The distress among small farmers in India is market-driven to a large extent in both ways — too much protection (minimum support price) or too little   NEXT BLOG ❯

By Sukhpal Singh

Published: Tuesday 02 February 2021

The question of future of Indian agriculture has been around for some time now since the agrarian distress and crisis in the sector. It has become important in the context of the spate of recent reforms that include permitting private wholesale markets, contract farming, direct purchase from farmers and land leasing across states both under the earlier state-level Acts, and now under the central Acts.

But before this question is answered, it is important to profile the Indian agricultural sector and its major stakeholders, that is, land operating farmers-owners, tenants or leases.

It is common knowledge that the farm production sector contributes only 13 per cent of the gross domestic product (GDP) and engages 44 per cent workforce. This presents a dismal picture of the sector as compared with other sectors, as the earnings are poor.

It is also known that 85 per cent of India’s farmers operate less than five acres of land, half of which in many parts of India may be dry / rain-fed and only a part of their income comes from farming activity now with others coming from wages, off-farm and non-farm activities.

Farmers (especially small) suffer from product and market risks and depend on non-institutional sources of credit for productive and non-productive purposes, which are interlocked with other markets like produce in states like Punjab.

Small farmers contribute 51 per cent of agricultural output with 46 per cent of operated land, and a much higher share (70 per cent) in high-value crops. However, small farmers are less literate and from marginalised communities. They are generally excluded from modern market arrangements such as contract farming or direct purchase.

Agricultural reforms

In this context, the recent reforms aim at bringing new investments in the farm sector, especially from the private corporate sector — domestic and global. It is assumed that in order to get such investments, deregulation of the sector is needed in terms of output market and farm input as well as services market and land market.

However, what is forgotten is that the scale is neither needed nor possible through the kind of reform and channels being undertaken; they have little to do with farm size, with the exception of land leasing law and the opening up of ceilings of land holdings. This may have many other contextual limitations like large landlessness and farmer attachment to land more as a sustenance or moral economy of the peasant.

Some land-related reforms may not happen that easily. But, better access to land for marginal and landless farmers and, even more crucially, equitable access to water, is a must to improve the performance of the sector.

However, most of the above assumptions are either faulty or deliberately misperceived. For example, many studies show that small farms produce as much as or higher value of output per unit area than that produced by the medium or large farms, which refutes the argument that small farms cannot be the future of Indian agriculture.

For example, income from farming per month per hectare is Rs 4,236 in Bihar and only Rs 3,448 in Punjab because Punjab is less diversified (only 11 per cent area under F&V in Punjab compared with 35 per cent in Bihar) in its cropping pattern compared with Bihar, though it does not have efficient or regulated agricultural markets.

The average size of farm in Bihar is only 0.39 hacs and in Punjab it is 3.62 hacs. Therefore, it is not the size of the farm but what a farmer does on that farm, when, how, where, why and for whom and how much, which makes it viable or not.

Given the cereals-dominated cropping pattern, farmers can only earn so much from the small farms. This is evident in the fact that a majority of the famers cultivate paddy and wheat in significant part of gross cropped area (69 per cent in Punjab and 40 per cent in Bihar). There are limits to how much they can earn as price (MSP, which drives market prices) is given and available only to a fraction of farmers (less than 10 per cent), yields are given and cost of production can’t be manipulated much.

Market risks

Even in other crops, only a very small fraction of farmers get MSP benefit in a few states where procurement happens. Further, once the farmer takes farm produce to the mandi, s/he can’t bring it back.

The market risks include absence of market, poor price realisation, high transaction cost and poor bargaining power due to small size of marketed surplus, leading to low and unstable farm incomes of producers.

It is here that the role of market becomes crucial: Even if a farmer has produced efficiently but is not able to sell it well, the story is lost. Imagine the gains for Bihar farmers if it had Agricultural Produce Market Committee (APMC) markets and other marketing channels which are being promoted now and larger procurement at MSP.

Incidentally, Bihar has not seen too many farmer suicides, unlike Punjab. Therefore, MSP culture and too much reliance on low-value land intensive crops has been the culprit in many suicide-prone areas.

The distress among small farmers in India is, therefore, market-driven to a large extent in both ways — too much protection (MSP) or too little. 

The problem of small farmer livelihood is also aggravated due to small farmers suffering from several production risks such as drought, flood, lack of adequate use of inputs, poor extension leading to large yield gap, crop failure, etc.

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The production risk coverage, being attempted though crop insurance, has not worked well. It has been made voluntary for farmers and would further reduce the insured area from already inadequate coverage of 30 per cent.

Most problematic is the farmers’ reliance on traders, commission agents and moneylenders for credit, for institutional credit reaches only 65 per cent of them and more of small and marginal farmers are excluded from this net.

This private source borrowing leads to interlocking of credit and output, input and output, and credit and input markets where there is implicit over-pricing of farm inputs and under-pricing of farm output of the farmers. They can’t access other channels even if they offer better prices, as they don’t offer credit to farmers who are tied to traders and agents.

