Will Indian Agriculture Come out Relatively Unscathed in FY'21?

The outlook for kharif 2020 contains a few good signs, but much will depend on the monsoon.

Since the harvesting of most rabi crops was completed in time, despite the nationwide lockdown from March 24 onwards, an impression has gained ground that all is well with Indian agriculture.

It is true that due to extraordinary efforts made by government machinery, procurement of wheat in Punjab, Haryana and Madhya Pradesh has been more successful than expected. The smooth availability of agricultural produce, including fruits and vegetables, has also compounded the belief of India’s opinion making classes that not much is required to be done for agriculture.

As a matter of fact, some recent growth projections for the Indian economy assume that agriculture growth in FY’21 may not be significantly affected. For instance, former RBI governor C. Rangarajan and EY India’s chief policy adviser D.K. Srivastava reckon that this sector might show near-normal performance in 2020-21.

But this doesn’t represent the full picture of what has happened over the last two months.

Cotton farmers were facing low prices even before COVID-19 was taken seriously by the government. Rumours and misinformation have impacted the livelihood of poultry farmers, especially in northern states.

Farmers in Madhya Pradesh, India’s largest gram-producing state realised about Rs 700-800 less than the MSP of Rs 4,875 per quintal.

Also read: Centre Opts for Long-Term Agricultural Reforms, Leaving Farmers ‘Atmanirbhar’ in Crisis

Similarly, fruits and vegetable farmers across the country have suffered from a plunge in prices due bottlenecks in movement from villages to cities. Onion farmers in Nashik are barely able to recover their cost of cultivation. Milk producers, as Finance Minister Nirmala Sitharaman herself recently acknowledged in a press conference, have also greatly suffered.

According to a livelihoods survey carried out by the Azim Premji University, between April 13 and May 9, nearly 90% of the farmers were either not able to harvest or sell their produce or sold it at reduced prices during the lockdown.

Rest of the year

And what of the kharif crop this year? There are a few positive signs, but still much is uncertain.

On March 28, the home ministry allowed domestic production, import and movement of fertilisers to sale points. As a result, domestic availability was not adversely impacted even during the lockdown. It is significant that off-take of all three major fertilisers – urea, DAP and MOP – by farmers was about 36%, 72% and 43% higher in April 2020 than in the same month last year. Total sale of fertiliser (including complex fertilisers) in April 2020 was 19.14 lakh tonne against 12.82 lakh tonne in April, 2019, i.e. increase of about 49%.

Purchase of fertilisers by farmers could be due to the forecast of a good monsoon. In addition, it might be a behavioural response by the anxious farmers amidst a spectre of uncertainty. However, in previous years, the sale of fertilisers in April was only about 5-10% of sale in the entire kharif season (from April to September). So, the higher sale of fertilisers in April is no guarantee for a good kharif crop.

Also read: Amid Lockdown, UP Centres Procuring Grains From Fewer than 2 Farmers a Day on Average

The retail price of urea remains unchanged at Rs 266.50 per bag of 45 kg. Under the nutrient based subsidy scheme, the price of DAP has been reduced from Rs 1,400 to Rs. 1,200 per bag. However, the price of MOP stays at Rs 950 per bag.

According to a 2015 study by Dr Ramesh Chand and Pavithra S, use of potash is lower than the normative requirement in all states (except Assam). In Punjab and Haryana, deficiency is more than 70%. In kharif 2019-20, the share of Punjab and Haryana in consumption of urea was 9% and 5.54% whereas their share in the consumption of MOP was only 2.71% and 3% respectively.

It was an opportunity for the government to offer higher subsidy for potassic fertilisers to “nudge” farmers for more balanced use of the nutrients, particularly in large states with high K deficit. Another issue that merits further research is that neem coating of urea and its sale in smaller bags of 45 kg does not appear to have delivered the expected outcome of a significant decrease in the consumption of urea.

The availability of credit is a critical factor for purchase of inputs by farmers. As per NAFIS Report 2016-17, just about 30.5% of agricultural households borrowed from institutional sources. The rest borrowed from non-institutional sources, like non-banking financial institutions, moneylenders and landlords, often at a usurious rate of interest. There is a need to ensure that flow of credit for kharif is not hampered.

A farers harvests his what crop with the help of a brush cutter, in Palampur, Kangra district, May 15, 2020. Photo: PTI

The impact of lockdown on loan waivers is not known. If the process of loan waiver has not been completed in a state,  farmers would not be able to draw crop loans as their accounts would still be classified as a non-performing asset. For example, the loan waiver announced by the government after assembly elections has not been completed in Maharashtra.

The biggest problem in agriculturally-richer states would be the availability of labour. Transplantation of paddy in Punjab and Haryana was largely done by migrant labour. It is now almost certain that they will not be available for transplantation.

Punjab has announced a 40%-50% subsidy on machinery used for direct seeding of rice (DSR). Under this technique, seedlings are not raised in nursery and puddling, transplantation and submergence of fields in water are not required. The requirement of irrigation water is much less.

Under DSR, the rice is sown with tractor-operated lucky seed drill which sows rice and sprays herbicide. It is claimed that profitability of rice using the DSR technique is higher than rice transplanted in a puddle field. It is also claimed that less irrigation is required. The government has been promoting this technique for several years but it never really took off due to plentiful availability of labour.

There are also media reports of farmers in Punjab shifting from paddy to cotton. In 2019-20, cotton prices fell below the MSP and the procurement by Cotton Corporation of India was sluggish. Indian cotton prices are globally competitive. According to projections of the US department of agriculture (USDA), global consumption of cotton is projected to rebound by 11% and import of cotton by China is expected to increase by 20% over last year.

Also read: Interview |’Wait for Fine Print, But Centre’s Agri Reforms a Step in Right Direction’

If the DSR experience of paddy and shift to cotton is successful in Punjab and Haryana, the requirement of migrant labour may reduce in future years also, which will have unintended consequences of loss of income for labour coming from poor states of Bihar, Jharkhand and UP.

In the last 10 years, the paddy farmers in eastern India have started growing hybrid rice for which seed is available from private companies only. Since paddy is grown in rain-fed areas in these states, hybrid rice is preferred due to higher yield. Most processing units of hybrid seeds are around Hyderabad. Now that restrictions on movement, imposed in early phase of lockdown have eased, it can be expected that the companies will be able to place required quantities of hybrid seed in areas extending from eastern UP, Bihar, Jharkhand, Odisha and Chhattisgarh.

Soybean will face the most serious shortage of quality seed this year. This is due to damage to kharif crop in 2019 due to late rains in Maharashtra and Madhya Pradesh. Farmers will have to use their own farm-saved seed.  MP has asked for continuation of subsidy on a variety of soybean which is already 15 years old. This may reduce the productivity of soybean.

However, the most important determinant of kharif output is the distribution of monsoon in each month from June to September.

Forecasts of both IMD and Skymet went wrong in 2015-16, 2018-19 and 2019-20. Skymet has decided not to issue any forecast this year.

If IMD’s forecast of a near normal monsoon in 2020-21 proves to be correct, the kharif crop may save the day for GDP growth in India in a year for which rating agencies are predicting negative growth.

Siraj Hussain is Visiting Senior Fellow ICRIER. Jugal Mohapatra was Union Secretary, Fertiliser and Rural Development