GS Paper: GS3-08.Issues related to direct and indirect farm subsidies and MSP

The intended beneficiaries often understand the realities of the systems better; policymakers need to build trust.

Practice Question: The farmers protest against the new farm laws rises the serious concerns about the policymaking and involvement of citizen in the process by experts. What can be done to improve the trust of the public and how the challenge of agricultural income be solved?

Reassessment is needed

• The purpose of agriculture reforms is to increase farmers’ incomes. Farmers want the laws repealed.
• The Supreme Court of India has called for discussions between the government and farmers around the country.
• It is time to go back to the drawing board about the purpose and the process of agriculture reforms.
• According to economists, fewer people must work on farms for farm productivity and incomes to be improved. Which begs the question of how the millions displaced from farms will earn incomes.
• Indian industry is not growing much. There too, according to economists, humans should be replaced by technology for improving productivity.

Flipside of productivity

• Landholdings are too small for mechanization to improve farm productivity. Their solution is to ‘scale-up’ farms.
• Mechanization requires standardization of work, hence mechanized farming on scale requires monocropping.
• Large-scale specialization upsets the ecological balance. Reduced diversity of flora enables pests to spread more easily; soil quality is reduced; water resources get depleted.
• Solutions to these new problems require more industrial inputs, with more costs for farmers.
• The harmful side-effects of this approach to improve agriculture productivity are very visible in Punjab nowhere farm incomes have grown at the cost of water resources.

Nature’s self-adaptive system

• The ecological imbalance out of monocropping made the trees more vulnerable to pests.
• Nature is a complex ‘self-adaptive’ system. It knows how to take care of itself.
• When Man tries to overpower Nature with his science and industry, without understanding how Nature functions, he harms Nature — and ultimately himself.
• Challenges of environmental degradation and increasing inequalities require that the economic calculus shifts from ‘economies of scale with standardization’ to ‘economies of scope for sustainability’.
• This will make large-scale mechanization more difficult. It will require the use of more ‘flexible’ human labour.
• In the long run, not only will this be good for the ecology, but it will also increase employment and incomes for people in the lower half of the economic pyramid.

Market access

• Farm incomes can increase with access to wider markets for farm produce, which is an objective of the agricultural reforms.
• Indian farmers fear that they will not have adequate pricing power when pushed into large supply systems and less regulated markets.
• Connections into global supply chains can increase volumes of sales which always favour the larger players in the supply chains who have easier access to capital.
• Studies show that farmers in developed countries formed collectives which enable their voice to be heard by politicians and they could set the rules of global trade.

Strengthen cooperatives

• Institutions for cooperative ownership and collective bargaining must be strengthened to give power to small farmers before opening markets to large corporations.
• A very good example is the Indian dairy sector. It’s ‘per person productivity is much lower than in New Zealand and Australian dairy producers’.
• Still, it provides millions of tiny producers with reasonable incomes which large-scale industrial dairy producers do not.
• Moreover, with its cooperative aggregation, the Indian dairy sector has also acquired political clout.
• It has compelled the Indian government not to join the Regional Comprehensive Economic Partnership to connect the Indian economy with larger supply chains.

Low agriculture income

• The problem of low incomes in India’s agriculture sector is a complex systems problem which cannot be solved by agriculture experts alone.
• Experts from many disciplines must collaborate to find systemic solutions.
• The intended beneficiaries of the new policies must be included in the designing of the new policies right at the beginning as they understand the realities of systems better than experts.
• When policymakers say ‘the people don’t get it’ after the policy is announced and the intended beneficiaries protest, it is an indication that the experts didn’t get it.

The reforms of the 1990s

• The stand-off in agriculture reforms has caused a flurry of discussions about democracy, consultation, and processes for economic reforms.
• The immediate beneficiaries of the 1991 reforms were all Indian consumers, rich and poor, who would benefit from access to better quality products from around the world.
• The principal opponents of the reforms were a few large industrialists whose products citizens were not satisfied with.
• Governments have more power over a few industrialists than they have over the masses.
• The 1991 reforms changed industrial licensing and trade policies — both subjects of the Union government.
• ‘Factor market’ reforms, inland, agriculture, and labour regulations, which are necessary to realize the full benefits of the 1991 reforms are State subjects.
• They affect the lives of people on the ground, and differently, around the country. Therefore, the central government, no matter how strong it is, must not force these reforms onto the States.

