Something Fresh

Farmers need freedom

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Cumulative rainfall during the post-monsoon season up to December 21, 2016, was 43% below the longterm average, the highest deficiency in recent years.

Farmers are clamouring for attention. From loan waivers and suicides, to carrying human skulls, slashing wrists and protests before the PMO, they are using every trick to bring the spotlight on their angst.

Unless we solve the root cause — market failure, and crop failure due to climate change — all succour will remain cosmetic and short-lived. So, what are the policy instruments that will allow the most efficient farmers to cover their costs of production?

The honest search for answers must begin by acknowledging that, unlike manufacturing and services, agricultural markets don’t auto-correct the balance between demand and supply.

While high prices result in higher acreage, low prices don’t correct supply in the short term. As no farm gets mothballed, overall production capacity remains the same. In such periods, we need to generate demand and ensure that farmers have sufficient capital to keep their heads above water.

Right now, both are missing.

The numbers tell the story. Retail food prices rose 1.93% in March, slower than a2.01% annual increase in February. Vegetable prices have fallen for the seventh straight month.

Year-on-year wholesale food inflation measured by the wholesale price index plummeted to 1.54% in November 2016, the lowest since September 2015, due to cheaper rice, pulses, fruit and vegetables (particularly onion), oilseeds and vegetable oils.

Though pulses are India’s primary source of protein, the pent-up demand was too inelastic to mop up supply last summer, giving farmers an income shock. Ditto after the fire sales in onion and potato.

A bumper chickpeas harvest is expected to flood the market shortly In storable crops, such as potato, oilseeds, spices and grains, the overhang of excess supply gets further prolonged. Simultaneously, farmers are grapplingwith crop failure that further affects income.

Although most winter crops, particularly wheat, are largely irrigated, northeast monsoon and winter rains are crucial for rice, maize and pulses in the south. Overall, rainfall patterns have become more irregular over the last decade.

Extreme rainfall events in central India, the core of the monsoon system, are increasing. Small and marginal farmers need to invest in climate-smart growing practices for sustainable agriculture, and buy insurance.

Few have capital or the incentive to invest. The average farm household in Uttar Pradesh earns Rs 4,923 a month and spends Rs 6,230, according to the National Sample Survey Office Situational Assessment Survey, 2013.

Money lenders, not banks, finance it. Bihar and West Bengal families are equally in dire straits. To worsen matters, rural income from infrastructure projects, factories and construction is stagnant.

Eventually, the low prices and lack of savings will reduce the number of commercial farmers as banks curtail lending in the name of credit discipline.

In short, everyday low prices, though great for consumers, are sinking India’s nine crore farming-dependent families further into poverty, malnutrition and illiteracy. We have deliberately ignored this tragedy. Instead, we focus on keeping food inflation low, an indicator keenly watchedby consumers, media and investors.

Even now, stock limits remain on pulses. India’s farm price and income problem is not unique. Other nations use direct payments, revenue insurance, buffer stocking and loan deficiency payments to tide over.

The US diverted excess corn into fuel ethanol. We can start by recognising that, all along, we have coerced the farmer to accept lower profits in the ‘national interest’ when supply is low, and abandoned him when prices are low.

That leaves him with no capital and savings to cope. Companies use profits from the good times to survive times of oversupply. Farming needs the same business freedom.

Consumers can be protected by more targeted actions. Reducing the overall cultivation and marketing costs through better market access will cut losses.

An enhanced push to exports, seed supply and solarpowered drip irrigation, livestock farming and dynamic buffer stocking, will further bulwark incomes. Private sector will do the heavy-lifting. Farmers are belligerent for a reason.

They have been forced to subsidise consumers for too long. Agrarian distress is the direct outcome. It is true that not every cropping season will be profitable.

But it need not end in tears. Agriculture needs a new intellectual paradigm that empowers farmers to cope with the inevitable long periods of demand supply mismatch by freeing them to maximise profits in the good years. Farmers don’t need subsidies, they need capital. For that, price is the best fertiliser.

The writer is chief marketing officer, National Commodities and Derivatives Exchange (NCDEX)

DISCLAIMER : Views expressed above are the author’s own.

Author: Nidhi Nath Srinivas

Nidhi Nath Srinivas is the Chief Marketing Officer, Ncdex. The views are personal.

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