Volatility in prices, trade policy-induced uncertainties, and climate change related resource stress have created a perfect storm in Indian farming
New Delhi: A few months back, vegetable growers were out on the streets protesting against low prices. Then it was the turn of sugarcane farmers. And now milk producers are dumping milk on the streets to draw attention to the glut that has brought prices down.
India saw an almost eight-fold rise in ‘agrarian riots’ between 2014 and 2016, data from the National Crime Records Bureau (NCRB) shows. These riots include conflict over land and water, resources that have come under stress from weather-related shocks and inadequate policy response.
Ahead of the general elections of 2019, farm protests and strikes have caught the attention of our political class. Politicians cutting across party lines have been vying with each other to offer sops and to make promises about such sops to India’s beleaguered farmers. However, these sops and promises are mere palliatives which fail to address the roots of India’s farm crisis.
There are three major risks that the farmer faces today, which arise from three different sources—prices, trade policies, and resource stress.
One of the major uncertainties facing the Indian farmer is volatility in prices. This has been particularly sharp in the case of vegetables and pulses over the past few years.
Excess production of vegetables and pulses invariably lead to a crash in prices, which often trigger protests.
The government’s procurement policy for cereals ensures that prices of rice and wheat are less volatile than those of other food items. However, not all cereal producers benefit from the procurement policy, which is effective only in a few states.
The political cycle in MSP (minimum support price) hikes—which typically spike ahead of elections—means that returns for cereal farmers are erratic across years. Also, a sharp variation in the officially-determined procurement quantity of crops becomes an added source of uncertainty for the farmer. The procurement of wheat has ranged from as low as 12% of production in 2006-07 to as high as 41% in 2012-13, Food Corporation of India (FCI) data shows.
For producers of crops other than wheat and rice, the uncertainty is even greater as there is very little state-led procurement even though procurement prices are announced for as many as 23 major crops.
The imperative to keep retail food prices in check has led successive governments to impose ad hoc restrictions on farm exports, hurting producers and creating another layer of uncertainty for them.
In response to the growing protests by milk producers, the government has announced export incentives for milk. But it is likely that the government will step in with export restrictions once milk prices cross a threshold that is deemed acceptable to policymakers.
A study of India’s agricultural policies between 2000 and 2016 by OECD and ICRIER published this month found that trade-distorting policies—such as export prohibitions, export quotas, export duties, or minimum export prices—have impeded the export of several key commodities and depressed producer prices. For example, export restrictions or bans were applied to wheat, non-basmati rice, chickpeas, sugar and milk at different times over the course of the period studied.
Despite large subsidies to fertilizers, power and irrigation, which offset somewhat the price-depressing effect of trade interventions, the overall effect of policy interventions have been to reduce gross farm revenues by over 6% per year in the 2014-16 period, the study found. In contrast, in most large economies, the overall impact of policy interventions has boosted farm revenues over the same period, the OECD study shows. The beneficiaries of negative price support to producers are India’s consumers, who have gained from lower food prices.
The third big risk facing Indian farmers arises from resource stress and climate change-induced shocks. The areas facing water stress and deterioration in soil quality have been rising over time. Agrarian states of the north such as Punjab and Haryana have already exploited their groundwater potential to a large extent. Southern states such as Karnataka and Tamil Nadu which lack perennial irrigation are also increasingly exhausting their groundwater reserves.
With extreme weather events such as high temperatures and erratic rainfall likely to become more frequent because of climate change, the resource stress facing Indian farmers will only increase. Farm revenues could be hit to the extent of 25% over the long-run because of climate change-related disruptions, the latest economic survey of the finance ministry published in January this year said. Rain-fed areas will be the worst hit, the survey said.
The absence of a robust insurance mechanism that protects farmers from these risks means that Indian farmers are being compelled to make unhedged bets when they begin sowing each season. The current government had rightly recognized the need to provide effective instruments of insurance to Indian farmers. However, the limited success of the Pradhan Mantri Fasal Bima Yojana seems to have compelled the government to fall back on the old formula of MSP hikes. This formula has been tried in the past without much success. So, brace yourself for more agrarian protests in the months and years to come.
Arjun Srinivas is a recipient of the Mint-Hindustan Times-HowIndiaLives Data Fellowship 2018.