Subject: Agriculture

The article examines the reasons for declining farm incomes and the contribution of farm subsidies.

Contribution of agriculture

• India’s agriculture, which also supports the rural workforce, was, forever, living beyond its means.
• In 1950-51, agriculture’s share in the country’s GDP was 45%, the share of the workforce dependent on it was close to 70%.
• Today, agriculture’s share in GDP is below 16%, but almost 50% of the country’s workforce depends on this sector.
• The squeeze on the agricultural sector becomes even more evident from its terms of trade vis-à-vis the non-agricultural sectors.
• Agriculture has been facing adverse terms of trade over extended periods since the 1980s, and even during the phases when the terms of trade have moved in its favour, for instance in the 1990s and again since 2012-13, there was no distinct upward trend.

Reason for fall in farm incomes: falling investment

• The decline in farm incomes was triggered by growing inefficiencies.
• This decline, in turn, was caused by a lack of meaningful investment in agriculture.
• The share of this sector in the total investment undertaken in the country consistently fell from about 18% in the 1950s to just above 11% in the 1980s.
• In the most recent quinquennium for which data are available (2014-15 to 2018-19), the average share of agriculture was 7.6%.

India’s dismal performance in term of yields of major crops

• If one ranks countries in terms of their yields in wheat and rice — India’s two major crops — the country’s ranks were 45 and 59, respectively, in 2019.
• This ranking would go down sharply if the areas recording high yields, such as Punjab and Haryana, are excluded.
• In other words, for farmers in most regions of the country, it is an uphill battle for survival amid low yields.

Need for coherent policy for agriculture

• The lack of a coherent policy for agriculture must surely be regarded among the most remarkable failures of the governments in post-Independence India.
• Compare this failure with the United States, with less than 2% of its workforce engaged in agriculture, has been enacting farm legislations every four years since the Agricultural Adjustment Act was enacted in 1933.
• These policies comprehensively address the needs of the farm sector through proactive support from the respective governments.

Issue of the farm subsidies in India

• The subsidies are the price that the country pays for the failure of the policymakers to comprehensively address the problems of the farm sector.
• Wanton distribution of subsidies without a proper policy framework has distorted the structure of production and, consequently, undesirable outcomes in terms of excessive food stockpiling.
• And, yet, the fundamental ills of Indian agriculture are not adequately addressed.
• Members of the World Trade Organization (WTO) are expected to notify their agricultural subsidies as a part of their commitment under the Agreement on Agriculture (AoA).
• India’s latest notification, for 2018-19, shows that the subsidies provided were slightly more than $56 billion.
• In most of the recent years, the largest component of India’s subsidies ($24.2 billion, or 43% of the total) is provided to “low income or resource-poor farmers”, a terminology that the AoA uses.
• However, the designation of this category of farmers is left to individual members.
• India has notified that 99.43% of its farmers are low income or resource-poor.
• According to the agricultural census conducted in 2015-16, these are the farmers whose holdings are 10 hectares or less.
• Thus, almost the entire farm sector comprises economically weak farmers.

Comparing subsidies given by various countries

• America provided $131 billion in 2017 and the EU, nearly €80 billion (or $93 billion) in 2017-18.
• Instead of absolute numbers; the ratios of subsidies to agricultural value addition for the three countries give a much better picture.
• Thus, for 2017, India’s farm subsidies were 12.4% of agricultural value addition, while for the U.S. and the EU, the figures were 90.8% and 45.3%, respectively.
• This then is the reality of farm subsidies that India provides.

Consider the question “Indian agriculture has been contributing beyond its means since Indian independence. However, agri incomes have shown a gradual decline. What are the reasons for such a decline? How far has farm subsidies succeeded in solving the low-income problem?” 

Conclusion

India needs a comprehensive Agri policy to deal with the distortion created by the subsidies.

Some provisions of the new farm laws are opposed by the farmers. The article explains the utility of these provisions.

Major objections to farm laws

• The first objection is that the Agricultural Produce Market Committees (APMC) will be eventually closed,
• The second objection is that Minimum Support Prices (MSP) will be stopped,
• The third fear is that corporates will take over the agriculture trade, and farmers’ land will be taken over by powerful corporates.

Why reforms were needed

• The gap between the agri-income of a farmer and that of a non-agriculture worker increased from ₹25,398 in 1993–94 to ₹1.42 lakh in 2011-12.
• Aggregate food demand has fallen short of domestic production necessitating the export of a large quantity to prevent domestic prices from falling very low.
• India is sitting on an excess stock of 60 lakh tons of sugar and nearly 72 million tons of extra buffer stock of wheat and rice which is causing a huge drain on fiscal resources.
• India’s agri-exports are facing difficulty, imports are turning attractive as domestic prices are turning much higher.
• Rural youth are looking for jobs outside agriculture and there is a serious problem of unemployment in the countryside.
• There are numerous instances of market failure to the detriment of producers and consumers.
• This is turning farmers to look at the government for remunerative prices through MSP for most agricultural products.
• The growth rate in agriculture is driven by heavy support through various kinds of subsidies and output price support.
• These costs and losses and subsidies will take away most of the tax revenue of the central government.

