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Moneylife » Investing » Commodities » Tackling the burgeoning agrarian crisis in India

Tackling the burgeoning agrarian crisis in India

Ramesh S Arunachalam | 10/09/2011 04:27 PM | 

poor farmers

Farmer suicides are a tragic indication of the seriousness of the widespread indebtedness caused by imperfections in the agricultural sector that must be corrected urgently. Good recommendations and well-meaning schemes are available on paper. But making them work for a large majority of the poor and marginal farmers is critical

"On average, one farmer commits suicide every 30 minutes in India," says Smita Narula, faculty director, Center for Human Rights and Global Justice (CHRGJ). "It's simply unacceptable to ignore a tragedy of such epic proportions and go on with business as usual. The … limited interventions have failed to adequately assess or address this deepening crisis. …Over the past two decades, economic reforms-which included the removal of agricultural subsidies and the opening of Indian agriculture to an increasingly volatile global market-have increased costs, while reducing yields and profits for many farmers, creating widespread financial distress. As a result, smallholder farmers are often trapped in a cycle of insurmountable debt, leading many to take their lives. And according to a report by CHRGJ, which looks critically at India's farmer suicide epidemic, an estimated 250,000 farmers have committed suicide since 1995"i.   Without question, India continues to be in the midst of an agrarian crisis, of huge proportions.

And every time the agrarian crisis rears its head, we cite a new programme as a potential solution, and the latest is the National Rural Livelihood Mission (NRLM). One seems to have lost track of the number of programmes for solving various such problems, but the time is now ripe to ask the question, "How to make these programmes really effective in terms of actual problem solving on the ground, with regard to agricultural and rural livelihoods?" Let's look at specific actions to begin with, that can perhaps make these so-called 'high-powered programmes' more effective, by ensuring that they (1) tackle the root causes of problems, rather than the symptoms; (2) recommend actions/solutions that can work on the ground, with a clear plan for implementation along with a time frame and accountability.

As noted earlier, the burning issue in rural livelihoods, especially over the past few years, has been suicides by farmers in various parts of the country. While theories abound with regard to reasons, several basic aspects need attention. India is one of the few countries that has consistently and continues to ignore agriculture and farmers, despite them forming a significant majority. There are very few products in India, a unit of which can perhaps be bought for less than a rupee (especially from farmers) and this clearly shows that we, as a country, have only paid lip service to farmers, whether it be the quality of agricultural credit support, market support, minimum price support, insurance, watershed linkages and the like.

While several schemes exist for small/marginal/poor farmers, they are there only on paper and, often times, are misused by better-off farmers/others. Drip/sprinkler irrigation schemes are a case in point. While the number of farmers supposedly benefited by such schemes that have a significant subsidy component, is increasing year after year, an analysis of whether these are used on the ground will reveal that very few poor/small/marginal farmers are actually using them.

The reality is that many of them sell these off for survival, while others report that the material supplied is itself poor quality and does not work. And contractors argue that when they have to give special sums to various stakeholders (local officials) to get the contracts in the first place, they can only make sub-standard products. The net result is that these schemes really add very little value on the ground to the work of farmers, and are better scrapped as the prime beneficiaries are either rich contractors and/or hierarchy of officials, often with local level political patronage.

Walk into the Ottanchattiram vegetable market in Tamil Nadu (one of the largest vegetable markets in India, or for that matter even Asia), and you will see the tragic scenes of farmers dumping and trashing their produce rather than sell at rock-bottom prices foisted on them by a cartel of exploitative middlemen. (Some times it is as low as 50 paise for a basket of tomatoes of 12kg-15kg.) One is not sure whether anything else can be bought so cheaply. I have been seeing this regularly with my own eyes for several seasons.

Go to Chintappali (Paderu ITDA), in Visakhapatnam district in Andhra Pradesh, and you will see tribals selling organic rajma (grown from podu, or slash and burn cultivation) for Rs2-Rs3 a kg to the saukar or even at the GCC (Girijan Cooperative Corporation) stall at the shandy, whereas we buy the same at even as high as Rs50-Rs55 a kg in the metros. And please do remember that this is organic rajma and for that we would have to pay as much as Rs60-Rs65 a kg. That the tribals prefer to sell to the saukar for Rs2-Rs3 a kg is a different story as the GCC and similar government market enabling mechanisms grade products and pay only for the supposedly high-grade rajma/agriculture produce-farmers argue that they would rather sell to the saukar who gives them an advance than the GCC which pays them very little and often too late.

