Rethinking farmer incomes

SUKHPAL SINGH

 

INDIAN farmers face multiple challenges like excessive stress on water and soil health, lack of knowledge/information about high value/growth products, limited exposure to high productivity practices due to lack of extension, inadequate credit access, weak market linkages, and inefficient supply chains. Covid-19 has come in as one more challenge though significant and unconventional. In this context, the government policy intent of doubling farmers’ income by 2022 has again acquired new urgency as the Covid-19 has put serious question marks on this objective in terms of its meaning and significance and its very achievability.1

The recent NSSO Situation Assessment Survey (77th) for 2019 reveals that average farm household income has increased only to Rs 10,218 over the 2013 figure of Rs. 6442 per month which is an increase of 59% over six years in nominal terms, and farm income has grown only by 23% over this period. For marginal farmers, the average monthly income in 2019 was only Rs 8571 per month. Further, income from farming (Rs 3798) is on average, lower than that from wage and salary work (Rs 4063), and its share in total income declined from 48% to 38% over six years.2

Besides, the launch of the Union government’s PM Kisan scheme which provides Rs. 6000 per year to the landowning farmers as a cash transfer since the last three years is an indicator of the acceptance of the reality that farmer income may not be on the path to doubling or even increasing significantly. This scheme is also exclusive in nature unlike many other state level schemes like KALIA (Odisha) or Rythu Bandhu (Telangana).3 In fact, it is argued that stabilization of farm income, especially in dryland and other risky production areas, is a more desirable objective rather than that of enhancing farmer income4 and a focus on non-crop sectors may be needed.5 The Covid-19 pandemic over the last three main crop seasons has only added to the perception and evidence that the objective of doubling farmer income by 2022 will not be achieved.

 

 

This article brings together evidence on the impact of Covid-19 on farmer incomes (section 2) and then briefly examines various policy options for stabilizing farmer income from a risk management perspective including an assessment of the implications of recent Union farm acts (section 3) and suggests ways forward for improving small farmer livelihoods (section 4).

Let us look at the impact of Covid-19 on farmer incomes. Small farmers face a triple livelihood crisis: climate, prices, and global health during and after the pandemic.6 A global assessment of impacts of Covid-19 shows that it led to major loss of income and jobs, leading to even food insecurity, across sectors and geographies, especially for the marginalized and more vulnerable
groups though some other actors like super-markets, grocers, and home delivery services also gained from it.
7

A rapid (mostly) online survey of 424 small holder farmers and 44 intermediary partner organizations in 44 districts of 19 states across India during early months of 2020 (including 30.4% female, 10% widow/widower, 15% leasee farmers and 69% Below Poverty Line (BPL) respondents) on the impact of Covid-19 on their livelihoods revealed that the income of 80% small farm families reduced due to Covid-19 as the restrictions on movement adversely impacted their production and income.

 

 

Nearly 60% of respondents received lower return as compared to their last harvest, nearly half faced labour issues, 26% lack of accessibility to agricultural mandis to sell their farm produce and 24% smallholders did not get the required farm inputs from any sources. 54% smallholders expressed concern towards availability of essential farm inputs for the then kharif season due to the lockdown while access to agricultural mandis was a major concern for 16% of smallholders. Sixty-one per cent smallholders did not get a good price or find an appropriate market for their livestock produces while 81% farmers faced such issues with regards to sale of farm produce.

Fifty-one per cent smallholders faced all kind of issues related to market accessibility, lower price, unavailability of market, problems in product processing and in transportation, while 31% farmers faced specific marketing issues. Sometimes, vegetables were spoiled due to limited hours of selling. The high dependence of farmers on intermediaries for marketing aggravated their vulnerability as they received lower income in that season.8

 

 

In Haryana and Odisha, it was found from a telephone survey during April-May 2020 that lockdown effects were highly differentiated across the two states. In Odisha, farmers made distress sales and also spent more on labour during the Covid-19 period. However, in Haryana, the procurement was smooth due to a well-functioning public procurement infra-structure unlike in Odisha. But its more diversified cropping pattern helped Odisha farmers in receiving food supplies unlike in Haryana which had a very narrow set of crops.

