Interview: ‘Farmers’ protest is the expression of years of accumulated distress’

Economist Himanshu says the collapse in prices of farm output has hit farmers hard. Demonetisation added to the distress.

Five farmers were shot dead in Madhya Pradesh on June 6. The farmers were protesting for action on a number of demands, which included better prices for their produce and loan waivers. Last week in Maharashtra, farmers went on a strike and showed their anger on the streets by dumping their crops and milk on the roads. In March and April, farmers from Tamil Nadu camped in Delhi’s Jantar Mantar and tried their best to gain the Centre’s attention. They ate rats, paraded themselves naked before the Prime Minister’s Office and even drank their own urine.

But quite counter-intuitively, the latest Gross Domestic Product figures released last week showed a robust agriculture growth of 4.9% in 2016-2017. What explains this contradiction? What has led to this extreme distress in the agriculture sector? Speaking to, Himanshu, economist and Associate Professor at Jawaharlal Nehru University’s Centre for Economic Studies and Planning, said the farming crisis is a multidimensional problem arising out of years of neglect. The farmer protests are the expression of accumulated distress borne out in the exponential rise in price of farm inputs and the collapse in prices of farm output. This dangerous trend is also accentuated by a decline in government spending on agriculture, leaving the farmer to fend for himself. Excerpts from the interview:

How do you view the farmers’ protests for better crop prices which seem to be spreading from one state to another?
They are fighting for better price for crops and for loan waiver. Basically they are asking for more support from the government. And a Minimum Support Price is one form in which the government offers support. They are also asking for reduction in cost of cultivation. This is where the loan waiver comes in.

The genesis of this distress is multi dimensional. Agriculture has been suffering from many factors. The most obvious is that the preceding two years (2014 and 2015) were drought years. Last year was better, but the rainfall was not evenly distributed. There were some states which did not benefit from the monsoon. But the bigger failure began in 2014 when the price of agricultural commodities started dropping. By the end of that season, prices of some crops almost crashed. This decline in prices affected the profitability of farmers because input prices did not come down in the same way. This led to a severe squeeze in their income. The third factor that has affected this sector, on a long-term basis, is the fall in investment. The amount of money going into the sector has come down, particularly after the 14th finance commission (Tabled in Parliament in 2015. The finance commission recommendations define the financial relations between the centre and the state).

What we are seeing is the outburst of cumulative neglect, especially in the last three years when these factors have not been attended to properly. When the newly elected Uttar Pradesh government announced the farm loan waiver, it was not some charity. They were aware of how the acute the crisis was.

So are these protests a sort of a cascade effect following the loan-waiver announcement in Uttar Pradesh?
It is not an issue which is related to only one state. Farmers across states are asking for farm waiver. You saw this in Rajasthan, Tamil Nadu, Maharashtra and of course Uttar Pradesh. It is now an all-India issue. We have taken note only when farmers have been killed.

One of the usual ways the government reacts to such protests is by promising a hike in the Minimum Support Price. But we see on the ground that the farmer rarely gets this price. What is the real state of this Minimum Support Price concept?
The government announces minimum support price for more than 25 different crops. It is more or less like announcing minimum wages, which has very little effect on the ground because hardly anyone follows it. Unless the government gets into the market and procures when the prices of crops fall below their declared minimum support price, it becomes a sort of a bogus measure. If you see the trend, the procurement has largely happened only in rice and wheat. In other commodities, government procurement either doesn’t exist or is very little to effect a major change on market prices.

If you say Minimum Support Price is implemented only in rice and wheat, has this affected the pattern of cultivation? Is this why most farmers are banking on these two crops? Even during the Maharashtra protests, we saw that the crops dumped on the roads were essentially those other than rice and wheat.
Ever since the Public Distribution System largely restricted itself to distribution of rice and wheat, minimum support price itself became a rice and wheat system. It has affected us both in the short term and long term. We import pulses now because the government did not procure pulses and the cultivation has dropped. The increase in production has only been in rice and wheat. This is one distortion we see. This trend is particularly dangerous in states like Punjab and Haryana, where despite decreasing water table, the farmer is forced to cultivate these two crops because it is in these that the government procures and the farmer gets a minimum assured price. But you also need to realise that the minimum support price is only one of the factors leading to this distress. It affects a very small section of farmers. If you go by government data, which we have analysed, only about 6% of farmers are beneficiaries of minimum support price. It basically covers surplus producers of rice and wheat. And this too not in all states.

What happens to the other 94%?
The are left to deal with the market on their own. This is why you see farmers selling stuff like tomatoes at 50 paisa a kilogram. And these are huge loses for the farmer. Remember we are talking about perishables. Unlike rice and wheat, which you can store in some place, once a tomato crop is harvested, it has to be sold immediately. You cannot put it in your house and wait for prices to go up. This is where the vulnerability of the farmer is at maximum.

So the main remedy is for the government to procure?
There are lots of things the government could have done. Minimum support price, definitely is, one part of the remedy. It has to be the government’s commitment to the farmer that once the prices fall below the minimum support price in the market, it will get in and procure to stabilise the prices. The farmer also has to be provided better market access and storage facilities. But more than this, it also hinges on the way farming is organised in this country. The cost of cultivation has been rising but the prices for the output have not increased commensurately.

