The Farmers of India
The farmer’s issues are once again at the forefront of public debate. Opinions are divided, and political parties across the spectrum are publicly taking positions on the issue. Economists, agriculture experts, business writers and activists are also expressing their views. Mainstream and social media is also discussing these issues. Much of the information on social media is biased for or against the farmers, and is not factual or gives a distorted picture of the situation.
At such a time, it may be useful to step back and look at the basic questions that we as a society need to ask. India because it has over 105 million farmers, the largest number in the world. If we look at the total number of people in all farmers’ families as well as those dependent on agriculture, about 70% of the population is dependent on agriculture and related activities. China by contrast has fewer farmers, less agriculture land, much less chemical fertilizer use, and surprisingly much higher productivity. But at this point we are looking at Indian agriculture and the sheer numbers show that this is the most important sector of the economy from the people’s point of view. The remaining 30% who are not directly dependent on agriculture are also connected to the farmers since everyone consumed food. Therefore we need to keep politics and ideologies away, put together relevant information and ask ourselves what sort of a society do we want to build?
The opinions on the farm bills are sharply divided. Economists, business writers, and other thinkers are largely in favour of the bills. There is also a perception among urban consumers that only well off farmers are opposed to the Bills. Farmers do not pay any income tax on their farm produce. There are subsidies for fertilizers, for electricity, a Minimum Support Price (MSP) for some major crops in some states, subsidized loans, loan waivers and so on. The feeling here is that farmers already get enough and more from the Government. MSP and Government intervention is inefficient and wasteful, and urban tax-payers have to pay for it. Professional market led agri-business companies are kept out by various rules and laws. This hurts the economy, including farmers and consumers.
On the other hand, the view from the ground is a bit different. Farmers across the country want the Bills to be scrapped. On January 26th, 2021 rallies were held in most major cities across India. The farmers as of now say they will continue their dharna till the laws are scrapped. They say that the Government is doing all this for corporate interests who fund them for the elections. In South India where we work with about 40,000 farmers, there is support for the farmer’s agitation. Their analysis of the farm bills is different. The effective scrapping of the essential commodities allows large buyers – both traditional and new modern corporates – to buy as much as they can. This eventually distorts market prices as a few large business houses dominate agriculture buying – the well known power of an oligopoly. Many agri-commodities in India see a sharp drop in prices during harvest and a steep increase a few months after that. These include onions, potatoes, oilseeds like groundnut and soya, all pulses like toor, udat, moong, chana, rajma and so on. There are a few large buyers who control the markets for these commodities. Large international buyers of coffee have depressed coffee prices in India. In addition, the second Act allows large corporate buyers to buy without paying market cess or mandi tax. However, Government procurement as of now will continue to attract these taxes. Third, the contract farming bill does not permit farmers to go to Court in the case of any dispute. They have to go to a Sub Divisional Magistrate (SDM) who is a local bureaucrat. Farmers have had experience of such contract farming and are unhappy about this law as they have no power over corporate defaults. There are any number of examples of agri-businesses defaulting on payments to farmers. Finally, farmers are very concerned about the eventual scrapping of MSP. They are asking that a law be passed saying MSP will not be scrapped, which the Government is not willing to do. They are blaming a few large corporate houses for influencing the Government to introduce these laws. These companies had been steadily investing in agri-businesses for the last few years. Corporate houses are increasingly becoming a very important group of donors for political parties. Usually the party in power is favored.
In this charged atmosphere of long agitations, and each accusing the other of wrong doing, issues should not be considered based on political leanings or on economic ideologies. They need to be based on facts. First, there is no doubt that there has been continuous market intervention in agriculture and different kinds of subsidies since Independence. Even these laws will not do away with all the subsidies. They primarily allow corporate access to farm price at zero tax, remove all limits on hoarding of food, and prepare the ground for eventual scrapping of the MSP. Second, worldwide, Government interventions in agriculture are much larger than in India. Both the two great free market economies – the US and the EU subsidize agriculture an order of magnitude more than India has ever done. Third, it is a fact even in mainstream economics that oligopolies eventually harm the interests for the small consumer or producer. An average farmer in India has less than one hectare of land. The net income from that per year is less than Rs.50,000 and in most cases nearer to Rs.20,000 or less in rain fed drought prone regions that dominate Indian agriculture. For such a farmer to negotiate on equal terms with large corporate buyers is impossible.
In India, the situation is unique compared to the rest of the free market economies. The number dependent on agriculture for livelihood is well over 800 million. This is more than the combined populations of the US and Western Europe. China is the only other comparable nation.
103.4 million hectares
159.65 million hectares
5535.3. 2 times more than India
Surprisingly, land holding per farmer is less than that in India, and even more surprisingly, the yield per acre if more than two times of India. The widely prevalent notion of very small holdings leading to lower productivity is not true in China.