In Odisha, 57% farmers har-vested black gram earlier than normal time and 35% later than normal time but in Haryana only 11% and 32% of farmers resorted to these steps in wheat due to the lockdown. Farmers in Odisha spent much more on harvest in 80% cases compared with only 41% cases in wheat in Haryana. Besides, in Odisha, 52% of farmers spent more on transport to market compared with only 23% in Haryana, but still 36% of farmers in Odisha sold at lower than the normal price as 74% in Odisha and 61% in Haryana could not sell immediately after harvest.9 Rawal et al.10 also reported serious problems in harvesting of wheat due to non-availability of combine harvesters because of lockdown restrictions or higher cost of manual harvesting.

Further, the number of mandis which functioned during the lockdown declined to just one-third of that in the pre-lockdown period. This led to lower arrival of produce in mandis by 38% (wheat), 73% (chickpea), 61% (mustard), 48% (potato) and 59% (onion) compared with the same period in 2019.The prices realized by farmers in mandis compared with the Minimum Support Price (MSP)were also lower.11

 

 

Another telephone survey of 370 farmers in April-May 2020 revealed that 39% of farming households were badly affected by the lockdown, with 23% losing a job in the household. Further, 70-80% reported facing a problem in getting a job or earning an income.12 However, during the rabi season, when the pandemic hit in 2020, the harvest was either over in most areas or had not begun when the lockdown started. Since many rain fed areas were single crop regions, there were no major crops to be harvested and, therefore, these farmers remained unaffected by the lockdown. But since a major part of the income of farming households in such areas came from wages and animal husbandry (44%), they were seriously affected by the loss of employment due to the lockdown and afterwards.13

This was also evident in the number days of MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) employment generated in April 2020, which was only
12% of what was projected for that month and many villages had completely stopped MGNREGS work.
14 This work was however revived later as a part of the Covid relief measures.

 

 

The informal dairy milk sector suffered due to milk holidays, deferred payments, and higher cost of production due to disruption in input supply chains.15 This resulted in a 20-25% decline in the demand for milk.16 A diversification towards high-value crops can help raise incomes as these crops account for a large proportion of the value of output. While covering a relatively lower area, e.g. fruit and vegetable crop cover 7.7% of the Gross Cropped Area (GCA), they contribute 26% of the value of farm output. However, this subsector suffered the most during the pandemic as there were supply movement restrictions
due to the lockdown and markets were closed for weeks together. Thus, as many of these perishable crops, especially vegetables and fruits, cannot be stored, it resulted in big losses.

Poultry and piggery farms and floriculture suffered the same fate. A lack of demand in poultry and other livestock sectors led to a drop in the market price of maize. The demand for soybean dropped to less than 50% due to a lack of demand from the poultry sector. Losses due to a pile-up of harvested and unharvested perishables was estimated to swell to Rs. 50,000 crore during the lockdown. The floriculture industry was expected to shrink by 50%.17

A study by Varshney et al.18 of Covid-19 impacts on market prices of perishables (tomato and onion) and non-perishables (wheat) for three months from nearly 1000 markets across five states in North India showed a differential impact by type of commodity and period of analysis. Wheat prices were anchored in large part by MSP, while tomato prices were lower in some months.

 

 

In general, farmers suffered due to supply chain disruptions that led to problems in buying farm inputs and selling output on time, realized lower prices for their produce, lost additional sources of income like wage work or public work, cost of farm inputs went up due to limited supplies, and farmers became less resilient to future income and livelihood shocks.19 The impact of lockdown was further compounded by policy confusion with regard to agricultural activities and supply chains, especially at the Centre.20

However, the Covid situation was very dynamic and some parts of the agri supply chains and some sectors like dairy and perishable produce did revive after the initial shock and added new market segments like home delivery. Some sectors that were not dependent on migrant labour did ‘bounce back’ which is reflected in more stable growth rates recently of the farm sector Gross Domestic Product (GDP).

 

 

The above evidence on the impact of Covid on livelihoods shows that farmers’ incomes remain vulnerable to various shocks, small and large or short and long-drawn, and therefore the need to plan for unforeseen events for income enhancement or stabilization. However, even before the pandemic, farmer incomes were under stress as stated above, largely due to market related factors: compared with 17% paddy farmers selling their produce at mandis in 2012-13, only 2.7% did so in 2018-19. Similarly, while 23% farmers sold wheat in private mandis or to private traders in 2013, it jumped to 66% in 2018-19 though in almost all cases and crops, they did not get better prices. The percentage of households selling in mandis reduced even more significantly in the case of gram, mustard and jowar.21

