Crash Boom Bang
By Zia Haq
Farmer protests have been loudest in states with high agricultural growth. What explains the paradox?
Video reporting: Zia Haq; Video: Jitender Gupta; Editing: Suraj Wadhwa
From a distance, it’s difficult to pinpoint the source of the stench amid the rolling green fields in this Sikh-dominated hamlet off Kurukshetra, Haryana. Covered by black tarpaulin sheets and hay, the heaps of rotting potatoes—tonnes of them—are barely visible until farmer Bhupinder Pal Singh points to them. Some of the tuber has melted into thick slush, infested with insects and flies. The spot has become a local tourist attraction of sorts: a mini-mountain of rotting potatoes.
Singh’s decision to try potatoes instead of wheat last winter was catastrophic. He might take years to recover. He and his three cousins sowed a variety called ‘Chips Sona’ in 37 acres between them. They got some decent yields (4,400 quintals) in March and hired space in local cold storages, hoping to sell to exporters at profitable rates. Then came the free fall.
“Look, can you believe this,” a distraught Singh says, holding up a sales receipt for our cameras. On May 25, it shows, Singh sold nearly 40 quintals for Rs 2,306. That works out to Rs 58 a quintal or 0.58 paise a kg! One of his cousins sold his for 11 paise a kg. At those prices, there was no point sinking more money into labour or transport costs for the rest of it. So two-thirds of the harvest has been allowed to go waste. And it needs to be disposed of urgently—before the village raises a stink, leaving little time to lament the loss of Rs 18 lakh. Warnings are pouring in. “We’ll all fall sick. Do something fast,” a village elder tells the Singh brothers. The rotten dump has already triggered a pest attack on mango trees nearby.
The condition of farming households like the Singhs’ in Babain mirrors a larger crisis across states, especially in horticulture. Plummeting farm-end prices this year have led to a wave of violent, often dramatic, protests by farmers demanding better prices and debt writeoffs.
The reasons go beyond a singular causative factor, but one came along, out of the blue, early last November: demonetisation. “Traders said they can’t give us previously agreed prices due to demonetisation. So we took whatever they gave,” says Sukhchain Singh, a farmer protesting in Shahabad mandi, one of the largest in Haryana. Before the cash crunch hit the system like a wrecking ball, the BJP had primed the pitch in a different way. It had raised expectations with its 2014 manifesto promise that farmers would get 50 per cent profits over ‘C2’ costs (a comprehensive measure of cultivation costs that includes the actual paid-out costs (e.g, seeds, fertilisers, irrigation charges) plus imputed value of family labour,
rent and interest on owned land and capital.)
This was followed by the 2016 budget announcement that the Modi government would double farm incomes by 2019. Post-DeMo, the response to early intimations of the crisis didn’t help. A farm loan waiver was a key element of Modi’s UP poll campaign. On cue, in April, the new Yogi government wrote off farm loans worth Rs 36,359 crore. That naturally set off demands elsewhere, bringing on agitations across states, the anger peaking with the five farmer deaths in police firing in Madhya Pradesh’s Mandsaur on June 7. A nervous Maharashtra quickly announced a Rs 30,500 crore plan to write off the debt of about 3.2 million farmers, followed by Punjab.
None of this offers an enduring solution to the essential economic riddle at the heart of it. A range of commodities are trading below the minimum support price (MSP)—the assured price the government sets for each crop, accounting for farmer profits, so that no one needs to go for distress sales. It’s also designed to act as a floor price for private traders. However, MSPs have traditionally worked well only in the case of rice and wheat because the government directly buys these two commodities to stock them in state-run granaries. For commodities not under this procurement system, the MSP is nothing more than an indicative price.
Yes, it exists, and is revised twice a year by the statutory Commission of Agricultural Costs and Prices, but on the ground, there’s ample proof of its failure to govern actual prices. At Punjab’s Khanna mandi, reckoned by some as Asia’s largest grain-trading wholesale market, corn and sunflower oilseeds—key drivers of farm income—are still pouring in. But they are both trading below MSP. “Today corn is going for Rs 1,200 a quintal and sunflower oilseed for Rs 2,600,” says Sukhpal Singh, the auditor at the market committee office. The government-advised MSP for these crops are way higher at Rs 1,365 and Rs 3,950 respectively. Anything below MSP is by definition unprofitable because MSPs are calculated by indexing them to inflation and cost of cultivation.