Third, about 70% of Indian agriculture is rain fed, and not irrigated. With climate change and increasingly erratic rainfall, farmer distress has increased steadily in the last couple of decades. While farm input prices for seed, fertilizer, pesticide, and labour has gone up very fast, farmgate prices for the harvest has not gone up to the same extent. So margins are coming down.
So we need to find solutions for the never ending farm crises keeping all this information in mind. Three things stand out in this. First is investment in agriculture, primarily in water and irrigation. China has invested and continues to invest much more than India. A whole range of eco friendly methods are now well known from rain-water harvesting to water tank revival and local irrigation projects. Much like Government investment in primary education, primary health care, roads and other infrastructure, this needs to be done. A few private initiatives have shown significant and spectacular results. For instance a group of NGOs in Maharashtra largely solved the water problem ins several districts. Second is investment in local agri supply chains. A simple example of that are warehouses. In India, when you drive on the highways during harvest, you see that the highways have been converted to drying platforms. This leads to loss of food as traffic goes over it. There are any number of warehouse schemes since the last few decades. But none are at village of gram panchayat level, and all are in control of local government servants. This needs to change and control needs to be given to the gram panchayats instead.
Third, we need to invest in agri technologies. With consumer demand going for healthy food, and calls for sustainable agriculture, we need to invest in new emerging technologies including perma culture, biodynamic agriculture, organic agriculture and so on and reduce dependence on fertilizers and on water. These are well known but the Government needs a national mission with adequate incentives to revive agriculture land and minimize use of water. There are also a whole host of downstream technologies in food processing that keeps food fresh without preservatives and additives. These can be left perhaps to new start ups with proper guidance and incentives.
Finally, we need to invest in the downstream business aspect. The new farm bills show only one way. Another way is farmer owned and controlled businesses. They are known in the development world as FPOs (Farmer Producer Organizations) including old fashioned cooperatives, new generation self reliant cooperatives and Producer Companies. This is an important way forward. The world’s most outstanding example is Amul, the well known dairy cooperative of India with similar ones in other states. They run without subsidy, political or bureaucratic control. Amul has a turnover of over Rs.50,000 crores, more than 4 times the turnover of the world’s leading dairy company, Nestle’s Indian turnover. Most important, all benefits of this business go the farmer-members of Amul as they are the owners of Amul – not the Government or big corporates. The world over, large cooperatives – still called cooperatives on other countries - play a crucial role in farmer’s lives. The top agri-cooperative in the world is surprisingly in a free market economy – the US. Its turnover is over $30 billion which came down to $28 billion during the Covid crisis. None are subsidized by the Government or controlled by it. They are not owned or controlled by big corporates or large shareholders. They are owned by farmers. But they are run professionally and use modern business methods and professionals to manage operations. However in India the FPO model is seen as a small organization needing a lot of handholding by NGOs. Such FPOs will never scale up. However Amul did and there is much to learn from it.
To take just one example which relates to the MSP and farmer’s agitations. Paddy is sold at around Rs.18 per kg. It is stored for three months or more so that the moisture content comes down, milled to remove the husk and polish the rice and whole sale prices are already over Rs. 43 per kg, and retail prices well over Rs. 50 per kg and going up to even Rs. 100 per kg. There is a lot of variation depending on the quality and variety of rice with some of it par boiled as well. This activity can easily be managed by FPOs adding more than 50% to net incomes. Similarly, wheat is converted to atta or flour for less than a rupee but the difference between MSP and retail prices are well over 50%. FPOs can do this even more easily raising net farmer incomes by nearly 100%. If they can do value addition and make fortified multi grain flour, sooji, maida, pasta, biscuits, bread and so on the rise in income is even higher. Amul has done this with milk, making curds, butter, cheese, ghee, ice cream, chocolates and so on. This is a win-win-win model. It benefits the customer, benefits the farmer, reduces food wastage in the supply chains, and benefits the environment. The main issue with corporate ownership is that all the profits go to the corporate houses. While here it belongs to the farmers. The only missing link is capital and management – and Amul and other Cooperatives around the world have shown that this can be done. India became Atmanirbhar in milk long before the word was coined. The single reason are the dairy cooperatives. Without tha,t our neighbouring countries are importing milk from western nations, New Zealand and Australia.
To conclude, while we debate the pros and cons of the farm bills, we need to step back and think about what needs to be done that benefits farmers, consumers, the environment and even politics. Investing in agriculture and really promoting introduction of technology, management and farmer owned large scale FPOs are a few things that we need to consider.
Professor IIM Bangalore and
Founder Farmveda and center for Collective Development