Subject: Agriculture

2020-21 saw the Indian economy register its worst-ever contraction since Independence and also the first since 1979-80. There has been recording economic contraction, however, the farm sector actually grew by 3.6%.

Growth in Farm Sector

There are two main reasons why agriculture didn’t suffer the fate of the rest of the economy last year.

(1) Better monsoon and yields

• 2019 and 2020, by contrast, were above-normal monsoon years, with the country receiving an area-weighted rainfall.
• It led to the filling of reservoirs and recharging of groundwater tables and aquifers, unlike after the deficient monsoons of 2014 and 2015 and the near-deficient one of 2018.
• Not surprisingly, 2019-20 and 2020-21 produced back-to-back bumper harvests.

(2) Ease during lockdowns

• The second reason had to do with agriculture being exempted from the nationwide lockdown that followed the first wave of Covid-19.
• Lockdown restrictions only spared PDS ration shops and other stores selling food, groceries, fruits & vegetables, milk, meat and fish, animal fodder, seeds and pesticides.
• But within days, an addendum was issued, extending the lifting of curbs to fertilizer outlets, all field operations by farmers and farmworkers, intra- and inter-state movement of agricultural machinery, sale of produce in wholesale mandis and procurement.

Inherent resilience of India’s farm sector

• Simply put, farmers made sure they did not waste a good monsoon, finding ways to even mobilize harvesting and planting labor during peak lockdown.
• The inherent resilience and adaptability of rural economic actors — meant that the farm sector was relatively insulated from lockdown-imposed supply-side

What were the issues faced?

• The problems agriculture encountered due to the lockdown had more to do with the demand
• The closure of hotels, restaurants, roadside eateries, sweetmeat shops, hostels, and canteens — and no wedding receptions and other public functions — resulted in a collapse of out-of-home consumption.
• This was demand destruction not from rising prices — “movement along the demand curve”.
• Instead, it was from forced consumption reduction, translating into lower demand for farm produce even at the same price — “a leftward shift in the demand curve”.

Various successes

(1) Success of MSP procurement

• MSP procurement was effective largely in crops and regions where the institutions undertaking such operations — be it the Food Corporation of India, NAFED, Cotton Corporation of India or even cooperative dairies.
• These all were active and could stem price declines during the period of demand destruction.
• Such intervention wasn’t possible in non-mainstream produce (vegetables, fruits, poultry, fish, flowers, spices, etc) and regions (maize in Bihar), where the corresponding institutional mechanisms were non-existent.
• The demand situation improved, though, with the gradual lifting of lockdown restrictions and also the recovery in global agri-commodity prices.

(2) MGNREGA

• While agriculture grew amid an unprecedented economic contraction, 2020-21 was also notable for the record person-days of employment generated under MGNREGA.
• This flagship employment scheme was yet another source of liquidity infusion and, again, a pre-existing program that the government could deploy to support rural incomes during a crisis.
• Rural consumption, in turn, provided some cushion to the economy and preventing a bad situation from turning much worse.

Prospects for this Year

The one obvious difference between now and last year is Covid-19 cases. Covid’s impact on agriculture per se would depend on the spread, intensity, and duration of the infection.

• Rural areas were mostly unaffected by the pandemic’s first wave.
• Farm-related activities could, then, go on relatively unhindered, which government policy, whether to do with lockdown or public procurement, also facilitated.
• That situation has changed with the second wave and rising share of rural districts in total cases, even without factoring in the higher probability of underreporting in these places.

What next?

• While fear of the virus may induce precautionary behavior and economic growth, it is unlikely to affect normal agricultural operations.
• And if last years’ experience is any guide, the adaptability of farmers and myriad rural economic agents should not be underestimated.

(1) The first factor to be considered is the monsoon. The good news this time is that there is no El Niño.

• There are increasing chances of a La Niña — El Niño’s counterpart that is associated with above-normal rains and lower temperatures in India — for the autumn and winter months.
• El Nino is the abnormal warming of the tropical central and eastern Pacific Ocean surface waters, resulting in increased evaporation and cloud-formation activity around South America and away from Asia.

(2) Uncertainty is prices

• Global prices — be it of wheat, maize, soybean, palm oil, sugar, skimmed milk powder or cotton — have scaled multi-year highs in the recent period, helping India’s agri-commodity exports.
• But export demand alone cannot sustain prices, especially in a scenario where job and income losses, accelerated post the pandemic that has severely dented domestic purchasing power.
• Diesel prices alone have gone up by over a third in the last year; so have that of most non-urea fertilizers.

Way forward

• The real challenge for Indian agriculture and farmers will be on the demand side.
• That is specifically going to come from declining real incomes and particularly affecting demand for milk, pulses, egg, meat, fruits, vegetables and other protein/micronutrient-rich foods.
• While rising rural wages and overall incomes is what propelled the demand for these foods in the past — in turn, contributing to dietary and cropping diversification — the ongoing slide presents a frightening proposition.