Farmers deal with tens, if not hundreds, of variables and uncertainty, and still manage. The problem is that farmers are not allowed to use all their resources and engage with global markets
In the last 10 days, Delhi has seen, at first hand, over 100,000 farmers marching to highlight agrarian distress. Unfortunately, the political response, both from government and the opposition, has been paternalistic platitudes on how it is our duty to help the farmers. The truth, however, is that farmers don’t need the help the government has provided over seven decades. The government’s “help" is the cause of the distress. Farmers actually need the government to get out of their way. There are six specific ways in which Indian farmers are shackled.
First, the government has over the years, under the guise of protecting farmers, severely limited the market for their produce. This is institutionalized through the agriculture produce market committee (APMC). It is obvious that a larger market for any farmer means that more consumers can compete for the produce enabling better prices. However, the APMC prevents this, by dividing the market geographically into different regions and insisting that a farmer can only sell to the mandi in his region. Further, traders in a mandi need a licence. This prevents consumers, wholesale and retail food companies from buying directly from the farmer. Mandi licences are naturally given only to those with political patronage, often used as a side business for politicians. The farmer receives depressed prices, while the final consumer pays a high price for the same produce. All the money goes to the politically blessed and licenced middlemen.
Second, the minimum support price (MSP) has been impoverishing farmers and consumers for decades. The government promises high prices, to “help" farmers, but is not able to deliver on those promises by actually buying all the produce. Farmers produce more expecting a high MSP and are forced to dump their produce when MSPs are not delivered. Indian farmers lament when they have a bumper crop as prices and MSP fall. One reason for this is also that India has either heavily regulated or banned futures trading in agriculture. Futures trading helps smooth cycles in the market. However, Indian farmers are not allowed to participate in this kind of market and so they cannot use the bumper crop in a given year to prevent the downside from bad crops in other years.
The third, and the most problematic shackle, is that farmers have been denied a market for land, their biggest asset. In several cases, farmers are not allowed to sell their land to non-farmers, and they cannot themselves easily change the use of their land. This has limited and depressed the market for agricultural land, and the price agricultural land can fetch. Farmers, thus, are unable to exit farming.
Four, because land titling records are such a mess, farmers face additional uncertainty. Goons may possess land illegally in areas where there are no good records. Worse, without good land records, the ability to raise credit using land as collateral is limited. The government has also, with good intention, regulated local moneylenders by limiting the interest rates, further reducing access to credit. This means farmers essentially only have state-owned banks and cooperatives to turn to for credit and are at the mercy of government policies to avail farm loans. This benefits the political class because they have the authority to waive farm loans taken from state-owned banks, reducing competition in loans .
Five, the inputs used by farmers are severely controlled. By controlling inputs such as water, electricity, seeds, and fertilizer, politicians can offer subsidies in exchange for support as a political tool. Farmers are prevented from buying most of their inputs in market settings, because of statutes such as the Essential Commodities Act. The government, having killed the private market for any of these inputs, forces the farmers to now beg for and rely on subsidies. The government in turn promises free electricity and water, which are unreliable because of the massive shortages caused without a price system. Farmers would rather pay for reliable supply of water and electricity than a free subsidy, but in most input areas, private players cannot enter and sell to farmers.
Six, farmers are not allowed to experiment with new technologies used across the world. Whether this is technology in fertilizer, machinery, or pesticides, the Indian government does not allow it. So, farmers must wait for a state ordained “green revolution", where new technology is introduced once a century. On the other hand, farmers could be creating their own mini revolutions every season if they could experiment with global technologies. The most problematic is the partial ban on genetically modified (GM) seeds. A lot of the new GM seeds are more resistant to pests and bacteria, and reduce the need for other inputs such as pesticides, water and fertilizer, with potential for huge gains for farmers. Any experimentation is done illegally and a black market has emerged for GM seeds, harming both farmers and produce.
Farming in India, mostly done on a small scale, without much technology, or insurance, is one of the most difficult jobs. Farmers deal with tens, if not hundreds, of variables and uncertainty, and still manage. The problem is that farmers are not allowed to use all their resources and engage with global markets. Indian farmers have been helped by politicians in Delhi and in state legislatures much too long and could frankly do without such help. Our farmers merely demand a political blacksmith to unshackle the regulatory chains.
Shruti Rajagopalan is an assistant professor of economics at Purchase College, State University of New York, and a fellow at the Classical Liberal Institute, New York University School of Law.