Talk to onion farmers and they will tell you what the middlemen at the mandis say. 'Truck or shiploads of onions have come in today and so, our price has to be lower than expected'. Likewise for rice, the traders argue, 'the government has removed the restrictions for movement between districts and so the prices have fallen'. Similarly, sugarcane farmers will relate their woes.ii  They will tell you about the poor quality sets that have hardly 30% germination; lack of timely inputs like fertiliser despite a bank loan for which the interest clock is ticking away; inadequacy of cutting labour on time, as a result of which the sugarcane over-matures and has less weight, on the basis of which farmers are compensated; complacency on the part of sugar mills, whose corrupt cane assistants (referred to with dignity as 'cane supervisors' in villages by farmers) bypass farmers and issue cutting orders for those who have obliged them; the irresponsible behaviour of sugar mills, whose lorry contractors demand a special bata (some times as high as Rs500-Rs1000 per load) for every load lifted, and refuse to upload 'cut cane' of those farmers who do not oblige them with bata-the net impact is that 'cut cane' looses weight by the hour, drying in the hot sun, thereby depriving farmers of a good return; and, last but not the least, the irregular and untimely payment schedule of sugar mills, which not only enhances the interest burden of the farmers, as the principal can be repaid only with the proceeds obtained from sugar mills.

Likewise, a trip to villages like Bodlanka in Rampachoodavaram ITDA, in the East Godavari district in Andhra Pradesh, exposes how the poor neither have access to financial services nor fair market mechanisms. Nonetheless, they still borrow at very high effective rates of interest (some as high as 100%-200%, when one takes into account various conditions) and sell their produce at captive and unduly exploitative prices-in some ways, the exact opposite of economic arbitrage, where you buy low and sell high. That the poor women cannot even pay back the saukar because of the low and captive price for their produce is a fact, as is their continued bondage.

Add to the above issues the fact that a very significant proportion of farmers are dependent on rain-fed agriculture, and you will understand that farmers have really no options and are often caught in a hopeless, no-win situation, their plight deteriorating day after day.

While the list of problems in the agriculture sector can go on endlessly, the key point to note is that they are exacerbated by the fact that, as a country, we have shown the least regard to strengthen a 'critical occupation' that is pursued by a vast majority of the people (over 600 million people are employed in agriculture in some sense) many of them poor. An occupation, without which, most of us will simply starve and cannot survive.

Thus, farmer indebtedness arises primarily because of long-existing imperfections in the market for agriculture and related aspects mentioned above. Lack of access to timely credit for farmers is certainly a problem and commercial and other banks are still viewed as distant by many farmers. The transaction cost of borrowing from these banks is still enormous for farmers and the livelihood loss is extremely high, especially for those dependent on rain-fed agriculture. Most MFIs do not work with farmers and yet, they are supposed to espouse the cause of financial inclusion. And where farmers are financially included like in sectors such as sugarcane, the financial services are inappropriate and more often than not, it leads to their ultimate exclusion. Furthermore, the issue of credit at the post-harvest stage that is critical for farmers is still lacking and this is another area where a strong intervention can help.

Thus, undeniably, a majority of the small and marginal farmers who are engaged in agriculture/allied activities, are enmeshed in a multi-pronged web of imperfect markets, exploitative middlemen, lack of access to a range of appropriate (vulnerability reducing) financial services apart from other enabling infrastructure such as warehouses.

In fact, in holistic terms, the establishment of warehouses nationally and availability of warehouse receipt financing can go a long way in alleviating the plight and indebtedness of farmers. This would give them the much-needed staying power, in the wake of exploitative mandis and middlemen, who usurp the profits taking advantage of the perishability of agricultural produce, even while farmers consistently have a negative return. Even here, replacing middlemen is perhaps not the solution-creating competition for them and attempting to bring in alternative channels that address existing imperfections, is perhaps one solution, as is the establishment of warehouses and availability of warehouse receipt financing on a large scale.

