Viability, not production growth, is the biggest crisis facing farmers
In an interview to The Hindu newspaper, Sanjeev Sanyal, Principal Economic Adviser to the ministry of finance, blamed the calorie-oriented approach (read focus on growing food grains) for the crisis in the agriculture sector. Mr Sanyal suggested increasing the focus on growing cash crops as one of the solutions.
The idea looks promising in principle. But recent developments on the ground suggest otherwise. News of acute farm distress because of a crash in prices of cash crops such as onions and garlic have been coming in for the past few days. Prices have fallen to levels that make farmers unable to even recover their costs. Statistics from the Centre for Monitoring Indian Economy (CMIE) database show that average garlic and onion prices fell by more than 30% on a year-on-year basis in the months of October and November. Farm prices have generally been subdued in the recent few years. So the current fall comes on an already low base.
While these trends could be extreme examples, they underline the dominant fault line in Indian agriculture today. Viability, not production growth, is the biggest crisis facing the Indian farmer. This has significantly increased the negative premium on entrepreneurship in Indian agriculture. A farmer who wants to practise subsistence farming is less vulnerable to loss from sudden crash in prices than the one who actually wants to exploit the commercial route to success. Left unaddressed in the long term, this is bound to dissuade risk taking and hence dynamism in Indian agriculture. The consequences of such a development will be harmful, to put it mildly.
What is the ideal policy response to this problem? Answering this requires an understanding of what is causing it in the first place.
Price crashes lead to a decline in cultivation of a crop in the next season. This leads to a spike in prices, leading to an increase in cultivation in the next season. The cycle keeps repeating itself. It could be a good idea to educate farmers about rationalising their expectations and hence future cultivation decisions in periods of scarcity.
Intermediaries in agricultural markets exploit bearish conditions to squeeze the farmers even more. This is accentuated by the asymmetry in the economic power of the farmer and the trader and perishable nature of many crops. Policy makers should think of ways to address this collective asymmetry rather than safeguard individual farm incomes.