In the context of the policy goal of doubling farmer incomes over the next few years, it is crucial to recognize that farmers face considerable production and market risks. One important measure that could help farmers protect their incomes from production risks is crop insurance. Unsurprisingly, farmer crop insurance claims increased by 20% on account of losses due to the Covid-19 lockdown.22 Interestingly, Karnataka compensated floriculture farmers with Rs 25000 each during the Covid pandemic.23

Unfortunately, this measure has not been effectively implemented despite its relaunch as the Pradhan Mantri Fasal Bima Yojana (PMFBY). The scheme’s coverage remains low in terms of insured area as a percentage of GCA against a target of 50%. There were many issues regarding claims settlements, including the exclusion of small and marginal farmers. With the government now making it voluntary, and many states opting out, it will only further weaken the risk management mechanism among farmers.24

 

 

On the market risk reduction front, the role of MSP is limited as most of the produce is sold to private traders (60-80%) except paddy and wheat (40% and 30% of the season respectively).25 The limitations of the MSP mechanism become evident from an estimation carried out by Balaji et al.26 wherein it was shown that the MSP of various crops would have to triple or increase fourfold for doubling farmer income from this measure alone.27

The Doubling of Farmer Income (DFI) committee recommended a public procurement threshold of 15%, 10%, and 5% of the marketed surplus for pulses, oilseeds, and cereals, respectively for farmer income stabilization. It also argued that efficiency and effectiveness of the Market Intervention Scheme (MIS) for perishables implemented for a few crops in a few states only, must improve especially for tomato, onion, and potato crops,as these crops do not have MSP support.28

In Punjab, farmers stored maize only for 12 days and paddy for seven days before sale compared with 22 and 34 days in Bihar and 40 and 21 days in Odisha respectively.29 The system of warehouse receipts is important in making farmers avoid distress sale and realize remunerative price for their produce which could have come handy had this infrastructure been available during the pandemic.

Since there is a limit to how much the state (government) can do directly on its own to improve farmer incomes, it is important to examine other market based and community based alternatives like contract farming and direct purchase or farmer collectives for achieving higher farmer incomes.

 

 

There is no doubt that contract farming would help farmers earn more than other channels of selling. It would also help shift market risk to the contract agency thereby reducing distress selling which is a common feature of wholesale markets facing farmers. But there are issues of higher costs of production in contract farming compared with non-contract situation, and the exclusion of marginal and small farmers with the exception of a few crops. It is for this reason that researchers and policymakers have been concerned about the inclusiveness of business models globally. For some time now, the FAO (Food and Agriculture Organization) has been looking at the issue and designing and propagating responsible contracts and contract practices.30

 

 

The new Union farm Acts of 2020 which assume that opening of markets will bring new investments in agriculture may not help farmer incomes when implemented, if one goes by the experience of Bihar, which repealed the APMC Act in 2006. In Bihar, the farm harvest prices did not change after the repeal of the act in case of paddy, wheat and maize or in perishables or pulses. Paddy farm harvest prices, farmers’ revenue and profits were lower than those in other states.31 In paddy, only 5.5% farmers sold to government agencies which was no different from the pre-repeal situation.32 It was only with maize that the repeal led to more competition which led to higher prices realisation for farmers due to improved marketing efficiency.33

Karnataka, however, with the APMC Act and rules still intact, had much larger (10 times) maize processing capacities than in Bihar.34 Further, the mandi infrastructure has gone into complete disrepair after the repeal of the APMC Act.35 The state of Agricultural Produce Market Committee (APMC) mandis in Madhya Pradesh, immediately after the initial operations of the new act, also brought home this point.36 It is important to note that laws cannot substitute for policy. New investment will need incentives, and not just ease of doing business.

Since a large section of marginal and small farmers are also net buyers of food, the Essential Commodities Act (ECA) amendment (2020) would also hit their livelihoods hard in the event of food inflation due to relaxation of stocking limits on various supply chain players and rendering the government unable to intervene in both staples and perishables unless prices go up 50% and 100% over the previous year or 5-year average prices respectively.37

 

 

What is the way forward? The above analysis shows that Covid-19 has severely affected farmer incomes and has thrown a spanner in the works of doubling farmer income (or even stabilizing it). Further, it shows that existing instruments for doubling or stabilizing farm incomes are highly inadequate and need to be redesigned.

It is important to realize that small farmers in India are highly differentiated in terms of their market participation (in terms of marketable and marketed surplus as proportion of food grain production), ranging from highly commercial to a mix of subsistence plus commercial, and those who are mainly subsistence farmers. One of the ways to achieve the target of enhancing farmers’ incomes or at least stabilize them would be to focus on rainfed areas, the eastern region, and small farmers who draw less than 50% of their household income from farming.38 This is highly relevant as 43% of the population and more than 60% of the agricultural area in India is in dry or rain fed regions39 which are highly vulnerable to man-made (e.g. Covid-19) and natural shocks like climate change.

