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Indian farming: Chronicle of a crisis

LiveMint logoLiveMint 13-07-2017 Abhiram Ghadyalpatil

In 2013, Raju Pathan, a 44-year-old farmer from Nashik district in India’s western Maharashtra state, borrowed Rs9 lakh from a national bank to lay a water supply pipeline that would bring water to his 1.1 acre farm from a source of irrigation 9km away.

Pathan wanted to shift to grape vines, a prime horticulture crop in this part of India. The pipeline was laid and Pathan took an additional Rs3 lakh as a crop loan from a cooperative bank and Rs1 lakh short-term credit from another national bank to buy saplings, manure, and insecticides. In 2016, he reaped the first harvest of more than 150 quintals (1 quintal is equal to 100kg) of table grapes and sold those to local traders for Rs25 per kg. For the second season in 2017, Pathan spent Rs1.5 lakh on inputs cost and labour. This year, Pathan sold another 150 quintals for Rs15 per kg.

“Minus the input cost of Rs1.5 lakh, I have earned around Rs4.5 lakh from two harvests. But this is a notional income because along with my brother who is the co-owner of the farm, I carry debt of around Rs13 lakh,” Pathan said in a recent interview.

If only his farm had been serviced by canal irrigation that the government provides, Pathan would not have taken the first, Rs9 lakh loan. “I could not have waited for the government to lay the canal. So I took a loan thinking once the plants start bearing fruit, I will be able to repay it. But the non-remunerative prices in the first two years of the harvest make me wonder if I made the right decision to invest in grapes,” Pathan says.

Pathan belongs to the small and marginal category of farmers in India, with land holdings of less than 2 hectares (4.94 acres), who constitute 85% of total operational farm land holdings in India, where agriculture provides a livelihood to half the population of 1.3 billion people.

Such farmers have been at the forefront of protests demanding farm loan waivers in parts of India that have suffered because of a widespread drought in 2014 and 2015. A record harvest following bountiful—if unevenly spread—rains in 2016 didn’t help; prices crashed below the cost of production and a cash crunch that followed the invalidation of high-value banknotes in November deepened the crisis.

The weather office has predicted another year of plentiful June-to-September south-west monsoon rainfall in 2017, but that may not quite help the cause of farmers if commodity prices stay low.

Whether Pathan will qualify for a farm loan waiver the Maharashtra government has announced for marginal farmers and to what extent is not clear yet. On 12 June, Maharashtra became the second Indian state to declare a farm loan waiver that will cost Rs34,022 crore. Uttar Pradesh, India’s most populous state, where the Bharatiya Janata Party (BJP) won a record mandate in the February-March assembly elections, had been the first, saying it will spend Rs36,359 crore to follow up on an electoral promise by Prime Minister Narendra Modi to alleviate farm distress.

The Congress government in the breadbasket northern state of Punjab announced a loan waiver on 19 June (estimated at Rs10,000 crore), also following up on an electoral promise, and the southern state of Karnataka, ruled by the same party, said three days later that it would partially waive loans taken by banks from cooperative banks; the largesse will cost Rs8,165 crore.

That’s a combined Rs88,546 crore, or $13.7 billion.

Pressure is mounting on other states, especially the BJP-ruled states of Madhya Pradesh, Rajasthan, Chhattisgarh, Haryana, and Gujarat to emulate Uttar Pradesh and Maharashtra. Many of these states will go to the polls in the next two years, implying more loan waivers may be announced to score electoral dividends.

Although Uttar Pradesh’s largesse was the immediate trigger, farm distress preceded rural unrest and demands for loan waivers in most Indian states. Also, it is not only the small and marginal farmers who are in trouble. Even relatively prosperous farmers with large land holdings are in distress, as evidenced by violent protests in those parts of Maharashtra and Madhya Pradesh where farmers have shifted from food crops to capital- and labour-intensive commercial crops, horticulture, and medicinal plants.

Even within the states, farm unrest has rocked relatively richer and irrigated parts compared to dry and historically backward regions. For instance, Ahmednagar, Nashik, Pune, Kolhapur, and Sangli districts of Maharashtra, which constitute the main theatre of farm protests, are largely irrigated, prosperous, politically powerful, and leading pockets in terms of crop diversification—from sugarcane to horticulture to dairy to traditional food crops and oilseeds. Yet, the call for a farmers strike from 1 June that caused the state government to bow to demands for a loan waiver was given in Ahmednagar district, which produces bountiful quantities of milk and pomegranate.

Nashik district, where Raju Pathan participated in the strike, is the heart of Maharashtra’s grape vineyards that account for 80% of India’s grape output. “This is a myth that big farmers do not suffer losses. In fact, the loss that a big farmer suffers makes a direct negative impact on the economy. We provide employment to farm labourers, farm equipment and input companies thrive off our investments, and we take greater risks by shuffling between crops,” said Nashik district’s Ratan Borgude, who owns a 15-acre-pomegranate farm. Borgude says he has suffered an average loss of Rs40 per kg of produce since 2014.

What, however, binds these farm protests across diverse states is the commonality of concerns—indebtedness, frequent crop failures because of unpredictable weather, and lack of assured markets and prices for farm produce. Both in Maharashtra and Madhya Pradesh, the demand for loan waivers has come up because farmers have not been getting remunerative prices.

“If we were getting good prices on a stable basis, we would not have become indebted. Last year, chana (chickpea) was selling for as high as Rs12,000 per quintal. This year, the rate has come down to Rs5,500. Soybean has come down from more than Rs10,000 to Rs2,800 per quintal. Before government started buying onion for Rs8 a kg, it was selling for Rs3 to Rs5. These prices don’t even cover for the cost of production. How do we repay loans,” says Jaisingh Sisodiya, a farmer in Ratlam district of Madhya Pradesh.

