At first glance, it looks like any other day at the mandi in Bettiah.

Trucks stand next to the concrete arch that leads into the fruit and vegetable market in this small town in northern Bihar. Inside the mandi samiti, as the precinct is called, hawkers sit with baskets bursting with vegetables. The shops seem well-stocked.

But the abnormality shows up when you ask traders and hawkers about the impact of the government’s decision to demonetise Rs 500 and Rs 1,000 notes. Vegetable prices have collapsed, they say.

Cauliflower or phool gobhi, said Mahfooz Alam, a wholesaler at the mandi, was selling for Rs 12 a kilo just before the announcement on November 8. “It is now selling for one or two rupees.”

The prices began to fall within 2-3 days of the Prime Minister’s announcement on November 8, said Muhammad Islam, a fruit trader.

Baingan (aubergine) fell from Rs 15 per kilo to Rs 2-Rs 3. Patta gobhi (lettuce) has slumped from Rs 15 per kilo to Rs 5. And saag (spinach) has dropped from Rs 10 to Rs 2.50 per kilo.

These are jaw-dropping falls. What explains them?

What the buyers say

Kanhaiya Das is in his mid-thirties and lives in Purvi Kargahiya, a village on the outskirts of Bettiah.

Since his family has no farmland, he works as a raj mistry, or construction supervisor, in the town. So do most others in his family.

How has the government’s decision affected them? The family has run out of cash. The raj mistris have not found work for the last 20 days.

“We used to earn anywhere between Rs 280-Rs 360 a day. But since the government’s decision, my thekedaar (contractor) has not provided us with any work,” Das said.

Where work is available, contractors or home owners want to pay with Rs 500 or Rs 1000 notes – bills that workers like him are unwilling to take. “We will have to stand in a queue for two days to deposit that money,” he said.

The alternative is to give those notes to a sahukar (moneylender) who will give them Rs 450 for every Rs 500 note. That is again a bad option. As Das said, “Usme hamara nuksan hain.” We stand to lose in such a transaction.

What is complicating matters is that the family is unable to access its savings in the bank. The Madhya Bihar Grameen Bank, or the regional rural bank where Das’ family has an account, is not letting villagers withdraw more than Rs 1,000-Rs 2,000 at a time, and that too not more than once a week.

The bank has its own compulsions, said a cashier. Grameen banks are not independent entities. They have been clustered under larger, nationalised banks. “Our sponsor bank is Punjab National Bank,” said the cashier. “They are supposed to collect money from the Reserve Bank and pass our share down to us.” But Punjab National Bank, he claimed, is sending most of the money to its branches and sending very little to them.

Effectively, he said, for every Rs 15 lakh-20 lakh that the bank needs, it gets just Rs three lakh. When people come to withdraw, say, Rs 10,000, the bank gives them much less since it had to spread its cash among as many households as possible.

The fallout is that families in Bettiah are unable to withdraw more than Rs 1,000 a week to meet their expenses, which range from buying food and medicines to purchasing farm inputs for the coming season or stocks for their shops.

“Majboori ke daayre se guzar rahein hain,” said Das. We are travelling through difficult times.

If things get worse, he said, families will have to cut back on expenses to stretch their cash longer. “Teen time khatey hain, ek time khayengey.” Instead of three meals a day, we will eat once.

Kanhaiya Das has no work to do. Photo by M Rajshekhar.
Kanhaiya Das has no work to do. Photo by M Rajshekhar.

What the traders say

This explains why prices are plummeting at the fruit and vegetable market in Bettiah.

“Grahaks [buyers] are buying less,” said Mohammad Islam, the fruit trader. “And so, rates have fallen in the mandi.”

There is further nuance here. Bettiah is a small mandi. There are no large towns in the vicinity that the traders can supply to. All it does, said Das, is meet the demand for vegetables in a radius of 25 km. When those customers began buying less, the rates fell almost immediately as the mandi tried to balance supply and demand.

As it travels from farms to plates, India’s agricultural produce changes hands several times. In this part of Bihar, farmers either sell their produce to village-level aggregators, or bring it to the mandi and sell it to wholesale traders who market the produce to hawkers. The hawkers, in turn, sell the produce to customers.

Each intermediary tags on a small margin before selling to the next rung. For instance, an arhatiya, or commission agent who markets farmers’ produce to traders at the mandi, charges 1% as commission. When farmers were selling cauliflower at Rs 20 per kilo, he made 20 paise per kilo.

But now, when customers began buying less and mandi prices collapsed, the margins of every intermediary in this chain fell. The arhatiya, for instance, now make just 1 paise for every kilo of cauliflower sold. Complicating matters, with their cash stuck in banks or in unusable notes, they are suffering the same cash shortage as Das.