 

 

Diversify to multiply could be the new mantra for producers’ marketing channels in times of crisis and, in general, as heavy reliance on a single cash crop combined with low market prices and vulnerability to climate change, threatens the livelihood of farmers. More importantly, it is the value creation and value capture in a value chain like new products or product differentiation, which can make a difference to farmer incomes. This can be done through new ways of producing them or just promoting them to create intangible product differentiation that can help tap new market segments and get a higher price for the farmer from the same amount of produce.40 This requires value chain-based interventions and innovations in products, processes, organizations and institutions.

Further, since many Indian farmers are marginal or small, they cannot deal with large buyers on their own, even if they are brought under contract farming by some companies. Therefore, group contracts should be encouraged by policy incentives to make the mechanism inclusive and effective for farmers.

Further, as the DFI committee also underlines, the importance of an agroecological approach for sustainable agriculture through various agroecological systems like irrigated, rainfed, dry, coastal, shifting cultivation, and rice fallow needs to be recognized. Accordingly, it is important to move towards such an approach for farmer income stabilization and sustainability. In addition to creating rainfed, agro-economic zones, the promotion of millets, dryland horticulture, agro forestry including bamboo, and dairy and livestock need to be the focus of policy to bring better resilience.41

To avoid the ill-effects of the new acts, APMC markets need to be strengthened, as they played a major role in saving farmer incomes during the pandemic. Further, whatever expansion contract farming and direct purchase may witness, India’s large mass of marginal and small farmers would need public and private wholesale markets which need to be reformed and set up respectively as they remain the last resort for a large majority of them. To raise farm incomes will entail reorganizing agriculture in terms of institutions at the local level, with farmers becoming part of collectives like cooperatives and producer companies.42

India now has thousands of Farmer Producer Companies (FPCs), which are business-like entities representing farmers. They can play a role in making contract farming deliver the objectives of farmer income enhancement by facilitating contract farming with smallholders, and undertaking it on
their own, besides reducing distress sale and reducing production risk in terms of timely, cost effective and quality supply of farm inputs and services.
43 Therefore, the solutions to small farmers’ livelihood problems need not just be regulatory oversight but also policy interventions like credit and agro-infrastructure and their participation in value chains and networks for crop and enterprise diversification for making them more resilient.

 

Footnotes:

1. S. Singh, ‘Doubling Farmers’ Incomes Mechanisms and Challenges’, EPW 53(7), 2018, pp. 15-19.

2. EPW, ‘Government Policies Drive Farmers to Penury’, EPW (editorial), September 2021, pp. 18, 7-8; D. Sharma, ‘All Pain, No Gain for Farmers’, The Tribune, 15 September 2021; Y. Yadav, ‘Doubling of Farm Income a Bridge Too Far’, The Tribune, 16 September 2021.

3. H.N. Kavitha, P. Kumar, P. Anbukkani, R.R. Burman and P. Prakash, ‘Income Support Schemes: Evaluation of PM Kisan vis-ą-vis State Government Schemes’, EPW 56(34), 2021, pp. 13-17.

4. S. Singh, ‘Doubling Farmers’ Incomes: A Critical Review of Policy’, RAS10(2), 2020.

5. S. Chandrasekhar and N. Mehrotra, ‘Doubling of Farmers’ Incomes by 2022: What Would it Take?’, EPW 51(18), 2016, pp. 10-13.

6. International Trade Centre, Unsung Heroes: How Small Farmers Cope with Covid-19. ITC, Geneva, April 2020.

7. C. Bene, D. Bakker, M.J. Chavarro, B. Even and J. Melo, ‘Global Assessment of the Impacts of Covid-19 on Food Security’, Global Food Security 31, published online 9 September 2021.

8. Caritas India, Rapid Research on the Impact of Covid-19 Pandemic on the Smallholder Farmers in India. Caritas India, New Delhi, 2020.

9. F. Ceballos, S. Kannan and B. Kramer, ‘Impacts of a National Lockdown on Smallholder Farmers Income and Food Security: Empirical Evidence from Two States of India’, World Development 136, 2020.

