Insights into Editorial : From plate to plough: Tall tales for farmers

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Insights into Editorial : From plate to plough: Tall tales for farmers


farmers

Background:

In his Independence Day speech, the prime minister referred to farmers 12 times. He talked about several achievements in agriculture — providing soil health cards to nine crore farmers and the enhanced crop insurance scheme. He also mentioned that 99 projects under the Pradhan Mantri Krishi Sinchayi Yojana will be completed by 2019, FDI in food processing will be encouraged, supply of inputs to farmers will be ensured and they will be assisted in marketing their produce. The PM concluded by saying, “Together we will build such an India where the farmers can sleep without worry. In 2022, they will earn double of what they earn today”.

 

Introduction:

It is now evident that the government’s aim is to double the real income — recent reports of the Committee on Doubling Farmers’ Income (DFI) spell out this goal. On April 13, 2016, the government set up a committee under Ashok Dalwai, then additional secretary in the Union ministry of agriculture, to prepare a report on DFI.

 

Recommendations of Committee on DFI:

  • The report pertains to three areas —
    • productivity gains,
    • reduction in cost of cultivation, and
    • Remunerative prices.
  • Strategic framework has four concerns —
    • sustainable agro-production,
    • monetisation of farmers’ produce,
    • re-strengthening extension services, and
    • Recognising agriculture as an enterprise.
  • The report also uses an econometric model to work out the investment needed in agriculture, irrigation, rural roads, rural energy and rural development to attain 10.41 per cent annual growth in real incomes for DFI by 2022-23 over the base of 2015-16.

 

Main issues which are not coved in the Committee on DFI’s Report?

Committee has made a list of hundreds of recommendations, ranging from implementation of the Agriculture Produce and Livestock Marketing, (Promotion and Facilitation) Act to e-NAM to negotiable warehouse system to price deficiency payments to re-organising KVKs and setting up a secretariat for DFI. But the report is silent on few important issues that are to be addressed.

  • The farmers’ real incomes have increased by only 3.5 per cent per annum during 2002-03 to 2012-13. So, DFI means three times higher effort and resources. That means a humungous additional investment of about Rs 6,40,000 crore at 2011-12 prices. And this does not include investments in agro-logistics, cold chains, etc. Eighty per cent of this investment has to come from the government. The investments in and for agriculture need to rise by 22 per cent per annum in real terms if the dream of DFI is to be realised.
  • But the report is totally silent on how, and from where, these resources will be generated. In a climate of loan waivers, subsidies, and welfare programmes that dominate the budget, the likely reality is that investments are going to shrink further.
  • But even if one makes the assumption that this humongous investment will somehow be made, there are several questions that beg for answers.
    • How much will agro-production increase as a result of this investment?
    • Where will that increased production be absorbed?
    • If domestic consumption can’t absorb increased outputs, can we export competitively in global markets?

The report does not answer any of these fundamental questions.

 

Does it then mean that DFI will remain a pipe dream by 2022?

Not necessarily. In order to take this dream closer to reality, one may look at the Chinese experience during 1978-84, when the country doubled farmers’ real incomes in six years and reduced poverty by half.

  • China focused primarily on incentives for farmersby moving from the commune system to the household responsibility system in land, and ensured higher prices for farmers.
  • Chinese prices for farmersare way above that in India. To cite one example, China’s MSP for wheat in 2014-15 was $ 385 per tonne against India’s $ 226 per tonne.

The upshot of this example is that India needs to focus on incentives for farmers.

 

The substantive points involve the following questions:

  • Which is the targeted year for doubling farmer income?
  • What is to be doubled — is it output, value added or income earned by farmersfrom agricultural activities?
  • Is it nominal income or real income that has to be doubled?
  • Does the targeted income include only income derived from agricultural activities or would it also include income from other sources?

Clarity on all these points is important to assess the possibility of doubling the income of farmers as envisioned by the PM.

  • It is important to point out that what is sought to be doubled is the income of farmers, not output or value added or the GDP of the agriculture sector. If technology, input prices, wages and labour use could result in per-unit cost savings, then farmers’ incomes would rise at a much higher rate than the rate of increase in output.
  • Another very important source of an increase in farmers’ income is the relative increase in prices of farm products compared to non-agricultural commodities. 
  • Therefore, a doubling of farmers’ income should not be viewed as the same as a doubling of farm output.
  • Inflation in agricultural prices also leads to an increase in real farm income if agricultural prices received by farmersincrease at a faster rate relative to the prices paid by farmers; that is, when terms of trade for agriculture improve.

 

What are the possible drivers of income growth for farmers?

  1. Diversification of farm activities towards high-value crops and enterprises. National-level data reveals that shifting to high-value crops can more than quadruple income from the same piece of land.
  2. Irrigation, which can double productivity.
  3. The third source is better price realisation for farmersthrough competitive markets, value chains and improved linkage between field and fork.
  4. The fourth source is an improvement in the terms of trade for agriculture.
  5. The fifth source is technology up gradation.
  6. Another important source is the shift of cultivators from farming to non-farm occupations.

 

Conclusion

State-level data shows that agricultural income in real terms, including the effect of improvement in terms of trade, doubled between 2006-07 and 2013-14 in Gujarat, Jharkhand, Madhya Pradesh, Rajasthan and Telangana. Few states, namely Bihar, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Madhya Pradesh, Rajasthan and Telangana, are experiencing a transition towards doubling farmers’ income in seven years while Uttar Pradesh and Maharashtra are showing the potential to do so.

In conclusion, if the above-mentioned six measures are implemented sincerely at the state-level, then farmers’ income can be doubled by 2022-23 in most of the states.