Background

• In the present context, agrarian distress is mainly in terms of low agricultural prices and, consequently, poor farm incomes.

• Low productivity in agriculture and related supply side factors are equally important.

• An issue that is connected is the declining average size of farm holdings and the viability of this size for raising farm incomes.

Issues and Possible solutions

1. Prices and incomes

• Prices play a key role in affecting the incomes of farmers.

• Even during the Green Revolution, along with technology and associated packages, price factor was considered important.

• In the last two years, inflation in agriculture was much lower than overall inflation.

• The implicit price deflator for Gross Value Added (GVA) in agriculture was 1.1% while it was 3.2% for total GVA in 2017-18.

• The advance estimates for 2018-19 show that the implicit deflator for GVA in agriculture is 0%, and 4.8% for total GVA.

• Agriculture GVA growth was at 3.8% for both nominal prices and constant prices in 2018-19, giving the price deflator of 0%.

• The consumer price index (CPI) also shows that the rise in prices for agriculture was much lower than general inflation in recent years.

• Market prices for several agricultural commodities have been lower than those of minimum support prices (MSP).

• All these trends show that the terms of trade to be moving against agriculture in the last two years.

Declining market price

• When output increases well beyond the market demand at a price remunerative to producers, market prices decline.

• In the absence of an effective price support policy, farmers are faced with a loss in income, depending on how much the price decline is.

• The ‘farm distress’ in recent years has been partly on account of this situation, as the loss of income is beyond the ability, particularly of small farmers, to absorb.

• It is the success in increasing production that has resulted in this adverse consequence.

Schemes to address this problem

• A few schemes have been suggested to address the problem of managing declining output prices when output increases significantly.

(a) Price deficiency compensation scheme: It is one such mechanism which amounts to paying the difference between market price and the MSP.

(b) Open procurement system scheme: It has been in vogue quite effectively in the case of rice and wheat, where procurement is open ended at the MSP.

(c) Limited procurement scheme for price stabilisation:

• A ‘price deficiency’ scheme may compensate farmers when prices decrease below a certain specified level. However, market prices may continue to fall as supply exceeds ‘normal demand’.

• Under this scheme, the government will procure the ‘excess’, leaving the normal production level to clear the market at a remunerative price.

• Thus, procurement will continue until the market price rises to touch the MSP.

• The suggested ‘limited procurement system’ will not work if the MSP is fixed at a level to which the market price will never rise.

• There are costs involved which will go up as production increases above the average level.

• The government can sell the procured grain in later years or use them in welfare programmes.

(d) Rythu Bandhu and KALIA scheme

• Some States have introduced farm support schemes, examples being the Rythu Bandhu Scheme (Telangana) and the Krushak Assistance for Livelihood and Income Augmentation (KALIA) scheme (Odisha).

• One problem with the Telangana model is that it does not cover tenants, who are the actual cultivators.

• These schemes are income support schemes which will be in operation year after year.

• Thus, raising the MSP, price deficiency payments or income support schemes can only be a partial solution to the problem of providing remunerative returns to farmers.

Sustainable solution: Reforming Agricultural Markets

• A sustainable solution is market reforms to enable better price discovery combined with long-term trade policies favourable to exports.

• The creation of a competitive, stable and unified national market is needed for farmers to get better prices.

• Agricultural markets have witnessed only limited reforms.

• They are characterised by inefficient physical operations, excessive crowding of intermediaries, and fragmented market chains.

• Due to this, farmers are deprived of a fair share of the price paid by final consumers.

• For better price for farmers, agriculture has to go beyond farming and develop a value chain comprising farming, wholesaling, warehousing, logistics, processing and retailing.

2. Low productivity of Indian agriculture

• Basics such as seeds, fertilizers, credit, land and water management and technology are important and should not be forgotten.

• Similarly, investment in infrastructure and research and development are needed.

Improving Water use efficiency

• Water is the leading input in agriculture.

• More than 60% of irrigation water is consumed by two crops: rice and sugar cane.

• It is not investment alone but efficiency in water management in both canal and groundwater that is important.

• India uses upto three times the water used to produce one tonne of grain in countries such as Brazil, China and the U.S.

• This implies that water-use efficiency can be improved significantly with better use of technologies that include drip irrigation.

• Yields of several crops are lower in India when compared to several other countries.

• Technology can help to reduce ‘yield gaps’ and thus improve productivity.

• Government policies have been biased towards cereals particularly rice and wheat.

• There is a need to make a shift from rice and wheat-centric policies to millets, pulses, fruits, vegetables, livestock and fish.

3. Land size: shrinking size of farms

• Another major issue relates to the shrinking size of farms which is also responsible for low incomes and farmers’ distress.

• The average size of farm holdings declined from 2.3 hectares in 1970-71 to 1.08 hectares in 2015-16.

• The share of small and marginal farmers increased from 70% in 1980-81 to 86% in 2015-16.

• The average size of marginal holdings is only 0.38 hectares (less than one acre) in 2015-16.

• The monthly income of small and marginal farmers from all sources is only around ?4,000 and ?5,000 as compared to ?41,000 for large farmers.

• Thus, the viability of marginal and small farmers is a major challenge for Indian agriculture.

Lack of opportunities in the non-farm sector

• Many small farmers cannot leave agriculture because of a lack of opportunities in the non-farm sector.

• They can get only partial income from the non-farm sector.

• In this context, a consolidation of land holdings becomes important to raise farmer incomes.

Consolidation of land holdings

• Experts had argued that compulsory consolidation of land holdings alongside land development activities could enhance the incomes/livelihoods of the poor in rural areas.

• Unfortunately, there is little discussion now on land fragmentation and consolidation of farm holdings.

• We need to have policies for land consolidation along with land development activities in order to tackle the challenge of the low average size of holdings.

• Farmers can voluntarily come together and pool land to gain the benefits of size.

• Through consolidation, farmers can reap the economies of scale both in input procurement and output marketing.

Conclusion

• Farmers’ distress is due to low prices and low productivity.

• The suggestions made above, such as limited procurement, measures to improve low productivity, and consolidation of land holdings to gain the benefits of size, can help in reducing agrarian distress.

• However, a long-term policy is needed to tackle the situation.