10. V. Rawal, M. Kumar, A. Verma and J. Pais, Covid-19 Lockdown: Impact on Agriculture and Rural Economy. SSER Monograph 20/3, 2020, New Delhi.

11. Ibid.

12. S. Narayanan and S. Saha, ‘More Reforms Than Relief: Indian Agriculture and the Pandemic’, IJLE, 16 September 2020, p. 16.

13. Ibid.

14. V. Rawal et al., 2020, op. cit., fn 10.

15. N. Singla, Impact of Covid-19 Pandemic on Dairy Industry in Punjab: Major Concerns and Policy Options. CDEIS Policy Brief Series on Punjab Economy, #2020-08, Punjabi University, Patiala, 2020.

16. Rawal et al., 2020, op. cit., fn 10.

17. Grant Thornton and FICCI, Decoding Agriculture in India Amid Covid-19 Crisis.
Grant Thornton India LLP, June 2020.

18. D. Varshney, D. Roy and J.V. Meenakshi, ‘Impact of Covid 19 on Agricultural Markets: Assessing the Roles of Commodity Characteristics, Disease Caseload and Market Reform’, Indian Economic Review 55 (Suppl 1), S83-S103, 2020.

19. R. Basu, ‘Case Study on Covid-19 and Small-Scale Food Producers in India’, Focus on the Global South, Delhi, 8 October 2020.

20. S. Narayanan and S. Saha, ‘One Step Behind: The Government of India and Agricultural Policy During the Covid-19 Lockdown’, RAS 10(1), 2020, pp. 111-127.

21. V. Radhakrishnan, S. Sen and J. Nihalani, ‘Most Farmers Sold to Private Traders in 2019, New Survey Data Shows’, The Hindu, 16 September 2021.

22. Grant Thornton and FICCI, 2020, op. cit., fn 17.

23. S. Govindan, Complete Disruption: Covid-19 and Agriculture in South Asia, A Policy Paper’, Focus on the Global South in collaboration with Rosa Luxemburg Stiftung-South Asia, February 2021.

24. M. Kulkarni, K. Deshmukh and G. Prasannan, ‘Pradhan Mantri Fasal Bima Yojana 2.0: Betrayal of the Initial Promise?’EPW 56(19), 2021, pp. 38-41.

25. Mukesh and N Srivastava, ‘Data-driven Roadmap for Doubling Income of Farmers of India’, Statistics and Applications 17(1), 2019, pp. 235-259.

26. S.J. Balaji, P. Kishore, R. Saxena, N.P. Singh and D. Franco, ‘Technology-Policy Trade-off in Doubling Farmers’ Incomes: A Case Study on Pulses, Agricultural Economics Research Review30 (conference number), 2017, pp. 117-126.

27. S. Singh, ‘Reorganizing Agricultural Markets for Doubling Farmer Incomes in India: Relevance, Mechanisms, and Role of Policy’, Indian Journal of Agricultural Economics 74(3), 2019, pp. 390-407.

28. S. Singh 2020, op. cit., fn 4.

29. S. Chatterjee, M. Krishnamurthy, D. Kapur and M. Bouton, A Study of the Agricultural Markets of Bihar, Odisha and Punjab. CASI, University of Pennsylvania, Philadelphia, 2020.

30. S. Singh 2019, op. cit., fn 27.

31. A. Kishore, P. Kishore, D. Roy and S. Saroj, ‘Impact of Agricultural Reforms in Bihar: Test Case for New Farm Laws’, Ideas for India, 11 June 2021, IGC, LSE.online.

32. Chatterjee et al., 2020, op cit., fn 29.

33. Kishore et al., 2021, op cit., fn31.

34. S. Chatterjee and M. Krishnamurthy, ‘Farm Laws Versus Field Realities: Understanding India’s Agricultural Markets’, Sikh Research Journal 6(1), 2021, pp. 88-107.

35. Chatterjee et al. 2020, op cit., fn 29.

36. S. Singh, India’s Agricultural Market Acts of 2020: Implications for (Small) Farmers with Special Reference to Punjab’, Sikh Research Journal 6(1), 2021, pp.108-125.

37. Ibid.

38. S. Singh 2019, op cit., fn 27

39. S. Singh 2018, op cit., fn 1.

40. S. Singh 2019, op cit., fn 27.

41. S. Singh 2020, op cit., fn 4.

42. S. Singh, Performance and Impact of Produce Companies: Case Studies Across States and Promoters. CMA, IIM Ahmedabad, Final Report 2021.

43. S. Singh, 2021, op cit, fn 4.