Sisodiya has a debt of Rs2 lakh but the crops he has grown on his 9-acre-farm—soybean, maize, and tulsi (Holy basil)—have fetched him only between Rs2,300-2,800 per quintal, Rs800 per quintal, and Rs6,000-7,000 per quintal, respectively, as against Rs10,800, Rs1,200, and Rs17,000 in 2016. “Productivity is indeed increasing in Madhya Pradesh but not my income,” Sisodiya says.

What precipitated this crisis? It was in the making for some years now, despite the central government initiating reforms like a new crop insurance scheme and electronic trading of farm produce.

Farmers in 2014 and 2015 experienced back-to-back droughts in most parts of India—something without precedent in the past 30 years. The drought dented production of foodgrain and India’s agricultural output contracted 0.2% in 2014; it grew by a dismal 0.7% the next year.

A normal monsoon in 2016 led to a rebound in growth to 4.9% in 2016-17, the highest in five years, as production of foodgrain and perishable crops touched never-seen-before levels.

Following a normal monsoon in 2016, foodgrain production rose to a record 273 million tonnes (mt) in 2016-17, a year on year rise of 8.7%, while production of perishable horticulture crops touched a record 295 mt during the year.

But a collapse in farm gate prices caused farm incomes to plummet, despite the Narendra Modi government setting an ambitious target of doubling farm incomes by 2022—the 75th year of India’s independence. The ban on high-value currency notes hastened the price collapse as most of the trade in India’s primary sector is conducted in cash.

In the months following demonetisation, wholesale vegetable prices fell 24% in November (year on year) followed by a steeper 33% fall in December, and 32% in January. Four months later, in May, wholesale cereal prices contracted by 2.3% while vegetable prices fell by 18.5%. Price of pulses, a staple in the Indian diet, contracted by 19.7%—after farmers increased acreage and drove production to a record 22.4 mt in 2016-17, a staggering 37% year-on-year rise.

Farmers dump produce in Pingli village, Maharashtra. Photo: PTI

The collapse of farm gate prices led to unrest among farmers in several states. It began when farmers in a small village in Maharashtra’s Ahmednagar district decided to go on strike from 1 June and pledged not to supply any produce to wholesale markets. Their demands were a total waiver of farm loans and better crop prices—in line with the recommendations of a panel that had suggested crop support prices (at which government agencies procure foodgrain from farmers) be fixed at 50% over production cost. This was also a pre-poll promise by the BJP to farmers before it stormed to power in the 2014 general election.

Soon, protests spread from Ahmednagar to adjoining districts in Maharashtra, with farmers resorting to dumping of produce and spilling milk on highways, leading to a sudden spike in retail perishable prices in cities like Mumbai and Nashik.

As the state government agreed to a Rs30,000-crore loan waiver (and later raised it to Rs34,000 crore), the protests spilled over to neighbouring Madhya Pradesh, where five protesting farmers were shot dead by the state police on 6 June.

While the immediate trigger for these protests was the promise made by the Prime Minister during the Uttar Pradesh state elections that farm loans will be waived if the BJP is elected, the crisis was long in the making.

“It was like a pressure cooker with steam building up inside,” said Dharmakirti Joshi, chief economist at rating company Crisil Ltd, tracing the angst among farmers to two primary reasons. One, the government’s own data from the Commission for Agricultural Costs and Prices (CACP) showed output prices were rising slower than input costs, which affected farmers’ earnings. Two, low global food prices led to lower export earnings.

“So, it is somewhat strange that India did not see large-scale protests or disruptions during a drought year but in a year production is at a record high,” Joshi said, adding, “demonetisation was like the last straw on the camel’s back.”

“In the short term, the government should raise support prices—instead of quick fixes like loan waivers—while medium-term solutions lie in fixing structural problems like insurance, irrigation and access to markets,” Joshi said.

Overall numbers show the paltry returns farmers are earning. Data from CACP show farmers earned just a 6.7% return over costs (going by minimum support prices) for paddy, a major staple grown during the rain-fed Kharif (summer) crop season. For pulses like moong (green gram), support prices in 2016-17 were just 0.7% over costs. For arhar (pigeon pea), the so-called minimum support price (MSP) was fixed at Rs5,050 per quintal, compared with costs pegged at Rs4,314 per quintal, or a return of 17%; but here, too, farmers sold at a loss in wholesale markets (at between Rs3,500 and Rs4,000 per quintal) as government agencies didn’t buy enough.

While the increase in support prices did not factor in rising costs, a more severe problem was the absence of any price support for perishable horticulture commodities. For instance, 2016-17 marked the fifth year when production of commercial horticulture crops outstripped that of foodgrain. The year was also replete with images of farmers dumping their harvest of tomatoes, potatoes and onions by the roadside.

The fire sale was at display in Haryana, another breadbasket state in the north, a few hours drive from the capital city of Delhi. When MintAsia travelled to Kurukshetra district on 11 June, farmers were clueless about how to dispose of their large potato stock piles with wholesale rates plummeting to less than a rupee per kilo (it costs thrice as much to grow a kilo).

“Our plight is only noticed when we come down to the streets and create a nuisance,” said Gurnam Singh, a prominent farmer leader from the state. “For a farmers’ family, expenses on education and health have gone up several times in the past decade, while losses from farming are piling up. A debt waiver is like some oxygen which might just help us to stay afloat.”

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