The crisis in agriculture cannot be trivialized
The fall in real wages, disinflation in the prices of agricultural goods and rising input costs have led to a full-blown crisis in agriculture
The ongoing 10-day strike by farmers across the country is the latest episode of the crisis in agriculture spilling out on to the streets. Meanwhile, the chief minister of Haryana, Manohar Lal Khattar, and the Union agriculture minister, Radha Mohan Singh, have made rather insensitive remarks about the strike, gloating about what they think have been the successful policies of their government. Data shows, however, that the farm crisis is real and persisting.
Previously, the kisan long march to Mumbai and the protests outside Rashtrapati Bhavan by farmers from Tamil Nadu had garnered considerable media attention. In fact, the rising discontent shows in the number of reported farmer protests, which increased from 628 in 2014 to 2,683 in 2015 and 4,837 in 2016, according to the National Crime Records Bureau.
As these pages have argued, it is impossible to simultaneously keep support prices high, retail food prices low, and overall inflation under control through a tight fiscal policy. The United Progressive Alliance (UPA) government negotiated this balance by generously increasing the minimum support price (MSP), and suffered high food inflation. The present National Democratic Alliance (NDA) government has prioritized fiscal prudence, but farmer incomes have suffered during its term.
Under UPA, the growth rate in agriculture rose from 1.76% per annum between 1998-2004 to 3.84% per annum between 2004-05 and 2012-13. Farmer incomes increased at the highest rate since the beginning of economic reforms in this period, growing at more than 5% per annum. This has since decelerated to 0.44% between 2011-12 and 2015-16. Real wages (inflation-adjusted) for agricultural and non-agricultural labour have declined between 2013 and 2017.
Following droughts in 2014 and 2015, output recovered and has reached record levels in foodgrains, wheat, rice and pulses. But farm-gate prices have remained an issue. The deflation in 2016 and 2017 was thought to be due to the cash crunch and crippling of supply chains due to the goods and services tax. But farm goods’ deflation has continued well into 2018, as the Reserve Bank of India’s monetary policy committee downgraded its projection for the consumer price index (CPI) in the first half of 2018 owing to 3.38% inflation in food and beverages, which is less than the 4.4% year-on-year rise in overall CPI.
Thus, the crisis in agriculture is full-blown, and the warning bells for the government have already rung in Gujarat, Rajasthan and now the Kairana Lok Sabha by-election in Uttar Pradesh (UP).
The farmer is demanding remunerative prices for his crop. Spilling his produce is a painful act that is made less so by the low prices he would have to sell it for at the mandi. This is his way of drawing attention to his woes, undoubtedly, but it is justified by the unjust circumstances he faces, that this column has repeatedly stressed over time.
The ongoing policy of farm loan waivers—seen lately in Maharashtra, Tamil Nadu and UP—is, at best, an immediate response to an emergency. The UPA government also wrote off debt amounting to Rs70,000 crore in 2009; that erased the indebted farmers’ outstanding credit and allowed them to borrow again. But it did not stop future instances of bankruptcy. Moreover, these waivers do little to relieve the indebtedness of the most vulnerable farmers who have no access to institutional credit and are entirely dependent on moneylenders.
Urbanization and better incomes are driving demand for fruits and vegetables, and India’s horticulture output is now well ahead of cereals. Small and marginal farmers are especially attracted to these crops due to the shorter planting cycle and quick turnaround on investment. But poor roads and lack of investment in cold-storage and supply-chain facilities hurt them by increasing the post-harvest loss due to bruising and pilferage. So does the supply glut that causes prices to fall during the harvest season.
The laundry list of solutions is long, but the core message is that farming continues to be shackled by government regulations which were characteristic of the Indian economy before 1991. The prices of farming inputs and outputs are influenced by the government, as is the domain of trade. Well-meaning laws, such as the Essential Commodities Act, prevent private investment in cold-storage facilities. The Agricultural Produce Market Committee (APMC) Act has allowed the cartelization of traders that keeps farm-gate prices low. Sudden restrictions on exports preclude farmers from selling their produce in favourable markets and keep traders from developing reliable relationships. Moreover, farmers cannot formally pool or lease their land owing to land-ceiling laws. Nor can they formally enter into contracts with companies that will share their risk in return for a definite income. Farming can be a sustainable enterprise without these restrictions.
The government should aim to stabilize returns to farming by creating futures markets, establishing a long-term policy on international trade and cold-storage facilities. In the case of the UP sugar industry, this would have allowed the knowledge about the volume of sales of the wonder sugar-cane variety, Co-0238, to translate into lower prices of sugar futures. The foreseeable glut would have incentivised some farmers to substitute it with another crop, or plan the future course of action regarding whether to sell in international markets or store the produce for later.
Agriculture being a state subject, implementing these reforms will not be achieved in one broad sweep. Meanwhile, we also cannot afford the UPA-style patronage for the farmer at the expense of progress in reducing the fiscal deficit. The NDA government, on the other hand, needs to shed its indifference as the livelihood of millions of farmers has been rendered unviable by bad policies.
How should the government increase the income from farming? Tell us at firstname.lastname@example.org
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