Conclusion:

Silo experts cannot help

• India’s policymakers must improve their expertise in solving complex, multi-disciplinary problems.
• They must apply the discipline of systems thinking, and not rely on siloed domain experts.
• Citizens around the country must be involved in the policymaking throughout the evolution of policies.
• The policies of the government should create public value and it satisfies the desire of citizens for a well-ordered society, in which fair, efficient, and accountable public institutions exist.
• Trust is essential for a well-governed society. The lesson for India’s leaders is- good processes for making public policies build trust between citizens and their governments.

With most farming land held by only 20% of its cultivators in Assam, there is a perception that agriculture is unimportant. However, the new farm laws are equally detrimental to small and marginal farmers in the state.

Muted response from the state’s farming community

• With more than 70% of Assam’s population directly or indirectly dependent for their livelihood on the agricultural sector, it is surprising that the state has only seen sporadic protests against the farm laws passed by the Central government.
• Reformists would like to read this muted response from the state’s farming community as the voice of the silent majority who expect to benefit from the new farm laws.
• The real answer lies in the political economy of the state’s rural sector, which has its origins in the colonial handling of its agrarian possibilities.

Q. Farmers agitations in India are often region-specific. Discuss

Ungrounded and uncultivated

• The pre-Independence British administration had invested substantially in the agriculture in what today constitutes Punjab and Haryana, building dams and irrigation facilities and creating conditions that allowed farmers to benefit from the post-independence Green Revolution.
• This gave rise to the capitalist class among them.
• However, at the same time, peasants in Assam were arbitrarily taxed by the British Raj to make them voluntarily give up farming in favour of joining the labour forces of the tea industry in the region.
• Its policies did result in the transfer of land from the peasantry to mid-level revenue officials, leading to a highly unequal land distribution that has persisted since that time.
• Since the landed class tended to support the Indian National Congress-led freedom struggle, no land reform programme has ever been pursued seriously in the post-independence period.

Unequal land distribution

• Seven decades after independence, Assam’s agrarian setting is still characterized by a very high level of unequal land distribution.
• The evidence documented in the Assam Human Development Report, 2014 shows that 20% of farmers hold as much as 70% of the state’s farmland and shows tenancy at a much higher level of 26%.
• The lack of legal recognition of tenants means most of them have never been beneficiaries of public policies in agriculture in the state.
• The state’s agriculture is characterized by mono-cropping, with rice accounting for 90% of the land cultivated, but public procurement at the minimum support price (MSP) is conspicuously absent.
• The latest information from the public information bureau (PIB) shows that the state produces 4.2% of the country’s rice, but only 0.2% of its farmers availed public procurement by the Food Corporation of India (FCI).
• Most farmers had to bear with the low prices of rice in the open markets, even as the state was flooded with rice sourced from elsewhere through the public distribution system.
• Frequent floods often ravage the region, reducing farming operations to just one season in most flood-affected districts. Assam’s cropping intensity of 146% is one of the lowest among all major rice-producing states.
• In such a setting, the landed class takes little interest in farming, even as small and marginal farmers have increasingly been migrating, many even outside the state, to earn their livelihoods.
• It’s not surprising that the state’s agriculture is still stuck at the subsistence level. The Assam Economic Survey 2017-18 shows only 38% of the state’s land under high yielding variety seeds and 26% of its land under irrigation.