The tragic part is, things needn’t have been so. Especially when in 2016, India’s monsoon—the lifeblood of its agriculture—was normal after two straight years of a drought that had shrivelled crops. On its back, agriculture growth leapt to a healthy 4.2 per cent in 2016-17 after two years of poor growth—1.2 per cent in 2015-16 and minus 0.2 per cent in 2014-15. A negative farm growth means farm incomes actually shrunk. And now, out of a plentiful crop from good rains, India has managed to eke out a harvest of pain. Indeed, in a paradox that has stumped the government, states where farmers are protesting the loudest have seen the highest agricultural growth rates.
Take Maharashtra. It clocked an agriculture GDP growth of 12.5 per cent, a record high. In neighbouring Madhya Pradesh, a big flashpoint, decadal agriculture growth has been over 9 per cent, higher than the all-India average. Obviously, average farm earnings have shot up. So what’s the problem?
“While agri GDP is important, it shows how overall farm earnings have gone up, not how they have been distributed,” says economist Abhijit Sen, who was head of agriculture at the Planning Commission. In other words, only a handful of farmers—the big ones—drive farm GDP. So, despite the robust growth figures, in both Maharashtra and Madhya Pradesh, average receipts from cultivation are lower than the national average at Rs 3,856 and Rs 4,016, according to a National Sample Survey done between June 2012-July 2013. The income differential between small and landless farmers (the majority) and the big ones is huge.
And policy has not been able to address itself sufficiently to the large trough on this uneven graph. Bureaucrats cringe at the mention of farm loan waivers; they say farmers have just got paid drought compensation in thousands of crores. “In 2014-15 and 2015-16, Maharashtra farmers got Rs 10,000 crore from the Centre as compensation, while Rs 6,000 crore was paid under crop insurance,” says an agriculture ministry official, requesting anonymity.
Ironically, a structural change that should have been a cause of celebration has become a threat. Between 2004 and 2010, demand for horticulture items rose an average 4 per cent annually, along with protein items, as rural wages grew robustly due to the national make-work scheme NREGA. Food demand was shooting up as many Indians moved up the income ladder. Farmers began responding to this changed demand and ramped up horticulture output, such as onions and potatoes.
This began to reflect in official output figures. For six years in a row, India’s output of horticulture items, such as potatoes, has overtaken foodgrains output. In 2016-17, horticulture output stood at 283 million tonnes, compared to 273 million tonnes of foodgrains. This structural reversal of trends meant a vegetable glut. The situation, made worse by rising imports, caused prices to crash. Nor can farmers wait for a better market day: without adequate cold warehouses, perishables simply rot. Thus it comes about that even farmers in prosperous states, such as Haryana and Punjab, have been hit.
The dive in farm-end prices is aptly mirrored by the average headline inflation as well as average consumer prices. While farmers say their prices have gone below production cost, retail prices in many urban markets have fallen only marginally. But inflation rates continue to trend lower. Wholesale inflation moderated sharply to 2.2 per cent year-on-year in May, compared to 3.9 per cent in March. “This was significantly below expectations,” says Sonal Varma, an economist with Nomura group. Retail inflation fell to 2.2 per cent in May 2017. That’s a record low, caused mainly by food prices (at -1.0 per cent) turning negative for the first time since 2001. The drop is starkest with vegetables and pulses, at -13.4 per cent and -19.5 per cent respectively.
Not all problems are homegrown, though. Some are imported—or intertwined with a larger crisis. A global crash in commodity prices meant traders naturally focused more on imports as international prices were ruling lower than domestic items on the back of lower oil prices. “After three years of declining prices and extreme weather wrecking crops in many important agricultural regions, 2017 looks set to bring some much-needed stability to food prices,” says Stefan Vogel, Rabobank’s head of agri commodity markets and chief author of Rabobank Global Outlook 2017. “Nevertheless, record global stock levels mean prices are likely to remain stubbornly low—good news for consumers, but less so for the world’s farmers.”