Let me go back to 2010 since we are talking about rising input costs. How much did the decontrol of fertiliser prices after the Nutrient Based Subsidy policy affect agriculture?
Sixty percent of the cost of production involves irrigation, which is the diesel cost, labour, seeds and fertilisers. Wages were rising till 2013. Fertiliser prices started rising after the policy change in 2010. First it was the complex fertilisers (a combination of different nutrients) which saw this rise. This had a spillover effect on urea, the main fertiliser. In the last seven years, fertiliser prices have almost doubled. The petroleum prices (nitrogenous fertiliser production depends on natural gas, whose price is linked to crude oil) have dropped significantly in the last three or four years. But the benefit of this has not been transferred to the farmer. They are still paying the same price as in 2014. In some cases it is even higher. On the other hand, the diesel was deregulated. Instead of passing on the benefit to the farmer, the government is using this price drop to make more revenue in the form of taxes on petroleum products. But the output price of agricultural commodities like cash crops fell dramatically, in some cases even five or six times. Even when input costs remain the same, when the price of output goes now, it leads to losses. Here the output prices have collapsed and the input costs have doubled.

How did demonetisation affect farmers?
Demonetisation did affect the farmers in a big way. Most of the trading in our markets still happen in cash. Most traders in the mandis deal in cash. Demonetisation happened at a time when the kharif harvest was still in the market. Despite what the data is telling you, that the agriculture growth has been the best in the last three years, demonetisation impact is very visible. I would say the figures are completely misleading.

Why is it misleading? If growth is high, the commonsense understanding is that the farmer is doing well.
When we say growth, we talk only of production. We are not talking about the income of the farmer. Secondly, this growth figures come in the backdrop of back-to-back drought in the preceding two years. This means the base was low. This is what, in economics, we call the base effect. When the base is low, the growth tends to look high when there is even a marginal increase. Remember, the farmer has been suffering for three years. Thus, just because the figures say there is a 4.9% growth, it does not mean the farmer is prosperous. Let me reiterate that demonetisation exacerbated the problem and was not the only problem. Two years of drought meant the farmer would have huge debts. It gets compounded over seasons.

What is the effect of the slowdown in other sectors on agriculture?
There is a general sense of distress in the rural economy. Wages have come down. The other non-farm avenues, which would supplement the farm income, have also been affected. Between 2005 and 2011, even in seasons where agriculture was not doing well, the non-farm sectors, such as construction which absorbs a large chunk of the work force, was doing well. This gave a cushion to farming loses. The farmer had other employment opportunities and wages were rising. There were also elements like the MNREGS [Mahatma Gandhi National Rural Employment Gurantee Scheme]. In 2009, when we had that severe drought, the impact was not this bad because other sectors were doing well. But now, if you look at the government’s own figures, the construction sector has collapsed. There is a deceleration in manufacturing. Therefore, there is obviously an employment issue. Agriculture now has the added responsibility to support the workforce that the other sectors cannot. But agriculture, in the current state, is in shambles. The crisis is getting even more acute now.

When we talk about loan waivers, we generally are talking about landed farmers. What about agricultural workers. How bad is their situation now?
When we are talking about labourers, we look at the growth of agriculture wages. This I would say is the yardstick on which the economy should be judged. And [we] now have the data to show that for the first time in 30 years, real wages in agricultural labour have declined. I am talking of real terms. This has not happened in a long time. But there is not much discussion on this.

For a layman, the argument that agriculture growth is high but agriculture productivity is low is contradictory.
Productivity also includes profitability. Mere increase in output does not mean there is an increase in profit. If prices crash, increase in output is of very little use because you are throwing away your crop for a low price. Similarly, if input costs are rising faster, your profits crash.

How do you see arguments against MNREGS in the context of this rural distress?
In the first two years of this government, they tried to kill the MNREGS. In the third year, after back-to-back drought, they increased the spending on this scheme. But by February, if you look at the data, they stopped the funding. And this happened when the economy was reeling under the impact of demonetisation. There are lots of studies that tell you that the demand for MNREGS is high and outstrips what is being provided now. Like I said earlier, this scheme was also one of the important cushions that took the blow of a bad farming season.

Would the government’s procuring of all crops and linking them to the public distribution system help alleviate the situation we are in?
That is true. The procurement should be linked to PDS. Because after procuring you have to sell it. And one of the best ways to do it is to use the PDS infrastructure. Remember, the National Food Security Act was passed in July 2013. The government said it will enforce it by the next year. This was also the mandate of the Act itself. It has still not been implemented. This is the seriousness with which they are dealing with the issue. And the Act allows the government to distribute things like pulses and coarse grains through the PDS.

Do you think loan waiver could solve the current crisis?
The first step is to stabilise the farming sector. I am not a votary of loan waiver. But you have reached a situation where some kind of relief to the farming community is essential. Now that you have done it in Uttar Pradesh, these demands will come from other states. Loan waiver may not be the best method. But it has become essential now to rescue the farmer. Again, this will only stabilise the sector for a short period. In the long-term, you need huge investments to turn this crisis around.

But in this year’s budget, the government did claim it has increased the investment in agriculture.
This was mere number play. What they did was, they included the amount they were giving on farm loan interest subvention in the agriculture budget. In the past, this was would come under the Union finance ministry, as reimbursement on interest subvention is essentially a benefit to the banks. If you take this element out, the investment was basically the same amount that the government collects through the Krishi Vigyan cess.

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This article was produced on behalf of Siemens by the marketing team and not by the editorial staff.