefit most farmers in the country.

Further, the response of various State governments to a glut in the market appears to be muted. There exist intervention schemes to undertake the procurement of commodities whose market prices go below the MSP, but on most occasions the marketing season of bumper crops gets over by the time a bureaucratic decision on procurement is taken. Ultimately, the farmers are left at the mercy of unscrupulous traders to sell at whatever price they offer, with resultant repercussions such as the burning of the entire crop or throwing the harvested produce on roads in protest.

Various studies show an increasing divergence between agricultural and non-agricultural income. And the rising aspirations among rural youth to emulate urban lifestyles put enormous pressure on them to find ways to increase income through various agricultural activities. Unfortunately, income from crop cultivation, which is a major segment of agriculture, is not growing enough to meet the expected level. On the contrary, the increasing market orientation and reforms in the input sector have resulted in a substantial rise in input costs.

Dipping income

Analysis of data from the Ministry of Agriculture and Farmers Welfare reveal that income from cultivation of many cereals and pulses has declined between 2004-05 and 2013-14 despite a considerable increase in MSP during this period. In the case of paddy, out of 18 major rice-growing States, net income has declined in five, and it is negative in six States. In seven States, it has increased only marginally. Income from the cultivation of even horticultural crops is uncertain due to the heavy investment involved and the high volatility in market prices. Most acute is the rise in prices of fertilisers: between 1991-92 and 2013-14, while the price of urea increased by 69%, that of DAP (diammonium phosphate) and potash rose by 300% and 600%, respectively.

Recent policy pronouncements have added to the woes of already beleaguered farmers. The promotion of traditional farming at this juncture of agricultural development will take the sector to where it was decades ago. Most existing modern crop varieties will not respond to these practices in the medium term; consequently, yield and income will decline. Further, facilities to produce adequate organic inputs have not been developed either. Animal husbandry has been practised as a supplementary activity since time immemorial. Livestock acts as a cushion against crop loss during times of drought. The new rules on animal markets will put poor farmers and landless labourers in a fix. These developments do not augur well for rural youth whose interest in farming is already dwindling. While other developing countries are moving towards modernisation of agriculture which would reduce dependence of labour force and enable a rise in productivity, Indian agriculture is cluelessly plodding ahead.

Elumalai Kannan is an associate professor at Jawaharlal Nehru University, New Delhi. His views are personal

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Printable version | Nov 26, 2020 8:07:07 PM |

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