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Agricultural overhaul

Carrying out well-directed policies is imperative to improving the plight of farmers

Agricultural overhaul

In recent past, a lot has been written about farm loan waivers. Studies have pointed out loan waiver programmes do not make much economic sense (N. Banik, 2018 - Are Loan Waivers a Panacea for Rural Distress? Economic and Political Weekly). However, if current political discourse is any indication then the loan waiver is the flavour of the month.

If not the farm loan waivers, what else to increase farm incomes? During the year following loan waivers, small farmers lose out on three counts: lower access to formal loan, falling agricultural revenue because of higher informal loan cost and falling agricultural productivity. This has wider implication on income distribution. As many as 83 per cent of the farmers in India are marginal and small-type, with less than 2 hectares of landholding. Although these groups qualify for loan waivers, however, they don't get the benefit as they do not access formal (read bank) loans.

The median annual income of these farmers is around $290, which is barely two months' minimum wage in Mumbai, the commercial capital of India. What interventions, then, could be more helpful in increasing farm income in India? After all, the current government wants to double farm income by 2022-2023 over the base year of 2015–2016.

During 2015–2016, per-capita farm income was $1,693 per annum (in current price). To double farm income by 2022–2023, it will require agriculture output to grow at 10.4 per cent annually. However, at present, the agriculture output is growing at around 3 per cent annually. At this pace, it will take 25 years to double farmers' income. To boost an increase in farmers' income, there could be several other interventions.

Building cold storage and warehouses: India is one of the largest producers of agricultural perishables and yet nearly 20 per cent of India's fresh produce is wasted because of lack of adequate cold storage facilities. Reducing waste of perishable fruits, vegetables, and milk that command higher market prices than staple crops will augment farm income. Most small farmers do not risk growing perishable crops. Because of the lack of storage facilities, small and marginal farmers seldom venture to grow high-value crops. Only 22.2 per cent of marginal farmers (with less than one hectare of landholding size) and 23.6 per cent of small farmers (between one and two hectares of landholding size) grow high-value crops. Small and marginal farmers are likely to gain from shifting to high-value crops, after which the likelihood of a farmer being poor will be 3-7 per cent lower.

Linking domestic market with international market: The present government has increased budgetary allocation for the agriculture sector, up from $17.04 billion (between 2009 and 2014) to $30 billion (between 2014 and 2019). This has led to an increase in food and livestock production. For instance, pulse production has increased on an average by 10.5 per cent annually. Production of fish, milk, and egg has increased by 26 per cent, 24 per cent, and 25 per cent respectively. Although India allowed exports of livestock, the typical farm sector outputs such as rice, wheat, and other dietary items are only restrictively allowed. India also has higher import duties in comparison to the ASEAN level when it comes to agricultural products. In short, trade in agriculture items is restricted to tame domestic price, enable food security, and ensure the livelihood of Indian farmers. However, a restricted agriculture market and lack of adequate storage facilities often lead to crop output getting wasted. Food grain production in India touched an all-time high of 280 million tonnes during 2017-2018, and there is a need to follow a liberal trade policy and put in place necessary infrastructures to facilitate exports. For instance, a necessary condition for exports is to have testing facilities that provide sanitary and phytosanitary certification. Unfortunately, the number of such testing facilities is limited. Likewise, agriculture tariffs should be brought down to allow imports at the time of shortage.

Supply-side interventions: Building rural infrastructures such as village electrification and canals will help. The fact that irrigation coverage on small landholding size is less than 40 per cent means crop failures in bad rainfall years. Likewise, a reform in the APMC Act is required. In a supply chain examination study involving trade in potatoes, it was found that middlemen can charge a commission of up to a staggering 70 per cent. For example, during June 2017 in the Azadpur and Ghazipur markets of Delhi, the middlemen were selling a common variety of potatoes at 7-9 cents per kilogram. If these rates were being offered to the farmers they should have realised between $3.5 and $5 for a 50-kilogram sack. However, in reality, the maximum price the farmers were offered was $1.4 for a 50-kilogram sack. Hence, most often, farmers do not know the actual market prices of the commodities and it is the middlemen who syphon off most of the profits. The lack of reforms in the APMC Act prevents small farmers from selling directly to the supermarkets, exporters, and agro-processors (thereby, enhancing their income).

Financial literacy: Lack of financial awareness has affected the growth and deepening of agriculture finance markets. The National Centre for Financial Education (NCFE) conducted India's first-ever national benchmark survey of Financial Literacy and Financial Inclusion in 2015, which captured a broad array of information from 76,762 respondents. The survey highlighted that the farmers are not aware of basic financial products. For example, less than 1.67 per cent of the farmers are aware of crop insurance products. The corresponding numbers for cattle/livestock insurance and agricultural futures are 0.66 per cent and 0.38 per cent respectively.

Even introduction of e-mandis — an online market where farmers can bypass the middlemen and sell directly to the retailers — are helping them a little. Evidence from Rajasthan suggests that because of the introduction of an e-market, farmers witnessed a price premium of 13 per cent. However, at present, e-mandis are catering to only 7 per cent of all Indian farmers and handles only around 2 per cent of the total value of the country's agricultural output. In conclusion, waivers of farm loans may help political parties win an election once. For them to win an election twice, however, it is important to undertake these aforementioned policy-measures that will make a real difference in the life of poor farmers.

(The author is Professor, Bennett University, Greater Noida. The views expressed are strictly personal)

Nilanjan Banik

Nilanjan Banik

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