APMC must be strengthened

• The farmers of Assam might benefit from the breaking down of MSP procurement elsewhere through higher prices in the open market.
• The new farm laws are more or less meaningless, which are more about APMC markets than about MSP.
• With just 24 regulated APMC markets, Assam does not have enough marketing infrastructure to justify the argument made by the advocates of the new farm laws that the new Acts will liberate the farmers from the APMC markets’ monopoly and boost private investment in the sector.
• With the state’s agricultural marketing largely revolving around 700-odd unregulated haats (village markets), the 24 APMC markets are hardly enough to curtail the farmers’ ‘freedom’ to dispose of their produce.
• The credit deposit ratio (CDR) reported by major national banks in the state in 2017 is still below 40% compared to 72% at the national level, showing that the state is losing much of its savings to better-endowed states instead of receiving investment from outside the state.
• The APMC market as a public institution still has a large role to play in reviving the state’s agricultural sector. Additionally, it can stop growing inter-state migration that has come to light in the wake of the COVID-19 pandemic.

In tackling agri-crises, these core Green Revolution States must shift to high-value crops and promote non-farm activities

Early adopters of Green Revolution Technology

• The region comprising Punjab, Haryana and western Uttar Pradesh, was an early adopter of Green Revolution technology.
• It was also a major beneficiary of various policies adopted to spread modern agriculture technology in the country.
• The package of technology and policies produced quick results which enabled India to move from a country facing a severe shortage of staple food to becoming a nation close to self-sufficiency in just 15 years.

Practice Question:

Q. The traditional Green Revolution States of Punjab and Haryana would need to shed “business as usual” approach and embrace an innovative development strategy in agriculture and non-agriculture to secure and improve the future of farming and rural youth. Discuss.

The rice and wheat focus

• Procurement of marketed surplus of paddy (rice) and wheat at Minimum Support Price (MSP) completely insulated farmers against any price or market risks. It also ensured a reasonably stable flow of income from these two crops.
• Over time, the technological advantage of rice and wheat over other competing crops further increased as public sector agriculture research and development allocated their best resources and scientific manpower to these two crops.
• Other public and private investments in water and land and input subsidies were the other favourable factors.
• Thus, wheat in rabi and paddy in Kharif turned out to be the best in terms of productivity, income, price and yield risk and ease of cultivation among all the field crops (cereals, pulses, oilseeds).
• It is no surprise then that the area share of rice and wheat in the total cropped area rose drastically in these states.
• The progress and specialization towards these two crops served the great national goal of securing the food security of the country.

Problems of the Green Revolutionsurfaced during the mid-1980s

• During the mid-1980s, some inimical trends related to the rice-wheat crop system in general and paddy cultivation, in particular, surfaced followed by serious second-generation problems of the Green Revolution.
• Some experts foresaw the serious consequences of the continuation of paddy cultivation in the region and suggested diversification away from the rice-wheat system in the mid-1980s.
• Since then a large number of reports and policy documents have been prepared to develop alternative options to reduce the area under paddy — necessitated by its adverse effect on natural resources, the ecology, the environment, and fiscal resources.
• Serious concerns have also been expressed about plateauing productivity and stagnant income from rice-wheat cultivation. However, the area under these two crops has only increased rather than fallen.
• In order to develop viable options to infuse dynamism in the agriculture economy of this Green Revolution belt, there is a need to understand: what attracts farmers to rice-wheat crops, why it needs to be changed, and how it can be changed.

Punjab, Haryana vs. States

• High productivity, assured MSP which is often above open market price, free power, and fertilizer subsidy underlie the higher income per unit area from wheat and paddy cultivation.
• Land-labour ratio is also very favourable in Punjab when compared to other States; on an average, a farmer owns and cultivates 2.14 hectares net sown area as against 1.42 hectares in Haryana and 1.17 hectares at the national level.
• An estimate of income (derived from National Accounts Statistics) shows that all agriculture activities taken together to generate an annual net income of ₹5.31 lakh per cultivator in Punjab; it is ₹3.44 lakh in Haryana while the all-India average is ₹1.7 lakh (reference year, 2017-18).
• A question often asked is that if per farmer agriculture incomes in Haryana and Punjab are two to three times more than the national average, then why is there so much talk of farmers’ distress in these two States?

Why farmers’ distress in these two States when everything looks good?