Finally, while well-meaning schemes and good recommendations are available on paper, making them work for a large majority of the poor/small/marginal farmers is very critical. This would require a thorough and honest analysis to understand which of these work on the ground, to what extent and why and what else can be done to make them more effective to reach the intended target group. A good starting point would be for the so-called 'high-power' programmes like NRLM to become grassroots oriented and hold national/state public hearings, conducted in cooperation with Civil Society institutions, in several places across the country where small and marginal farmers can come and relate their problem/issues. Practical solutions to tackling large-scale farmer indebtedness and suicides are possible only if these programmes go to the grassroots and are more 'small farmer-led' in their orientation. Otherwise, they will become one more centralised programme with great sounding reports, waiting to bite the dust.


  iSource: Every 30 Minutes: Farmer Suicides and the Agrarian Crisis in India, by Center for Human Rights and Global Justice, (May 12, 2011)
  ii<a data-cke-saved-href="" href="" http:="" www.moneylife.in="" article="" financial-inclusion-of-sugarcane-farmers-in-modern-day-india="" 19425.html"="">Financial inclusion of sugarcane farmers in modern-day India by Ramesh S Arunachalam, (September 03, 2011)

(The writer has over two decades of grassroots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural/urban development and urban poverty alleviation/governance. He has worked extensively in Asia, Africa, North America and Europe with a wide range of stakeholders, from the private sector and academia to governments.) 


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2 Comments
Ramesh S Arunachalam

Ramesh S Arunachalam 3 years ago

Dear Mr Sachin,

Thanks for your valuable feedback and you points are well taken and appreciated. I agree that there are perhaps far too many people dependent on agriculture but attempts to move them out of an area (where their survival skills lie) have proved futile (in India and elsewhere) for several reasons. I will not get into these here!

That said, it is not just this that is causing their misery. It is imperfections in the market for agricultural produce that are resulting in this and where the farmer has been able to store his/her perishable and get some immediate loan funds (like a warehouse receipt), they have been able to realise better prices. As Mike Porter would argue, this boils down to their vulnerability and their bargaining/negotiating power as well and where farmers and their produce have been aggregated through a fair arrangement that gives them greater power, again, prices realised are better.

Let me also share another example…

I am sure that many of us shop with pavement vendors, who could be selling vegetables or fruits or fish or any other perishable in a busy urban market. Have you ever thought about when this vendor could be vulnerable? Late evening is when they are most vulnerable because they have to carry back their unsold perishable item, which could get spoilt/damaged and thereby unfit for sale the subsequent day. Precious working capital down the drain!

So, what do these vendors do at such times? Whenever a customer approaches them (at the end of the day) to buy some of the merchandise, the vendor makes an offer to him/her to take everything at a throw away price. And believe me, she far happier doing such a distress sale instead of lugging back the unsold merchandise to her home as the likely returns from this evening burden is not likely to fetch her any tangible gains. Agreed, sometimes, the family may eat the unsold items but how much can you eat if there is a lot left!

And the moment, such vendors have the option of storage, their vulnerability is hugely reduced and I have seen returns of such vendors burgeoning, the moment they had access to such storage (in Manipur, China and Afghanistan such spaces are leased to low income vendors)…

As someone who has physically worked on reasonable sized farms over the last twenty years, I disagree that size has very much to do with it, although minimum scale economies help. However, in my limited experience, I have also seen smaller farmers getting better returns for various reasons.

To sum up my perspective, having looked at a wide variety of farming arrangements across India and elsewhere, it is my humble submission that farmers take the risk, make the investments and do the hard work – yet, their returns are not commensurate with these efforts, risk and investments.

As I told Dr Y S P Thorat (when he was Chairman, NABARD), if farmers, instead of committing suicide, stockpile their produce and not sell for 6 months (as a form of protest), we would be in serious trouble…the already rising prices would surely escalate further…

Nonetheless, thanks again for your valuable feedback and I will factor these into my future work and get back with feedback from the ground. I would also like to take you around and show you some of the real problems on the ground for farmers and do get in touch with me if you are interested. Thanks. My mail is r_arunachalam@hotmail.com

Warm Regards

Ramesh

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sachin

sachin 3 years ago

Dear Mr. Arunachalam,

You are missing the forest for the trees.

The biggest problem for Indian agricultural is that way too many people are dependent on it.

A common Indian does not spend for than Rs 2000 a month on food materials/commodities (I am referring to the value of ingredients used and on per person basis).

For every Indian who is not dependent on agriculture, there is an Indian who is dependent on agriculture.

Even if we assume that entire Rs 2000 flows from the non-agri individual to the agri individual, the latter still gets only Rs 2000 in his hands per month.

If costs of storage, transportation, seeds, fertilizers, pesticides, irrigation, commissions of middle men etc are deducted, there is hardly anything left of the farmer.

unless the number of people directly dependent on agriculture is brought down sharply, there is no way poverty can be eliminated from rural india.

farmer is also laborer.

the bitter truth is that in today's world, unskilled labor doesn't have much value and that is getting reflected in agriculture too.

the average asset (land) held by the indian farmer is too small and that compounds the problem.

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