Farmer distress: Causes and possible solutions

Time and again we have farmer protests, farmer suicides hits the media cycle, flame wars erupt on social media and then as we all have the attention span of a gold fish, we move onto Priyanka Chopra’s gown or whatever is the topic of the day. The deep rooted issues though remain, which begs the question, why are our farmers not very productive, why do they, in this modern era struggle to eke together a living? I tried to put together a picture using publicly available date.

  • Landholding Size and Parcel Sizes : To start out with the size of landholdings. Our total land under cultivation has more or less remained static from 1970 onwards. It is around 140 Million HA. However our population has grown by close to 140% since then. We have gone from 70 lakh farmers to 140 lakh farmers in this same period. 67% of these farmers are marginal farmers with less than 0.40 HA per holding. These farmers usually depend on wages and labour to make their earning.

The per HA size has however dropped from 2.28 HA in 1970 to 1.16 HA in 2011.

Basic math- land remains the same, number of farmers has gone up means excessive parceling. This means smaller landholdings which means lesser income and consequently capital to mechanise our farmlands.

  • India has about 90.2 Mn households (average household size in India is 4.5) or about 405 Mn Indians directly depend on agriculture for a living. You have another 40Mn living in rural areas who don’t depend on agriculture (small scale manufacturing, services etc). In totality you have about 130 Mn households in India directly OR indirectly dependent on agriculture. Or in number terms, 585 Mn people (around 50% of the population)
  • An agricultural household was defined in the NSSO survey as a household receiving value of produce of more than Rs.3,000 from agriculture with at least one member self-employed in farming.
  • Agriculture contributes only about 15% to the GDP – so you have a scenario where around 50% of the population (31% directly) contributing to about 15% of the GDP.
  • UP has the highest number of households involved in agriculture (no brainier really, given it is also our most populous state). UP alone has 81 Mn people directly dependent on farming. UP’s average landholding size is an abysmal 0.75 HA on average.
  • 45% of the farmers are from OBC communities while another 29% are from SC/ST communities. As per the Sachar report, SC/ST are amongst our poorest subsets and a large number of them are in agriculture.

To put things into perspective, the average farm size in

  • The USA is 174 HA
  • Latin America is 111.7 HA
  • Sub Saharan Africa is 2.4 HA

Our average landholding size is 60% of Sub Saharan Africa’s and this has deep consequences.

  • Farmer Debt and other salient numbers
  • 52% of all farmer households are indebted. Interestingly, states like AP (92%) and TN 82.5%) had the highest levels of debt, but some (like TN) don’t report high levels of suicide– this area alone requires a greater amount of study, and could hold part of the solution to solving the jigsaw puzzle that is our rural economy. The woes of the peasant are further compounded as Crop insurance was and is almost unheard of.
  • Average monthly income per agricultural household was Rs.6,426. This translates into an annual income of Rs 77,112 for a family of 4.5. Or in other words, each family member gets Rs 1,428 per month to account for ALL their needs (food, clothing, medicine, education) Just read this again to truly understand how desperately poor we are as a nation and how worse off our farmers are.
  • Farm business accounted for 60% of the average monthly income per agricultural household,Income from wages and salary accounted for nearly 32% of the average monthly income. This is again a scary data point. The average farmer is able to generate only Rs 3,855 a month from farming and need to supplement these wages with daily wages (thank you MNREGA- a good scheme if any, just needs better implementation).

How does all this affect the rural economy? One aspect is, it triggers migration.

  • This is visible in how the number of cultivators to labourers ratio has changed drastically in India. According to this article In 1961, India had 52.8 of her farmers as cultivators and 16.7% as labourers. Thanks to land fragmentation and falling productivity (see above for numbers), in 2011, cultivators are only 24.6% while labourers are 30%.
  • India has in the last decade also seen a historic shift. The number of jobs added in agriculture fell by about 2.5 crore jobs, these jobs saw an increase in the manufacturing (mostly construction) sector. So clearly, migration to cities has begun enmasse and will only pick up pace.
  • All these structural problems are manifest in our per HA productivity- India’s per HA cereal productivity is below the global average at 2,962 in 2013. To put things into perspective, Cambodia is at 3,110. Ivory Coast (ravaged by civil war till a decade ago) is at 3,125. Brazil is at 4,800. China is at near double- 5,800.

