Agricultural reform: How to boost farmer income – Decoded here

Published: December 18, 2018 12:18:57 AM

Only 22.2% of marginal farmers and 23.6% of small farmers grow high-value crops. Such groups are 3-7% less likely to be poor if they shift to these crops

Agricultural reform: How to boost farmer income

By Nilanjan Banik

In the recent past, a lot has been written about farm loan waivers. Studies have pointed out that loan waiver programmes do not make much economic sense. However, if current political discourse is any indication, then a loan waiver is the flavour of the month.

If not farm loan waivers, what else can we do to increase farm incomes? During the year following loan waivers, small farmers lose out on three counts: Lesser access to formal loans, falling agricultural revenue because of higher informal loan cost, and a falling agricultural productivity. This has a wider implication on income distribution—83% of the farmers in India are marginal or small, with less than 2 hectares of landholding. Although these groups qualify for loan waivers, they don’t get the benefit as these farmers do not access formal (read, bank) loans.
The median annual income of these farmers is around $290, which is barely two months’ minimum wage in Mumbai—the commercial capital of India. What interventions, then, could be more helpful in increasing farm income in India? After all, the current government wants to double farm income by 2022-2023, over the base year of 2015–2016.
During 2015–2016, per-capita farm income was $1,693 per annum (in current prices). To double farm income by 2022–2023, agriculture output will need to grow at 10.4% annually. However, at present, the agriculture output is growing at around 3% annually. At this pace, it will take 25 years to double farmers’ income. To boost an increase in farmers’ income, several different interventions can be followed: –

Building cold storage and warehouses: India is one of the largest producers of many agricultural perishables and, yet, nearly 20% of India’s fresh produce is wasted because of lack of adequate cold storage facilities. Reducing waste of perishable fruits, vegetables, and milk, that command higher market prices than staple crops, will augment farm income. Most small farmers do not risk growing perishable crops. Because of the lack of storage facilities, small and marginal farmers seldom venture to grow high-valued crops. Only 22.2% of marginal farmers (with less than one hectare of landholding size) and 23.6% of small farmers (between one and two hectares of landholding size) grow high-value crops. Small and marginal farmers are likely to gain from shifting to high-value crops, after which the likelihood of a farmer being poor will be 3–7% lower.

Linking domestic market with international market: The present ruling government has increased its budgetary allocation for the agriculture sector from $17.04 billion (between 2009 and 2014) to $30 billion (between 2014 and 2019).This has led to an increase in food and livestock production. For instance, pulse production has increased, on average, by 10.5% annually. Production of fish, milk, and egg has increased by 26%, 24%, and 25%, respectively. Although India allowed exports of livestock, typical farm sector outputs such as rice, wheat, and other dietary items are only restrictively allowed. India also has higher import duties, in comparison to the ASEAN level, when it comes to agricultural products. In short, trade in agriculture items is restricted to tame domestic price, enable food security, and ensure the livelihood of Indian farmers. However, a restricted agriculture market and lack of adequate storage facilities often lead to crop output getting wasted. Food grain production in India touched an all-time high of 280 million tonnes during 2017-2018, and there is a need to follow a liberal trade policy and put in place necessary infrastructure to facilitate exports. For instance, a necessary condition for exports is to have testing facilities that provide sanitary and phytosanitary certification. Unfortunately, the numbers of such testing facilities are limited. Likewise, agriculture tariffs should be brought down to allow imports at the time of shortages.

Supply-side interventions: Building rural infrastructure such as village electrification and canals will help. The fact that irrigation coverage on small landholding size is less than 40% means crop failures in bad rainfall years. Likewise, a reform in the APMC Act is required. In a supply chain examination study involving trade in potatoes, it was found that middlemen can charge a commission of up to a staggering 70%. For example, during June 2017 in the Azadpur and Ghazipur markets of Delhi, the middlemen were selling a common variety of potatoes at 7–9 cents per kilogram. If these rates were being offered to the farmers, they should have realised between $3.5 and $5 for a 50-kilogram sack. However, in reality, the maximum price the farmers were offered was $1.4 for a 50-kilogram sack. Hence, most often, farmers do not know the actual market prices of the commodities and it is the middlemen who siphon-off most of the profits. The lack of reforms in the APMC Act prevents small farmers from selling directly to supermarkets, exporters, and agro-processors.

Financial literacy: Lack of financial awareness has affected the growth and deepening of agriculture finance markets. The National Centre for Financial Education (NCFE) conducted India’s first-ever national benchmark survey of financial literacy and financial inclusion in 2015 which captured a broad array of information from 76,762 respondents. The survey highlighted that the farmers are not aware of basic financial products: Less than 1.67% of the farmers are aware of crop insurance products. The corresponding numbers for cattle/livestock insurance and agricultural futures are 0.66% and 0.38%, respectively.

Even introduction of e-mandis—an online market where farmers can bypass the middlemen and sell directly to the retailers—are helping them a little. Evidence from Rajasthan suggests that because of the introduction of an e-market, farmers witnessed a price premium of 13%. However, at present, e-mandis are catering to only 7% of all Indian farmers and handle only around 2% of the total value of the country’s agricultural output. In conclusion, waivers of farm loans may help any political party win an election once. For them to win an election twice, however, it is important to undertake these aforementioned policy measures that will make a real difference to the life of poor farmers.

The author is a Professor, Bennett University, Greater Noida

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