• The reasons seem to be the loss of growth momentum in the income from the agriculture sector, which has fallen to 1% in Haryana and 0.6% in Punjab after 2011-12.
• This is quite low by any standard and not keeping in pace with an increase in households’ expenditure. The prospects of further growth in agricultural income from the crop sector dominated by rice and wheat are very dim.
• With the productivity of rice and wheat reaching a plateau, there is pressure to seek an increase in MSP to increase income. However, demand and supply do not favour an increase in MSP in real terms.
• In India, the per capita intake of rice and wheat is declining and consumers’ preference is shifting towards other foods.
• The average spending by urban consumers is more on beverage and spices than on all cereals. On the supply side, rice production is rising at the rate of 14% per year in Madhya Pradesh, 10% in Jharkhand and 7% in Bihar.

Issues related to procurement

• The growing rice production will further increase pressure on the procurement and buffer stock of rice. Rice and wheat procurement in the country has more than doubled after 2006-07 and buffer stocks have swelled to an all-time high.
• The country does not find an easy way to dispose of such large stocks and they are creating stress on the fiscal resources of the government.
• The implication of all these changes is that farmers in the region will find it difficult to increase their income from rice-wheat cultivation and they must be provided alternative choices to keep their income growing.
• Procurement of almost the entire market arrivals of rice and wheat at MSP for more than 50 years has affected the entrepreneurial skills of farmers to sell their produce in a competitive market where prices are determined by demand and supply and competition.
• Thus, to enable Punjab and Haryana farmers to move toward high-paying horticulture crops requires institutional arrangements on price assurance such as contract farming.

Environmental issues, unemployment

• The biggest casualty of paddy cultivation and the policy of free power for pumping out groundwater for irrigation is the depletion of groundwater resources.
• In the last decade, the water table has shown a decline in 84% observation wells in Punjab and 75% in Haryana. It is feared that Punjab and Haryana will run out of groundwater after some years if the current rate of overexploitation of water is not reversed.
• In the last couple of years, the burning of paddy stubble and straw has become another serious environmental and health hazard in the whole region.
• Another rather more serious challenge for the two States is to provide attractive employment to rural youths. Most of the farm work in these two States is undertaken by migrant labour.
• The younger generation is not willing to do manual work in agriculture and looks for better paying salaried jobs in non-farm occupations. Government jobs are few and far less than the number of job seekers.
• Thus, the option left is to create jobs in the private industry and the services sector. This requires private investments in suitable areas.
• Punjab has witnessed a flight of private capital from the State during the rise of militancy which hurt the State economy, employment and the revenues of the State.
• This setback has pushed the rank of the State in per capita income from number one in the 1970s and the early 1980s to number 13 among the major states of the country.
• For further progress and to meet the aspirations of rural youth to get satisfactory employment, the State needs large-scale private investments in modern industry, services, and commerce besides agriculture.

The solution lies in…

• The solution to the ecological, environmental and economic challenges facing agriculture in the traditional Green Revolution States is not in legalizing MSP but to shift from MSP crops to high-value crops and in the promotion of non-farm activities.
• Rather than focusing on a few enterprises, Punjab and Haryana should look at a large number of area-specific enterprises to avoid gluts.
• This will require a mechanism to cover price and market risks. Farmers’ groups and farmer producer organizations can play a significant role in the direct marketing of their produce.

Agricultural specificities and way forward

• Both Punjab and Haryana need to promote economic activities with strong links with agriculture tailored to State specificities.
• Some options for this are: promotion of food processing in formal and informal sectors; a big push to post-harvest value addition and modern value chains; a network of agro- and agri-input industries; high-tech agriculture; and a direct link of production and producers to consumers and consumers without involving intermediaries.
• The traditional Green Revolution States of Punjab and Haryana would need to shed “business as usual” approach and embrace an innovative development strategy in agriculture and non-agriculture to secure and improve the future of farming and rural youth.