Why is farm productivity important? Oxfam says

  • A 10 percent increase in crop yields leads to a reduction of between 6 percent and 10 percent of people living on less than US$ 1 a day.
  • The average real income of small farmers in South India rose by 90 percent, and that of landless labourers by 125 percent, between 1973 and 1994 as a result of the Green Revolution.
  • A 1 percent increase in agricultural GDP per capita led to a 1.61 per cent gain in the per capita incomes of the lowest fifth of the population in 35 countries.
  • A 1 percent increase in labour productivity in agriculture reduced the number of people living on less than US$ 1 a day by between 0.6 and 1.2%.

How does one increase farm productivity and why is the MSP methodology – of just increasing MSP not recommended?

The UPA approach and indeed the past govt’s approach to rural distress was simple. Subsidies, subsidies and more subsidies. Estimates put our TSE (Total Support Estimate to the rural economy) at $ 60 billion annually. This excludes other schemes like MNREGA or the free electricity that many state governments used to provide to farmers.

Some like MNREGA are very good schemes while others like the Loan waiver or MSP increase are not optimum.

The solution to farm distress was to simply throw more money at farmers via the MSP. From 2004-2014, the average rate of increase for MSP was 14%. All this did (along with MNREGA and other subsidy programs) was fuel inflation which peaked in 2012-2014 (and wiped out the Congress electorally). The NDA era saw an annual increase of 4%. It is estimated that for every 10% increase in MSP, there is a 3.3% increase in food basket inflation.

How does it all tie in together?

Going back to our NSSO survey, the agricultural household spends on average 50% of its income (of Rs 6,400) on food. When food costs increase by 30-40% over 2 years, it puts your household budget completely out of whack.

Link this to landholding sizes now and marginal farmers, their increased income gets near wiped out by the inflation while only those with a sizeable farm size benefit. However considering the MAJORITY are small landholders and 60% of this lot are marginal farmers (with 0.4HA and less) it means the majority of farmers are actually hurt by an MSP increase. It gets really bad for the marginal farmers who (as explained above) depend only on wages and labour to survive. They don’t get a 10% annual increment on wages but their food bills go up by~ 5% a year.

There is another nasty side effect to the MSP driven approach. It prices out the free market and the govt becomes the largest procurer of food grains. This resulted in lakhs of tons of food grains rotting in FCI godowns necessitating an SC order to release these food grains.

You have a situation where food prices are going up, supply is drying up leading to a further price rise leading to the MSP going up. This circle is what truly destroyed the UPA electorally as by 2014 and 8 cycles of this meant that our truly poor were being priced out of the food market.

The reason why MSP is not the way should be clear by now. There is another reason and it is basic economics. When your landholdings are static, and your output is more or less static (it can only go down and not up), increasing MSP is only going to increase farmer income marginally. What is truly needed is to increase output per HA. What are some ways of doing this.

  • Collectivisation- This is a touchy subject, and history tells us it fails more often than not. Russia, Vietnam are all examples of how miserably this failed. Yet, China tells us this is very possible and can reap (forgive the pun) an amazing harvest (I am referring to the Post Deng reforms, not the disaster of Mao’s GLP), This should give you some details on how China reformed her primary sector not going into it as it is out of scope for our discussion.
  • Land consolidation and allowing a free hand to market forces via Land reform (not the current LAB)- Allow farmers to freely lease their land and extract rent from it. Let in private players into this sector, grant free (or lowest interest rate) credit, all actions to be taken to improve average land holding size
  • Improve mechanisation (or collective mechanisation)

This is where a good land acquisition bill would come into play – it will allow this smaller parcels to be consolidated into larger chunks and manufacturing can absorb the already very poor at decent wages. The need of the hour is to improve our farmer productivity by encouraging the truly marginal (who anyways make no money from farming but form 60% of our total base) farmers to make the jump to planned industrialization.

Sources:

  • 1NSSO 70th round survey
  • 2Cereal Yield per HA
  • 3Oxfam Report
  • 4MSP
  • 5Labourer, cultivator mix.

I have also linked some other sources as and when I needed them in the main body of the post.

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