This restricts their freedom to choose channels provided by new APMC Acts and now central Acts. Further, if smallholders and tenants belong to lower castes, their access to credit may be limited either by way of complete denial of credit to such groups / persons or costly access because of higher rate of interest charged or unfavourable terms of repayment.

This makes their farming enterprise unviable. It is important to realise that smallholders suffer from high market and price fluctuation risk as well as institutional mechanisms to deal with. The prices are still determined and driven by APMC markets, which are still not adequately regulated and, in many cases, mistreat farmers.

New market channels (like contract farming and direct purchase) may emerge, but small farmers will continue to depend on APMC markets for many commodities.

Therefore, it is important to ensure fair functioning of such markets in terms of open auction, proper unloading and storage / handling of farmer produce especially perishable, which is generally auctioned from road side and filthy grounds and stopping of commission being charged to farmer sellers even in regulated markets in some states.

APMC markets also serve as the main competitors to contract farming and direct purchase channels that discover their prices based on APMC prices. Therefore, their better functioning can improve the terms offered to contract growers and direct sellers.

The future of agriculture in India depends on many existing and missing policies and directions of policy reforms. But, it is sad to note that India does not have a policy for the same. The sector loses its policy focus as it is a state subject, but practically being run by the Centre for long time. When the sector is faced with economic, social and environmental crisis, absence of policy is the major factor in the crisis not being attended by any stakeholder.

A pessimistic approach to farm sector saying it contributes only 13 per cent of GDP and engages 44 per cent workforce and, therefore, is as a liability, is the root cause of the policy distortions. On the other hand, if agricultural sector is seen as agribusiness sector that includes all activities performed on farm-based and allied raw produce right up to the retailing stage, it still contributes almost 25 per cent of GDP.

This perspective, argued by the author since 2007 and was recently acknowledged by World Bank, can pave the way for more meaningful policy and regulation for the sector. This perspective is needed to sustain livelihoods in this sector and avoid distress diversification or movement of people away from the sector.

Looking beyond market

Therefore, solutions go beyond produce markets; recent reforms are more about regulatory changes that do not really concern a majority of Indian farmers as they do not have access to APMC markets and other modern channels such as contract farming.

But, small farmers need to collectivise into groups and FPOs to lower transaction cost for private buyers and gain bargaining power in new markets.

Warehouse receipts system needs to be extended to all crops with expansion of facility to free farmers from credit and output linkage and avoid distress sale immediately after harvest and even get out of the inter-locked market situation.

There is no need for co-operative farming given the efficiency of even small farms. What is needed is pre-production and post production aggregation to buy better and sell better or to capture higher surplus in the food and fibre value chains.

Corporate farming has not worked anywhere globally and should not be encouraged in India; contract farming and producer agency through local institutions and networks can help sector perform better. Equally important is to train farm and allied sector workers, including women workers, to enable them to participate in modern and sustainable farm production.

The sector needs to engage with fair and responsible production and trade issues on a priority basis even for domestic markets. It is important to recognise that what matters is not just physical activities of the sector but its occupants and their livelihoods that would lead to more people-centric and meaningful policies.

A combination of livelihoods and agribusiness or value chain approach can help leverage the sector for betterment of its stakeholders i.e. farmers, workers and others around it.

Therefore, there is a need for a policy at union and state levels and even more effective regulation to protect small producer interest in a globalised market context to leverage the strengths of modern and large players in the agribusiness value chains for a win-win for all stakeholders involved so that inclusive and effective sustainable agricultural development could be attempted.

Therefore, there is a need for institutional innovations besides product, process and organisational innovations in the sector to deal with existing and emerging challenges and problems of sustainability in the sector which can be converted into opportunities.

The future of Indian agribusiness, including agriculture, would be bright if it is attended with people’s institutions like co-operatives and FPCs rather than relying mostly on corporate agencies.

Views expressed are the author’s own and don’t necessarily reflect those of Down To Earthकृषि से जुड़ी सभी खबरें हिंदी में पढ़ें।Agricultural Researchfarm billssmall farmersMinimum Support …AgricultureIndiaSubscribe to Weekly Newsletter : Donate Now POST A COMMENTAGRICULTURE

The future of Indian agriculture lies with ‘atmanirbhar’ farmers

Paradigm shift needed: Policy makers must shift focus to sustainability from production

NEXT BLOG ❯

By Kapil Shah

Published: Wednesday 27 January 2021

CORRIGENDUM: This article was corrected on January 28, 2021 to change to All agro-ecological farmers need special incentives not only in lieu of subsidies on chemical fertilisers from All agro-ecological farmers need special incentives not only through subsidies on chemical fertilizers as was originally published (date). The error is regretted.

The three contentious farm laws have forced us to think about the future of agriculture in a largely agrarian country dominated by small and marginal farmers. The prevalent chemical-intensive, monocrop-based, market-purchased-input dependent model has not only failed to benefit majority of the farmers but has also proved to be an ecological, social and financial failure.

Genetically modified crops have led to increased use of agrochemicals, failed to sustain the yield gains and increased control of corporations through intellectual property rights. Promoting unregulated private trade of farm produce is a part of the same paradigm.