With protests becoming catalysts for anti-authoritarian struggle, the air is ripe for new visions of rural emancipation

Recent policy changes and its impacts on agriculture

• There has been a systematic attack on agriculture in South Asia over the last decades. This can be seen in ongoing protests in India.
• Similar incidences of protests can be seen in Pakistan, where farmers protesting for support prices were beaten up and arrested in Lahore only a month ago, or Sri Lanka, where shortages of imported fertilizers and declining subsidies have led to farmers’ outcry.
• In the middle of a long-simmering rural economic crisis pushed over the cliff by the COVID-19 pandemic, efforts by South Asian governments to project corporatization and deregulation as the way forward for agriculture have angered long-suffering farmers.
• Successive governments have imposed a corporate agenda, seeking profits from food production and distribution by relaxing norms for cheap food imports, and encouraging export-oriented production, price speculation, agribusiness and retail supermarkets.
• South Asia’s rural landscape has been profoundly reshaped by such ‘reforms’, dispossessing farmers of their land, and pushing them into wage labour and migration as coping mechanisms.
• This hollowing out of rural livelihoods does not come with any assurance of stable jobs or a decent quality of life in urban areas.

Pandemic opportunism

• The COVID-19 crisis has increased such efforts and policy changes.
• India is not the only country to have attempted to seize this moment to deregulate agricultural markets. In Pakistan, the government inked an agreement with the World Bank to further deregulate the country’s wheat market.
• In Sri Lanka, with the national budget just passed for 2021, there are only meagre allocations towards revitalizing agricultural livelihoods and policies focused on supporting technologies suitable for agribusinesses.
• Instead of the current crisis sending governments back to the drawing board, South Asia’s authoritarian regimes, complicit with corporate interests, are railroading in anti-farmer agricultural policies.

Practice Question: Do you think there is a common ground between farmers protests in various South Asian countries. Discuss with proper examples.

Menace of the corporatization of Agriculture

• Corporate agriculture further worsens the existential danger faced by South Asian farmers.
• The corporate solutions do not address the role of middlemen and traders in denying farmers a fair price for their labour.
• Instead, opening up markets to large corporations is likely to spark the same sort of race to the bottom that has been seen in the industrial and service sectors.
• Deregulation makes farmers’ livelihoods even more precarious and threatens food sovereignty through increased dependence on global agricultural trade.
• It was the collapse of global agricultural commodity prices in the 1970s that had a large role to play in the debt crisis that haunts countries such as Pakistan and Sri Lanka.

Reviving resistance

• There is a powerful legacy of rural movements in South Asia that have fought for the rights of farmers, peasants and agricultural workers.
• Rural movements played a crucial role in the anti-colonial struggle and fought for progressive land and agrarian reform after independence.
• Seventy years on, they continue to fight against the recent waves of anti-farmer policies, while advancing new progressive visions such as peasant agro-ecology and food sovereignty, which put small food producers and the environment at the centre.
• The current convergence of authoritarianism and corporate capital brings this existential crisis for rural agricultural producers even more sharply in focus.
• Farmers’ movements have been aware of state connivance with exploitative actors, but they must now also contend with a breakdown of the democratic process and increased repression.
• These should be ominous signs for regimes across South Asia which continue to act with impunity in the face of demands for economic and social justice.

Voices of movements

• The COVID-19 pandemic has pushed food sovereignty back into the public imagination. The solution, of course, only begins with making farming a viable livelihood.
• Dominant assumptions about inevitable rural-urban migration and techno-utopian transformation in agriculture must be challenged.
• Questions of land redistribution and other rural inequalities must remain a crucial part of the political agenda.
• The situation of mostly female agricultural workers, the rural landless and Dalits in South Asia remains precarious. Even as rural movements across South Asia fight the ongoing attack on their livelihoods, they must also tackle rural inequality head-on.

Conclusion

• The air is ripe for new visions of rural emancipation in South Asia.
• Rural movements are working to transform not just their world but are becoming catalysts for a broader anti-authoritarian struggle in South Asia.
• The current phase of struggles has revived old questions while raising others about the future of our long-ignored rural world.
• We must listen to the voices and demands of the rural movements converging across South Asia.

The standoff between farmers and the government continues even after a few rounds of discussion.