3 Provisions and their utility

1) Relation between MSP and APMC

• APMC has nothing to do with the payment of the MSP.
• The necessary and sufficient conditions for the MSP are procurement by the government, with or without the APMC.
• Experience shows that even after fruits and vegetables were de-notified from the APMC, they continued to arrive at APMC mandis in large quantities while farmers got additional options.
• The protesting farmers have raised concerns to keep the level-playing field for the APMC and private players, and the government has shown agreement to address this fully.

2) Criteria for traders

• Protesting farmers are also opposing the provision of the simple requirement of a PAN card for a trader.
• After having a PAN card, even a farmer can go for trading, his son can do agri-business and other rural youth can undertake purchases of farm commodities for direct sale to a consumer or other agribusiness firms.
• If stringent criteria such as bank guarantee, etc. are included in the registration, then the spirit of the new law to facilitate farmers and rural youth to become agribusiness entrepreneurs will be lost.

3) Mistaking contract farming with corporate farming

• Critics and protesting farmers are mixing contract farming with corporate farming.
• The new Act intends to insulate interested farmers (especially small farmers), against market and price risks.
• The Act is voluntary and either party is free to leave it after the expiry of the agreement.
• It prohibits the transfer, sale, lease, mortgage of the land or premises of the farmer.
• The Act will promote diversification, quality production for a premium price, export, and direct sale of produce, with desired attributes to interested consumers.
• It will also bring new capital and knowledge into agriculture and pave the way for farmers’ participation in the value chain.

Conclusion

The policy reforms undertaken by the central government through these Acts are in keeping with the changing times and requirements of farmers and farming. If they are implemented in the right spirit, they will take Indian agriculture to new heights and usher in the transformation of the rural economy.

Farmers’ genuine concerns must be addressed as soon as possible so that they can continue producing food and fibre needed for the ever-increasing population.

Green revolution and farmer’s contribution to the food sufficiency in India

• In the early 1960s, near-famine conditions prevailed in India and some 10 million tonnes of wheat had to be imported from the US under the PL480 programme. The country’s situation was like“ship-to-mouth” existence.
• High-yielding dwarf wheat varieties brought from Mexico were provided to Indian agricultural institutes.
• The consequent miraculous gains in wheat yield and production ushered in the “Green Revolution.”
• The Green Revolution occurred due to a confluence of favourable government policies, efforts of agricultural scientists and the adoption of new wheat varieties/selections by farmers.
• Also, the contributions of farmers of Punjab (Haryana included) was also very important and they became the backbone of the revolution.
• By 1974, the industrious farmers of the “food-bowl” states of Punjab, Haryana, and western UP had brought about self-sufficiency in foodgrain production, ridding the country of the “begging bowl”.

Practice Question: What are the concerns of the farmers after new agriculture reforms and how they can be addressed?

Farmer’s concerns

• Consultation with farmers is important before drafting policies –
• There will be resistance no matter which organization enact the policies/rules without taking the affected people on board. A proactive approach is always better than a reactive one.
• From the farmers’ standpoint, the ordinances were unfairly promulgated in June 2020, during the COVID-19 lockdown, without consulting them.
• Loss of Income in the lockdown – Farmers could not sell their vegetables and fruits because of the lockdown causing the loss of income and then the imposition of the new laws aggravated them.
• Uncertainty in the minds of farmers about the continuation of MSP –
• Farmers have been selling food grains (mainly wheat and rice) at Minimum Support Price (MSP) since the mid-1960s.
• This has helped to create a central pool of food grains and the Public Distribution System to help poor people.
• But MSP has not been guaranteed in the newly enacted farm laws, which is the major bone of contention.
• The APMCs are under threat from the new farm laws as MSP and APMC go hand-in-hand.

New Middleman –

• The central government has indicated that the new farm laws are meant to eliminate the “middlemen”.
• But the farmers feel that a new class of middlemen, that is, lawyers belonging to big companies would emerge.
• Thus, small farmers would be at a distinct disadvantage — more than 80 per cent of farmers own less than five acres of land.

Contract farming –

• According to the central government, the new laws will ensure contract farming.
• The farmers fear that big companies might usurp their land and might not pay them an agreed price on the pretext of “poor quality” of produce.
• They feel that big companies might become monopolies, and exploit both farmers and consumers. Farmers fear being made into labourers.

Way forward

MSP is a must –

• A clause should be added in the law to the effect that no matter who buys the produce (government or a private entity), the farmer must be given an MSP.
• The National Farmers’ Commission’s recommendation of providing an MSP of 50 per cent over and above a farmer’s input expenses must be implemented.
• APMCs should be continued – The fees that “Mandi Boards” collect (for example the Rural Development Fund) have helped build link roads. No private organization will do this.
• MSP should be determined on the basis of grain quality.

Crop diversification is needed –

• The government must promote crop diversification by purchasing crops produced other than wheat and rice at MSP. This could help conserve the dwindling supply of underground water.
• To encourage farmers to grow high-value crops, such as vegetables and fruits, the government should set up the adequate cold-chain infrastructure.
• The farmers’ staying power must be improved so that they don’t have to sell all of their produce immediately after the harvest.
• India has produced a number of World Food Laureates, including M S Swaminathan, Gurdev S Khush, Surinder K Vasal, and Rattan Lal. Such intellectuals should be in the “Agricultural Think Tank.”
  

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.