Top-Down Decision Making Will Not Help Improve Farmers' Incomes

The decentralised phenomenon attached to small savings and small farmers needs to be seen as a strategic advantage and not a drawback.

Agriculture is a state subject in the Indian constitutional list; this list consists of the matters which require local knowledge. Agriculture is a biological business with a diverse climate and crops grown locally. Coconut growing farms of humid Kerala need a different plan from apple growing farms of chilling Kashmir.

The Indian Central government formulates a macro policy for the agriculture sector, and states are responsible for executing this policy through various local programs. The Central government keeps control through tools like minimum support price (MSP). It gives direction to produce enough food, feed and fibre. The states further decentralised policy directions at the district level. For example, to execute a Central policy programme such as the Rashtriya Krishi Vikas Yojana (RKVY), it is mandatory to give advance district agricultural plans (DAP).

With this background, let us read the three Bills passed by parliament which overrule state acts of Agriculture Produce Marketing Committee. 1) Price agreement (PA) is an advanced version of existing contract farming, 2) Essential Commodities Act (EC) is an amendment in the current act to promote the warehousing of agricultural produce which hitherto had a ceiling to avoid hoarding of essential food commodities. 3) Produce Trade and Commerce (PTC) which allows trade between a producer-farmer and a buyer-company outside the physical compound of mandis, it also vows to promote electronic trading.

These one-size-fit-all ordinances are aimed at giving barrier-free market access to farmers, ‘One India One Agri-Market’ by removing middlemen. Access to the alternate market will give a better price to the farmers, which ultimately will contribute to, ‘doubling of the farmers’ income’.

The aim of the three ordinances appears to be noble and beneficial for farmers. There are protests by many farmer unions and even inside the parliament by political parties including the Congress, Trinamool Congress, Shiromani Akali Dal, Left parties and Aam Aadmi Party. Agriculture being the largest employer and primary source of food, it becomes essential to understand the political economy of farming.

Opposition leaders stage a protest in the Rajya Sabha. Photo: RSTV Screengrab via PTI

Farm economics

One of the most discussed issues in the Indian policy arena is increasing farmers’ income. Given the size of the population engaged in agriculture and its impact on the political economy, various programmes are being implemented to make the sector competitive.

Although significant investment in the industry comes from small farmers, government intervention plays a critical role in the availability of the farm inputs and procurement of the farm output. Agriculture remained the only positive sector during the coronavirus pandemic. Still, in recent years, the gross domestic product’s growth rate in the agriculture sector has declined. The increasing costs of cultivation and decreasing profits are significant factors explaining the stress on farm competitiveness.

The vast dependence on climatic conditions and small landholdings adds to the lower bargaining power in markets for farmers in India. A productivity gap in the country, in terms of yield, is yet to be covered. Still, a higher production often results in a supply glut in markets and reduces the profits. To ensure profitability, doubling the farmers’ income by 2022 is a timely intervention by the Central government.

For a long time, farmers’ incomes in India have been determined by food security measures to ensure that consumers get affordable food. By declaring MSP, growers were incentivised to cultivate crops like wheat and rice to be provided through the public distribution system; this mechanism completes a cycle of food-security-through-farmer-security. Inclusion of all commercial crops under price support mechanism remains a concern for both farmers and agricultural officers; price has an underlying impact on both productivity and profitability. The farm market cycle is not complete in terms of availability of credit, risk insurance, and a fair pricing system. Still, it provides a platform for secure government purchase – the only assured income of the majority of farmers.

Price-realisation remains the single largest concern of farmers, which can be attributed to an abundance of food and lower demand, therefore. The three laws passed by the government fail to give any assurance on price and overrule the existing APMC structure, which facilitates the MSP. Also, it fails to answer how bringing in alternate buyers or electronic selling options will increase the demand for a food item. For example, if the consumption of wheat remains the same, what will the buyers do to improve the ‘price realisation’ of a farmer?

Many organised retail and wholesale companies, including Reliance, Walmart, Metro have tried centralised purchases from farmers. Still, it becomes expensive to buy from small farmers, and hence they are now buying from much-hated middlemen sitting in APMC mandis.

Also Read: Farm Bills Will Create a Vacuum That May Result in Utter Chaos: P. Sainath

Farm politics and policy

The letter of resignation in protest of the three laws by cabinet minister Harsimrat Kaur Badal pointed to a centralised, top-down approach in political decision making. She wrote,

“.. I kept trying my very best to persuade the cabinet to take the actual stakeholders of this decision the farmers onboard and remove their apprehensions and concerns.”

A similar turn-of-events unfolded in the Rajya Sabha on September 20, where the government bulldozed the Bills amid protests from the opposition.

The BJP in its 2014 manifesto promised to give MSP to farmers according to the report of the Swaminathan Commission, which recommended a formula wherein if a farmer is not getting 150% of the cost-of-cultivation, the government should purchase it at this price under the MSP. After coming to power, the government deducted land rent from cost of cultivation while calculating MSP, without consulting the stakeholder farmers, which hammered their hopes.

Farmers in India are under perpetual stress and many died by suicide. Also, they are not politically organised in the caste-based Indian society. In the absence of employment opportunities in the alternate industrial or service sector, they remain hopeful of government support. The policymakers time and again through various tools try to consolidate the fragmented agriculture sector assuming to leverage economies of scale. Such centralisation has an underlying assumption of increasing production, decreasing cost, enhancing farmer’s income, and bringing in private investment.

What the policymaker fails to see is that agriculture production is already optimum, the consolidated  bigger farm needs mechanisation, which increases the cost of a farm(er) in the short term. If you consider farmers as an investor, funding in the agriculture sector is private up to 90% already. Farmers and farm scholars are well aware of these facts and see the three laws as an effort to bring in large corporates to have better control.

The consolidated bigger farm needs mechanisation, which increases the cost of a farmer in the short term. Photo: Wikimedia Commons

Learnings and way forward

Small savings protected the Indian economy from the 2008 recession; similarly, agriculture was the only sector which grew while the gross domestic product growth of all other sectors shrank under the influence of the coronavirus pandemic. One similarity between 2008 and 2020 is the decentralised phenomenon attached to small savings and small farmers, which need to be seen as a strategic advantage and not as a drawback.

Demonetisation broke the savings of crores of families; similarly, these three ordinances can break the smallholding nature of Indian farming for worse. We can only hope that PM Modi will work upon the feedback from Badal’s resignation letter on top-down decision making and amend it to an evidence-based process that listens to the stakeholders. Time has ripened to invest heavily in rural infrastructure and build upon what exists already and not to destroy and start afresh.

Vikas Singh is with the Indian Institute of Plantation Management, Bangalore.