Un-timely reforms

• Currently, the country was struggling with novel coronavirus-caused lockdowns, supply disruptions, job losses and falling incomes in an economy.
• The reforms embedded in the three Acts are unlikely to help resolve the structural issues facing Indian agriculture, even their withdrawal is unlikely to change the ground reality.

Farmers protest continues

• The immediate trigger for the current protests is the enactment of the three Acts, on agricultural marketing, contract farming and stocking of agricultural produce, which deregulates the existing Acts on these.
• Farmer unions have rejected the proposal and continue to demand complete withdrawal of the three Acts along with making MSP a guarantee.

Government for negotiations

• The latest proposal by the government indicates its willingness to amend the three agriculture-related Acts passed in September.
• The government has proposed amendments which will empower the States to frame rules the contentious issues of registration of private traders, levy of taxes on trade outside the Agricultural Produce Market Committee (APMC) mandis.
• Similar assurances have been given on access to the judiciary for dispute resolution and continuation of the Minimum Support Price (MSP) mechanism.

Many protests, one thread

• The last four years have seen a series of large protests in most of the States.
• For example, a group of farmers from Tamil Nadu camped in Delhi for over 100 days, Maharashtra was witness to the ‘Kisan Long March’ of farmers on more than one occasion, protests erupted in Rajasthan, UP, Haryana and MP.
• The latest round of protests may have seen spirited protests from farmers from Punjab and Haryana but has found the support of farmers from the other States as well.
• The common thread in all these protests — of declining agricultural incomes, stagnant wages and withdrawal of state support to agriculture.

Changing faces of agriculture

• The real issue is the lack of remunerative prices for a majority of agricultural commodities, a sharp increase in price variability in recent years, and an unpredictable and arbitrary government policy regime.
• The other major problem is the changing nature of agriculture which has seen increased dependence on markets, increasing mechanization along with increasing monetization of the agrarian economy.
• The increased dependence on markets has contributed to increasing variability in output prices.
• Limited government intervention in protecting farmers’ income and stabilizing prices through MSP-led procurement operations made the increased variability in frequency as well as its spread.
• Other than rice and wheat — and to some sporadic instances, of pulses — most crops suffer from inadequate intervention from MSP operations.
• Even these procurement operations are unable to stabilize prices with falling demand and a slowing economy. For example, wheat has seen a steady decline in year-on-year inflation based on Wholesale Price Index (WPI).
• Uneven nature of procurement in some states is also responsible to arrest the decline in prices. Crops like paddy, maize have seen in many States significantly lower market prices than the MSP.

Factors behind vulnerability

• Increasing mechanization and monetization have led to an increase in the cash requirement.
• Most of these are met by non-institutional sources including middlemen which have contributed to the rising cost of cultivation and an increase in loan defaults.
• The demand for loan waivers is unlikely to subside with the rising cost of inputs.
• These trends have accentuated after 2010-11 when the Nutrient Based Subsidy (NBS) for fertilizers regime led to an increase in fertilizer prices.
• The withdrawal of diesel subsidy and a rise in electricity prices also contributed to making agriculture unviable.
• The government has declined the agricultural investment in the first four years which resulted in rising input costs and falling output prices.
• The shocks of demonetization and the lockdown only increased the uncertainty and vulnerability in the agricultural sector both on input and output prices.

What lies ahead?

• The demand for making MSP a guarantee for private trade is meaningless if the government is unable to ensure procurement for a majority of the 23 crops for which it announces MSP.
• Thus, the withdrawal of the three Acts by the government will only seem to offer a temporary truce.

Policy overhaul needed

• The existing policy framework with an excessive focus on inflation management and obsession with the fiscal deficit will likely lead to lower support from the government either in price stabilization or reduction in the cost of cultivation through fiscal spending.
• The agricultural sector needs a comprehensive policy overhaul to recognize the new challenges of agriculture which are diversifying and getting integrated with the non-agricultural sector.
• This not only entails a better understanding of the structural issues but also innovative thinking to protect farmers’ livelihood from the uncertainty of these changes.
• Above all, it requires financial support and institutional structures to support the agricultural sector and protect it. Only this can lead to the government’s dream of doubling the farmers’ income.