It is the same story for the hawkers. Incomes have fallen steeply, said Mohammad Ahsan, an old man with a white beard, who sells potatoes and onions at the mandi. Potatoes, selling at Rs 10 per kilo before November 8, are now retailing at Rs 6 per kilo.

Fruit sellers have been hit harder, since even the families who continued to buy vegetables, have cut back on fruits. Islam has temporarily shuttered his business. “We used to get apples from Delhi and Kashmir, and pomengranate from Nasik,” he said. In both, he liquidated his stocks and stopped placing new orders. “We had one truck filled with bananas worth Rs one lakh. We had to throw that away when we could not sell it.”

As demand fell, traders have dropped the prices at which they buy and sell.

What has this meant for farmers?

What the farmers say

The worst affected in all this are the farmers. They had made their investments at the start of the kharif or monsoon cropping season, thinking the market would behave like it did every other year.

Landholdings in northern Bihar are smaller than in the south of the state. Further, most farmers are sharecroppers – they cultivate land on rent, which they pay either as cash or as a share of the produce.

In all, incomes are low. Take Binay Paswan, a farmer who lives in Barwat, another village on the outskirts of Bettiah. His farm income is about Rs 24,000-Rs 25,000. Half of this comes from vegetables and the rest from wheat and rice.

At the time the government announced the currency swap decision, farmers like him were just finishing the harvest of paddy and vegetables. The cash crunch has meant they are holding on to the paddy harvest, planning to sell it later. “We do not want to be paid in Rs 500 or Rs 1,000 notes,” Paswan said.

Binay Paswan is holding on to his paddy harvest. Photo by M Rajshekhar.
Binay Paswan is holding on to his paddy harvest. Photo by M Rajshekhar.

But vegetables are far more perishable and need to be sold quickly. Complicating matters, this year’s harvest is better than last year.

All this has resulted in large losses for farmers. Said Zubair Ali, a farmer near Bettiah, “We need at least Rs 10 a kilo to recover our investments in the crop. But now, we are not getting more than Rs 2.50 a kilo.”

Farmers are responding to this drop in prices in varied ways.

In the hope of finding better prices, Ali and some other farmers from his village took their produce to the mandi at Narkatiyaganj, about 40 km away. They found the price of cauliflower in the mandi was barely a shade better than Bettiah – Rs 2.50 per kilo.

Other farmers are planning to dry the cauliflower stock, keep it at home and gradually sell it to fellow villagers. Strapped for cash, some farmers are paying their workers in kind.

When the rates are high, said a farmer at Barwat, they usually keep nothing for the village. “This year, we will probably keep four out of every ten sacks for the village.”

Little of this, however, helps farmers with the most urgent problem they face – planting the rabi crop. Paswan, for instance, is planning to sow wheat, bhindi (ladies finger), baingan (aubergine) and lauki (gourd). With little income from the kharif harvest, he will have to borrow money. Banks do not lend to small farmers and the local rate of interest will be five percent, he said. Given the cost of the loan and the cash crunch, he will probably plant the rabi crop on only half of his ten kattas of land.

The big picture

Put it all together and you see how demonetisation – both the idea and its execution – has affected India’s agricultural marketing chain in this relatively remote part of the country.

On Saturday, when this reporter met him, Alam was sitting on a wooden stall at the Bettiah mandi. A sheet of paper stuck on the wall in front of him stated: “We do not accept old Rs 500 or Rs 1,000 notes.”

Said Alam, “Yeh all India ki kahaani hain, Bihar hi ki nahin.” This is the story of all India, not just Bihar.

Indeed, as the country enters its third week of demonetisation, India’s mandis are painting a complex picture. In Patna, ten days after demonetisation, it felt like the mandi had frozen. Three weeks later, news coming in from other parts of the country indicates both arrivals and prices are starting to fall.

Take Maharashtra. In Shaha, a large, relatively prosperous village in Washim district’s Karanja taluka, soyabean harvesting is almost done, but the produce has been stuck at the market. Soyabean rates were already half of what they were last year, even before the demonetisation announcement. They have been depressed further since.

Said Namdevrao Hingle, a farmer from near Washim town, “Soyabean is selling at the rate it was ten years ago.”

The accompanying changes – for farmers and their workers – have been predictable. In parts of Maharashtra, farmers have begun to give grains to their labourers in lieu of cash payments. “We have to harvest our soyabean now before it gets too late,” said Bharat Pawar, a resident of Kisan Nagar in Washim’s Karanja taluka. “As far as possible, we are harvesting within the family. The labourers we employ, we are paying with food and whatever notes we have.”

With inputs from Mridula Chari in Washim, Maharashtra.