Expert Speak India Matters
Published on Dec 13, 2018
76% among farmers want to give up farming, according to the survey, “State of Indian Farmers”, 2018.
Time to take up issues of marginal farmers

With farmers’ protests cropping up all over the country and recently in the national capital, it is the right time to focus on the agrarian distress facing India today. Why are farmers not able to get remunerative prices?  Obviously, the terms of trade (the ratio of agricultural prices to industrial prices) have turned against the farmer which is why the retail inflation rate is low at 3.3 per cent. Agricultural products are facing deflation and it is affecting the lives of millions of people. Around half the population of India is engaged in agriculture and allied industries, yet their contribution to the GDP is only 14 per cent.

Production of cereals has risen over the years, but the productivity of the crops per hectare is below that of China, the US and the EU. While there is availability of subsidised inputs like fertilizers, seeds and power in many States, the costs have risen compared to the returns from farming. Most crop prices have remained below the Minimum Support Price (MSP) and hence the outcry from farmers.

The Swaminathan Committee (2004-06) had recommended that MSP should be 50 per cent above the cost of production. But this has not worked out satisfactorily for farmers. MSP is a guarantee price for farmers’ produce and if market prices fall below MSP, the government agencies are supposed to purchase the entire quantity offered by farmers in the case of 22 commodities.  According to the report of the Shanta Kumar Committee report, appointed by the Modi government in 2015, only 6 per cent of the farmers get the benefit of MSP while 94 per cent do not.

Today, however, the problem is surplus production of some agricultural products, especially in the case of smaller farmers who are not able to sell their produce to the government procurement agencies because it is mainly in the case of rice and wheat, when market prices are below the MSP that the government agencies procure the offered produce.  For other crops, in case of a glut, farmers have to sell to traders at rock bottom prices whereas the urban consumers continue to pay 10 times more.

The problem of low prices affects the small farmers most.

They account for 86.2 per cent of land holdings that are less than 2 hectares. According to the 10th agricultural census (October 2018) farms have got more fragmented between 2010-11 and 2015-16 and continue to be inequitably distributed and the number of small and marginal farmers have risen by 9 million during the last 5 years.  It is small farmers who are vulnerable, unable to pay back debts and are committing suicides. There have been 270,000 farmer suicides in the last 15 years.

India’s small farmers have multiplied because for 70 years, the fragmentation and sub-division of landholdings have been taking place due to population pressure and the result is smaller and smaller land holdings whose returns from farming are not enough to feed the family. Being short of capital, they are not able to undertake investments that would help productivity to rise or use quality inputs. They lack the advantage of scale even with a rise in productivity.  It is this group of farmers who need help and handholding from the State governments. There could be more NGOs and extension workers who would help in advising small farmers about what crops to grow and how to take advantage of government schemes and access formal sources of credit.  This is because marginal farmers are mostly uneducated and lack awareness which lands them in the clutches of money lenders.

Seventy-six per cent among farmers want to give up farming, according to the survey, “State of Indian Farmers”, 2018, done by the Centre for the Study of Development Societies. It states that the benefits of government schemes and policies are being given to big farmers who have more than 10 hectares and above. Only 10 per cent of poor and small farmers (0.4 to 1.6 hectares) have benefited from schemes and subsidies and only 62 per cent are aware of the MSP. Among those who are aware of the MSP, 64 per cent are not satisfied.

Small farmers are not able to realise remunerative prices for their produce because they often lack transportation to take it to the mandis and have to undersell to agents at the farm gate.

Hence better credit and transportation facilities, warehousing and storage, better access to crop insurance are important for improving the earnings and living conditions of marginal farmers. Higher farm incomes will boost demand for industrial goods which will revive industrial growth.

There is need to have alternative sources of irrigation for small farmers, like drip irrigation and rain water harvesting, which will lead to higher productivity and conservation of water to reduce their dependence on rainfall. There is a crying need for less number of middlemen and more efficient markets in rural areas. The model APMC (Agricultural Produce Marketing Committee) has all the ingredients for a more efficient agricultural marketing system without middlemen, but it has been adopted only by 18 States.

The setting up of farmer producer companies (FPC) is a way out for small farmers. They can have better incomes as it will lead to aggregating of produce and selling it at better prices. Such entities are a hybrid between a private company and a cooperative society and were created in 2003 after amending the Indian Companies Act of 1956.  They are modelled on Amul, which has been very successful. But unfortunately, only 3000 such FPCs are in existence. According to Niti Ayog, for 6 lakh villages we need 1 lakh FPCs to transform agriculture. In Maharashtra, Maha FPC is successfully engaged in Minimum Support Price procurement on behalf of the government. But FPCs are cash strapped as they have to take loans at interest rates as high as 22 per cent from NBFCs (Non-Banking Financial Companies). This is not sustainable and the problem has to be addressed. Also, FPCs need leadership as in the case of Amul so that they can run smoothly.

Contract farming is another option for small farmers, but it will introduce monopsony by multinationals in farming and could lead to monoculture and affect biodiversity negatively. FPCs, however, can go for contract farming because it has a professional management team that can implement the Model Contract Farming Act with its regulatory framework.

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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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