Let’s frame how this relationship of local prices with the global poses an issue for Indian farmers. Last month, the agriculture ministry issued the last of its four quarterly estimates of foodgrains output, and the estimates pointed to a big achievement. India’s cereal output of 273 million tonnes in 2016-17 is poised to be the highest ever. India has been setting such records every three years or so. But in what was to be a bumper year, wheat imports continued unabated. India imported nearly five million tonnes of wheat in 2016, mainly from Ukraine and Australia, its biggest purchase in a decade.
The wheat import trade was freed up in response to lower supplies in the previous two years, which were hit by drought. But traders found excellent logic in continuing this year, judging purely by their margins—and, tragically, the window for imports was not shut in time. In agriculturally advanced states, farmers appear remarkably clued in about these developments. “Why are these imports being allowed,” asks Angrez Singh, a hardy 70-year-old in Haryana’s Mukarpur.
Mukarpur offers some rather stark metaphors of what farmers have gone through this year, by the way. Angrez’s neighbour Jagmal Singh, who failed to recover his investment in potatoes, has shaved off the top layer of his three-acre farm and sold the top soil to a nearby brick kiln. With the most fertile layer of his farm gone, he can’t sow this season. “I need to first recover the cost because I have a loan to pay,” he says.
Across Haryana and Punjab, farmers blamed imports for hurting domestic prices. “I made losses in wheat this winter for the first time in many years,” says Dhalvinder Singh, from Punjab’s Srihand, as he plies his tractor in a flooded field to prepare for paddy sowing.
Under fire from many sides, last week Union commerce minister Nirmala Sitharaman defended her government’s decision to lower wheat import duties, even down to zero. She said it was based on drought-time estimates of wheat output and also pleas from wheat importers, who said international prices were so low that getting wheat from Ukraine was cheaper than procuring it from Punjab! Wheat import restrictions were put in place immediately when the fresh output estimates came in, she says. The sequence was: in September 2016, wheat import duty was slashed down from 25 per cent to 10 per cent, and then to zero in December. It reinstated the 10 per cent duty on March 29, when assessments pointed to a bumper crop.
Now, the growing clamour for loan waivers has put policymakers in a fix. “Loan waivers, although a burden on the exchequer, can serve as a good stopgap arrangement for supporting the farming community. However, the real relief to farmers can only be through systematic structural reforms,” says Ajay Kakra, director, agriculture, PwC India. Indeed, while big waivers become headline events around which much of surface politics revolves, they may not help farmers who need relief the most. As a rule, loan waivers apply only to those who borrow from public sector banks or cooperatives.
A situational survey in 2013 showed small farmers account for 82 per cent of all indebted farm households in India but they mostly borrow from private money-lenders and don’t qualify for debt forgiveness.
According to economist Ashok Gulati, who formerly headed the Commission on Agricultural Cost and Prices, farmers in 2016-17 got negative returns on crops such as jowar (-18%), sunflower (-13%) and pulses (-7%).
The immediate way out of the crisis is to free up all exports, he says. But protesting farmers aren’t willing to stop at anything less than a loan waiver. “If UP farmers can get it, why can’t we,” aks Dharmvir Singh, as he shows us his bank statement book and his outstanding loan.
Setting the fundamentals right—evolving a system responsive enough to micro trends as well as to the whole cross-play of policy, public institutions and private players—is a task of some urgency. Two points illustrate the crucial role of farming, beyond bringing us food. One, since it forms a direct or indirect source of livelihood for about two-thirds of Indians, farm growth can cut poverty twice as fast as industrial growth. Two, a 1 per cent rise in farm output even raises industrial production by 0.5 per cent and national income by 0.7 per cent, according to one calculation. India’s fortunes are structurally tied to the farm sector.
First published in the Outlook Magazine on June 23 2017. Read the original here