Last week the India Meteorological Department (IMD) presented its first forecast for the monsoon this year. The forecast at 97% of the long period average (LPA) suggested yet a third year of normal monsoon rains, following 2016 and 2017. This should have ideally brought cheer to farmers struggling with large-scale distress in the rural economy. But it has brought in another set of worries. And this is the problem of plenty, which seems to have driven down the prices of most agricultural commodities.

As a result, farmers are running into losses even though output has increased.

For the first time during the tenure of the present government, overall inflation of food articles is negative, implying a decline in prices. This is not only true of major crops such as cereals but also of pulses, vegetables and spices.

The deflation in agricultural commodities is also seen in livestock produce, with a decline in the prices of chicken, eggs and mutton. The only exceptions in this groups are beef and marine products.

For non-food items, prices of cotton and jute have also declined sharply. The worst hit is fodder crops, prices of which have decline by 15%.

This is the second time agricultural commodities have seen a sharp decline in prices in the life of this government. The previous such instance was led by a sharp decline in prices of primary agricultural commodities following the collapse of petroleum prices in August 2014.

While the price collapse in 2014 affected farmers with exposure to commercial crops, the price collapse in the last year has been led by food items. Given that international prices have not shown any declining trend, this decline is entirely due to domestic reasons.

While many commentators blame this on excessive output in the last two years, such an understanding is far from true. Agricultural output growth has recovered after the back-to-back drought of 2014 and 2015 but it hasn’t increased to the extent that the market is flooded with excess production.

The overall growth rate of agricultural output between 2014 and 2017 is 1.86% per annum, almost half the rate of growth of agricultural output during the preceding decade of 2004-2013.

Further, the decline in prices has occurred for almost all crop groups including livestock products, most of which have not seen any sharp increase in output. A good example is wheat, which has seen prices decline by 1.2% despite wheat production declining by 1.4 million tonnes this year.

Clearly, it is not the glut in agricultural markets which has resulted in the decline in prices of most agricultural commodities. The real reason lies in the distress in rural economy, which has led to a decline in the real incomes of rural populations. Despite claims of green shoots of economic recovery being projected by the mainstream media, the reality is that the rural economy continues to worsen.

While farmers continue to suffer due to falling output prices, the shift in terms of trade against agriculture continues to squeeze profit margins in an already fragile agrarian economy. So is the case with workers engaged in the non-farm sector with economic activity remaining subdued, particularly in rural construction and manufacturing.

The wages of casual workers in the non-farm sector continue to slide down in real terms.

The net result has been a sharp decline in domestic demand for agricultural commodities, including food and fodder. Unlike previous years when exports growth made up for deficient domestic demand, the last three years have seen agricultural exports decline from $43 billion in 2013-14 to $33 billion in 2016-17. The agricultural sector is now in a vicious cycle, with low demand leading to declining prices and declining incomes and wages. The only way this situation can be remedied is by the government intervening to arrest sliding demand.

It is ironical that the farmer is going through the worst phase of misery in the last two decades —not as a result of some natural calamity but because of government apathy.

The farmer has weathered the successive droughts of 2014-15 but is now struggling to survive when the monsoon is normal. The government, which promised doubling of farmers’ income, continues to be indifferent, blaming the farmer for overproducing and holding him responsible for the collapse of agricultural prices.

Himanshu is an associate professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi

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