Farmers need to be incentivised for services such as provisioning of food, feed, fodder, fuel, raw materials, or regulating water recharge, pollination, biological pest control, etc, that they provide to the society through agriculture.
By Trilochan Mohapatra, Pratap Birthal & Saudamini Das
Ever since the beginning of the Green Revolution in the mid-1960s, India has been supporting its farmers through input subsidies and minimum support prices of important crops. In 2018-19, the farm subsidy bill amounted to Rs 2.56 lakh crore, which is equal to about 8.5% of the agricultural gross domestic product (or about Rs 18,000 per hectare of the net sown area). Subsidies on power, fertilisers and price support, respectively, account for 40%, 30% and 10% of the total expenditure on subsidies. These incentives have immensely contributed to increases in agricultural productivity, farm incomes and food supplies.
However, critics argue that the current subsidy system is excessively cereal-centric and is causing deterioration to groundwater, soils and the environment, besides aggravating interpersonal and interregional income disparities. It is mostly the large farmers in the irrigated regions who cultivate paddy and wheat who benefit more from farm subsidies. Moreover, India’s farm subsidies have come under the scrutiny of the World Trade Organisation (WTO) for these being in excess of the permissible limit.
The political economy of farm subsidies is complex, and once provided, it is difficult to withdraw these subsidies. Nonetheless, the above concerns call for devising an incentive structure that can minimise the trade-off between efficiency and sustainability of the agricultural production systems.
A plausible, and yet not explored, mechanism is to incentivise farmers for the ecosystem services they provide to the society through agriculture.
Agriculture, besides providing food and non-food commodities, generates a number of visible and invisible, direct and indirect services, known as ecosystem services. The Millennium Ecosystem Assessment (MEA), an initiative of the UN, defines ecosystem services as “the benefits humans obtain from ecosystems.” The MEA classifies these into:
1. Provisioning (food, feed, fodder, fuel, raw materials, herbal medicines);
2. Supporting (nutrient cycling, soil retention, enhancing soil fertility, genetic diversity, supporting biodiversity, etc);
3. Regulating (water recharge, water cycling, pollination, biological pest control, carbon sequestration, climate regulation, etc); and
4. Cultural (recreation, religious and cultural values, R&D, etc).
Except the provisioning services, the other services that agriculture provides are non-tradable, and their contributions have remained unvalued; for example, the biological nitrogen fixation by leguminous crops that improves soil fertility, reduces greenhouse gas emissions and also lowers the cost of production. Similarly, organic agriculture provides a number of ecosystem services that benefit the society in many ways. Supporting and regulating agricultural practices that provide these ecosystem services is essential for sustainable development of agriculture. Many of these do not have market substitutes, and once lost, the society suffers an irreversible loss.
There are strong arguments to provide economic incentives to farmers for the ecosystem services they provide to the society through agri-practices.
First, agriculture is inherently a risky enterprise, and farmers’ frequent exposure to climatic shocks widens the gap between the realised and potential returns from farming. In the absence of adequate institutional risk-management mechanisms, farmers need to be compensated for the ecosystem services they provide to the society.
Second, some ecosystem services are under threat, and, therefore, it is imperative to conserve the ecosystems by providing monetary incentives to farmers for ecosystem services.
Three, farmers provide a range of non-marketable ecosystem services that are public goods and are available to the society at no cost. The compensation to farmers for ecosystem services will encourage them to adopt practices that optimise the use of land, water and other inputs, and reduce the cost of production.
However, monetisation of ecosystem services is a challenge because of the lack of scientific evidence on the bio-physical parameters needed for their valuation. Once the required scientific information for their valuation is generated, it is possible to transform farm subsidies as an economic package of ‘payment for ecosystem services’. There is scope for monetisation of some services such as biological nitrogen fixation, manure management, biological pest control, low-water and low-carbon footprint crops, and organic agriculture using the market prices of their substitutes. There is also a need to systematically identify and monetise the ecosystem dis-services due to soil degradation, loss of soil biodiversity, and pollution of water and air associated with cropping patterns, technologies, inputs and agronomic practices in different agro-ecologies. The recent initiative of the government of Telangana that links the existing direct benefits transfer to the farmers under the Rythu Bandhu Scheme with the adoption of desired cropping pattern and agricultural practices is a step in this direction.
Initially, governments can provide direct benefits—may be arbitrarily decided—for some of these ecosystem services. Funds can also be utilised from rural development programmes (for example, the MGNREGA) by mainstreaming some of the ecosystem services into such programmes. Further, the private sector can be involved to finance such schemes to ensure that the services on which their business depends are not at the risk of disappearance.
(This article is a summary of the expert consultation organised under the aegis of the National Academy of Agricultural Sciences, Delhi, and subsequently published as a policy paper titled ‘Payment for Ecosystem Services in Agriculture’.)
Mohapatra is director general, Indian Council of Agricultural Research (ICAR), New Delhi; Birthal is ICAR national professor at the ICAR-National Institute of Agricultural Economics and Policy Research, New Delhi; Das is NABARD chair professor at the Institute of Economic Growth, New Delhi