Have Punjab’s rich farmers created their own nemesis?

Aided by distorted procurement, Punjab’s rich farmers are undertaking high, but damaging, investment


A report released by the National Sample Survey Organisation (NSSO) on 31 May shows that Punjab’s farmers are the most well off in comparison to their peers in rest of the country. Photo: Priyanka Parashar/Mint
A report released by the National Sample Survey Organisation (NSSO) on 31 May shows that Punjab’s farmers are the most well off in comparison to their peers in rest of the country. Photo: Priyanka Parashar/Mint

Small farmers and fragmented land holdings are often cited as the main problem affecting India’s agricultural growth. After all, lower incomes will limit the ability of such farmers to make significant investments and also make them and more vulnerable to price or weather related shocks. Punjab – the poster boy of India’s green revolution – which has larger than average farm size and relatively well-off farmers than can be found in the rest of the country is often cited as a benchmark to prove this point. A deeper analysis raises questions on this line of thought.

First, the bright side of the story. A report released by the National Sample Survey Organisation (NSSO) on 31 May shows that Punjab’s farmers are the most well off in comparison to their peers in rest of the country. The report which is based on a survey conducted during 2012-13, gives estimates of monthly incomes for agricultural households. Agricultural households are defined as those that received at least Rs.3,000 of produce from farm activities in the preceding year. These figures when divided by average household size for states give a per-person estimate of agricultural incomes.

In keeping with their opulence, Punjab’s farmers also have the highest relative share in income, consumption and investment in the country. Relative share in income has been calculated by dividing the percentage share of a state in total agricultural income by its percentage share in number of agricultural households. The same holds for consumption and investment. A value greater than one would mean that put together, the state’s agricultural households have a greater than proportionate share in agricultural incomes.

Seen in consonance with the statistic that Punjab has been witnessing an increase in share of large sized holdings, contrary to what can be seen elsewhere in the country, it is tempting to argue that large farmers are indeed good for boosting farm incomes.

Now comes the worrying part. Despite being home to the richest and most investment oriented farmers in the country, Punjab’s agricultural growth has fallen behind the national average. In 2012-13 Punjab was ranked 23 among 28 states in terms of agricultural growth. (See Chart 1 above) To be sure, this is not a one-off phenomenon, and has been the case in most years since the 1990s.

Interestingly, the top five states (Odisha, Madhya Pradesh, Chhattisgarh, Bihar and Telangana) in terms of agricultural growth rates in 2012-13 were among the poorest in terms of agricultural incomes. (See Chart 1 above) Although, part of the high growth rate in these states might be due to a lower base, 3 out of these 5 states also have a higher relative share in investment, which suggests some degree of dynamism in their farm economies.

But, why are high investments by Punjab farmers not bearing fruit? Mint columnist Himanshu, an associate professor of economics at Jawaharlal Nehru University, says the bulk of private investment in Punjab’s agriculture is to extract groundwater for crops like rice. This is not good news. As, was shown in an earlier Plainfacts piece, Punjab is among the most water inefficient states when it comes to growing crops like rice. (See here for details)

A 2011 paper published in the Economic and Political Weekly suggests that rich farmers are to blame the most for the sustainability crisis facing Punjab’s agriculture. Based on a field survey, the paper provides data for average number of operational tube wells and their average depth in three villages. Each of the villages represent dependence on mixed irrigation system (availability of canal irrigation); and tube well irrigation with problems of depletion. Given their deeper pockets, both the number of operational tube wells and average depth is much higher for tube wells of large farmers, especially in villages facing depletion problems. Whether or not it is conscious, limited funds prevent small farmers from overexploiting ground water.

Sukhpal Singh, professor at Centre for Management in Agriculture at IIM Ahmedabad, sees the problem as one of vested interests dictating farm policy in the state. Guaranteed Minimum Support Price procurements have prevented the state’s farmers from moving into high value agriculture after their initial success during the green revolution . While some large farmers have diversified, they also grow rice and wheat as the low risk crop. Over exploitation of ground water and damage to soil health as a result of growing crops such as rice is contributing towards making agriculture unsustainable in the state, Singh added. None of these concerns reflect in the state’s farm policy which is dictated by rich farmers and commission agents, he says.

Does Punjab hold any lessons for overall agricultural policy framework in the country? The government should move out rice procurement to eastern states, rather than continuing to placate vested interests in the state, says Ashok Gulati, chair professor of agriculture at ICRIER. Political considerations have prevented this under successive governments, which justify these policies by saying that agriculture is a state subject. Then, state governments did not usher in the green revolution. Unless distortions in the government support to agriculture are corrected, Punjab might become a victim of its success, Gulati warns.

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