India’s centuries-old farm practices are based on the principles of sustainability, innovative, hard-working and entrepreneurial farmers. Agro-ecology-based farming and its large network of scientific institutions combined with political will can certainly change the direction of farming in the country.

The paradigm shift has to begin with changing the mindset of policy makers from production-centric to sustainability-focused. They have yet to gain confidence in agro-ecological model of farming.

Boost agro-science

Recent attempts by NITI Aayog are welcome but unfortunately, they are primarily based on faith rather than science and evidence. India needs a good blend of wisdom of our traditions and techniques generated through globally used sustainability-focused science.

Unlike the green revolution, technological package under agro-ecology cannot be uniform. Each farm is unique. So, farmers should be exposed to some basic principles of agro-ecology and simple techniques, and then left free to experiment, innovate and implement what suites the local conditions.

Experience of the Krishipandits of immediate post-independence period, who were getting record yields with the use of local seeds and chemical-free techniques a decade prior to the green revolution, never became a part of syllabus in agricultural universities. Great scientists like Albert Howard, who appreciated the richness of traditional Indian agriculture a century ago, are still unknown to most of our farm scientists.

It is time to correct this mistake. We need to consider implementing a programme of re-learning farm sciences with a systematic approach and with help from successful agro-ecological farmers.Regulate input dealers

Knowledge system of our immensely talented farmers is dying under the influence of agro-input dealers. It was recently found that by providing credit, thousands of farmers around Muniguda (Odisha) were tempted to cultivate illegal herbicide-tolerant cotton along with uncontrolled use of toxic pesticides, polluting pristine forest.

Does this not amount to luring them in to a debt trap? Agro-input companies need to be regulated better urgently.

While farmers must have freedom to sell their produce to anyone they wish to, it should be a level playing field. During the last decade, most states have allowed private mandis, facilitated contract farming. Encouraging farmer producer organisers (FPO) and farmer-consumer markets eased interstate and e-trading though in a regulated manner.

Unregulated free trade, however, has led to distress, especially for small farmers in other countries. There is no reason to believe that such unregulated private market will bring different outcomes in India.

Even in India, there are enough examples showing failure of free market in states like Bihar and in the sugar industry. The diverse nature of Indian agriculture and its agri-markets can be better managed by respective state governments.

‘One size fit for all’ is an ill-advised change. Priority should be given to farmer-friendly marketing approaches like farmers’ market, farm shops and value addition at farm or village level.

FPOs are also not easy to set up everywhere. Difficulties start with convincing the farmers to cooperate, registering the FPO and complying with the official requirements.

Lucrative organic farming

Generally organic farmers are better placed to sell their produce but there is an urgent need to invest in ‘ease of doing business’ for farmers and their groups by giving exemptions in taxation and regulation. Farmers cannot be left at the mercy of private companies without strengthening their bargaining power.

Private companies should be regulated through licensing, transparency, bank guarantee, technology verifications, minimum support price, farmer-friendly conflict resolution mechanisms, compulsions related to infrastructure development and capping their procurements and stockings. There is certainly no place for corporate farming in the Indian context.

With the shrinking size of land-holding, co-operative and collective approaches seem to be the most viable option. The fruit, vegetable and sugar co-operatives in south Gujarat provide good examples.

APMCs need to be better regulated and guarded from influence of political powers.

All agro-ecological farmers need special incentives not only in lieu of subsidies on chemical fertilisers, which is around Rs 4,500 per hectare per year but also for providing ecological services like higher carbon sequestration, reducing water and energy use, improving soil health, conserving rain water, conserving bio-diversity through mixed cropping, live hedges and crop rotations as well as for not polluting environment.

Why do we need multinationals to convert potatoes into chips? Agro-processing as well as production of various kinds of microbial and botanical products is not rocket science and can be easily done at farm/village level with little scientific training and investment. It can employ millions of rural youth.

Seeds bred locally are the best bets. Seed-breeding famers, especially women, who are the real inventors and conservators of our seed heritage, need encouragement.

There is a great scope to recycle nutrients and energy contained in the biomass by implementing scientific composting programmes with the help of special microbial inoculants and small machinery in villages. Urban areas should return the nutrients drained from agricultural soil. Biogas-manure plants, from farm to city levels, need special boost. Locally available agri-inputs will reduce the cost of production and farmers’ money will circulate locally.

Most crops responded positively to organic practices and produced the same or higher yield (by 4 per cent to 14 per cent) after the conversion period of 2–3 years, according to studies conducted by Indian Council of Agriculture Research on organic farming.

This confirms the experience of thousands of farmers of almost all states including heartland of chemical farming like Punjab and Haryana, where many organic farmers did not have to compromise on yields along with reduced market dependence. They also managed to stay away from debt traps.

The large-scale adoption of organic farming in government and NGO programmes in Maharashtra, Andhra Pradesh and Telangana is proof that we have the requisite institutional capabilities as well.

Agro-ecology-based farming is not a fantasy; it is a well-established profession based on progressive science and technology. India can even lead global agriculture to this path.

The current farm protests should open our eyes and this should be considered as the ‘Tamasomajyotirgamaya’ moment of Indian agriculture whose future lies in true spirit of Atmanirbharata.