Enriching The Farmer

Written by Vivek Bharati | Updated: Nov 7 2003, 05:30am hrs
Our GDP is expected to surge by seven to eight per cent in the current fiscal. Although both services and manufacturing will improve on their last years performance, bulk of the contribution to GDP growth would come from the farm sector. The agriculture ministry has forecast that in 2003-04, foodgrain output would grow by 20 per cent, cotton by 41 per cent and oilseeds by 64 per cent. Growth of this order should deliver a boost to the rural economy by increasing farmers incomes. However, looking at the performance of the farm sector during the last decade, the sustainability of farm income growth beyond 2003-04 comes under a cloud.

Growth this year follows a dip and stagnation of previous years, and the same pattern could be repeated in the coming years. Worse, even in years of bumper crop, much of the gain accrues to growers of wheat and rice in three states whose incomes are assured by procurement at pre-determined prices. In crops bereft of procurement support, the positive impact remains uneven. Not surprisingly, private investment in agriculture has remained depressed for nearly a decade.

The fact is that the 90s reforms have bypassed the farmer. While deregulation has freed industry from controls, the farmer remains shackled by restrictions which enrich the middlemen and state government exchequers. There are stringent controls on storage and movement of farm commodities. In addition, the farmer is forced to sell his produce to arthiyas in mandis monopolised by state governments. He cannot sell outside these mandis and processors cannot buy directly from him.

When he sells to an arthiya, he has no clue how the price is set. Intermediaries add little value but a lot of cost. The total mark-up on the price received by the farmer adds up to anything between 60 to 75 per cent before the produce reaches the consumer. Whats more, a state-level mandi tax ranging from four to ten per cent is levied on the farmers produce. Proceeds from this tax are supposed to be deployed toward infrastructure creation, but are not and end up funding state budgets.

Resultantly, the farmer has not been able to take full advantage of the change in the food consumption basket from cereals to fruits and vegetables, meats and processed foods. During the 1990s, while the average per capita consumption of cereals declined by around five per cent, that for vegetables grew by 13 per cent, fruits by 39 per cent, and roots and tubers by 17 per cent. There has been a similar spurt in consumption of processed foods. Much of the gain from this altered consumption pattern has accrued to intermediaries.

Controls have also restricted processing of farmers produce and restrained value addition that could have added to farm income besides generating jobs and exports. In addition, only two per cent of fruits and vegetables are processed and over a third are wasted due to lack of an enabling framework for processing investment in requisite infrastructure like cold chains. The route to revival of the farmer is to create a new institutional framework that links the farmer to the consumer through processing and/or modern systems of retailing. Scrapping of the state monopoly over markets, and elimination of intermediaries to provide freedom to the farmer to sell to whom and where he wants would help increase price realisation, particularly in fruits and vegetables.

In addition, complete abolition of taxes on farm produce and its marketing has become necessary. Alongside, promotion of contract farming by processors would encourage value addition and greater private investment in agriculture, and catalyse absorption of new techniques of farming. This would also add to the farmers bottomline. A number of other market-driven institutional mechanisms are needed to mitigate the farmers risks as he diversifies away from the wheat-rice rotation, such as the warehouse receipt system which ensures immediate cash generation after the harvest without forcing the farmer to sell under duress.

Agriculture is crying out for reform and mechanisms are available to raise the return on investment in farming. Till the farm sector clocks in a growth rate of four per cent plus, we can forget about GDP growth rates of eight per cent plus.

The author is an advisor to Ficci. Views expressed herein are personal