Agriculture should be the focus of this year’s Budget, according to a Twitter poll conducted by the ministry of finance last week that saw some 66% of more than 21,400 respondents seeking a more agriculture-focused Budget. Not infrastructure. Not the services and manufacturing industries. But agriculture. Clearly, to enhance the ‘feel good’ factor, agriculture has to pick up. Demonetisation compelled farmers to move towards cashless payments and digitalisation. Now they need greater ‘ease of doing business’ to harness that momentum. Here are five steps the Narendra Modi government could take to make that possible.
1. Strengthen tenancy laws: Agriculture needs economies of scale. The average farm in the country is 1.15 hectares in size and will shrink further by 2020-21. According to the 2013 Situation Assessment Survey of Farmers/Agricultural Households, you can’t earn a living from a farm smaller than one hectare. To survive, majority farmers rent land. Farmland tenancy is illegal in most states. But unlike manufacturing, farmers can’t relocate to favourably inclined states. In the absence of a law, landowners don’t sign rent agreements and tenant farmers have no rights. Often, the owner leaves land fallow rather than be ‘grabbed’ by a tenant. Tenants don’t invest in the land due to uncertain tenure. A scarce resource is wasted. Legal tenancy will permit effective consolidation for farming without depriving landowners. Tenant farmers will qualify for bank loans. Digitisation of land records will further strengthen property rights and turn rural land into a bankable asset.
2. Liberalise input markets: Unlike manufacturing, farmers cannot freely import or adopt technology. Of the 140 million hectares of cultivated land, nearly 120 million hectares are degraded. Soil health cards will not lead to precision agriculture unless fertiliser, machinery and seed markets are willing to deliver the right input at the right time and the right price to the farmer.
But the fertiliser companies won’t because the subsidy regime is choking their business. Politics has stymied new oilseed and pulses technology and distorted commercial pricing when sound science should be the deciding principle. Mechanisation gets 3% of farm credit. Until the upstream business models are corrected, farmers will be exploited by rent-seekers and counterfeiters.
3. Don’t mix producer and consumer policies: No sector can survive the kind of political risk that farmers face. Farmers themselves contribute 80% of the capital invested in agriculture. Like other businessmen, they invest in a crop after carefully considering the odds. But often, what starts as a good deal comes a cropper because midway through the marketing year, government coercively ‘corrects’ prices to protect consumers. When capital is used suboptimally or destroyed, growth weakens. Other investors shy away. Consumers should certainly be protected from food inflation. But not through knee-jerk measures that ultimately ruin rural livelihoods.
4. Encourage loans against harvests: Entrepreneurs need capital. The harvest is a tenant farmer’s only renewable asset. Especially for women farmers. Banks, however, are reluctant to lend against small quantities of a crop, with inconsistent quality, stored somewhere far. Moneylenders and middlemen, living close by, step in. Farmers should be taught crop grading and sorting on a war footing so that harvests have standard quality. A regulated electronic repository can digitally maintain records of stored physical crops. Asking financial institutions to lend against these electronic records should be the next logical step.
5. Provide access to efficient and assured markets: The market is efficient when farmers earn more and consumers pay less. Exchange platforms and other electronic markets are designed to enhance competition by connecting the largest number of buyers and sellers in the most cost-effective, transparent and regulated way. Farmer groups must be assisted to use them. Farmers also need a reliable safety net. Unlike other sectors, agricultural markets don’t self-correct. Low crop prices neither make us buy more nor prompt farmers to significantly cut production. So, farmers face long periods of low prices interspersed with flashes of high prices. Government procurement is dysfunctional as pulse farmers discovered last summer. Food ministry data shows that for wheat and rice, the maximum procurement centres are in Bihar, where purchase is negligible. Instead, market-based tools should be deployed to include more crops and farmers.
Farm is Forked
Agriculture is a unique business that aims to create a food production, processing and distribution system that is, in all stages, economically viable, socially just, and ecologically sound. The current system does not meet thesecriteria and is, thus, unsustainable. India’s small farmers face proportionally the steepest transaction costs if they wish to participate in modern food supply chains. Poor transportation, storage and communication infrastructure, no access to land, information and expertise, political risk and limited access to financing, which is rooted in the lack of collateral, all add to costs. This confines farmers to subsistence livelihoods. The New Year and Budget 2017 give us yet another chance to make things easier for them.
The writer is chief marketing officer, National Commodity and Derivatives Exchange