Number Theory: Understanding the business of farming in India
Supporters of the three farm laws have been arguing that the new regime will help farmers receive better prices by selling products in the open market rather than the APMCs. SAS data does not support such a claim
That Indian agriculture has been distress-ridden is an accepted fact in post-reform India. However, this is often discussed more in terms of farmers’ suicides, especially during the last decade, or abysmally low farm incomes. Both underline the crisis in farming, but neither is helpful in framing a forward-looking approach.
If farm incomes have to improve in India, it is important to understand the business of farming. This entails a holistic look at the entire process, from the farmer buying inputs for cultivation to selling his produce. Any such analysis requires information on farm balance sheets.
The latest Situation Assessment of Agricultural Households and Land and Livestock Holdings of Households in Rural India (SAS) released by the National Statistical Office (NSO) gives this information from July 2018 to June 2019. SAS is the most comprehensive document on farm incomes in India.
This two-part series by Hindustan Times will look at the business of farming using an analysis of unit-level data from SAS. The first part looks at conditions in output markets for farmers. The second part looks at what farmers feel about input markets.
One-third of Indian farmers are not happy with the prices they receive
Almost 40% of India’s retail inflation basket comprises of food items. In the past, food price inflation has been associated with political turmoil in the country and even led to governments losing power. HT’s analysis of SAS data shows that things might have changed dramatically on this front. Every third farmer in India is unhappy with the prices he receives on selling his crop.
To be sure, the category SAS uses for this analysis is agricultural households rather than farmers. Agricultural households are defined as households that have at least one member self-employed in agriculture and produced output from specified agricultural activities worth at least ₹4,000 in the previous 365 days. Because data on sale satisfaction is collected for individual crops, households growing more than one crop were counted as many times as the number of crops they grew.
Widespread disappointment with prices received by farmers, when read with the constant state of policy paranoia about higher food prices, underlines the basic fault line in Indian agriculture. Dissatisfaction with prices is greater when it comes to horticultural (fruits and vegetables) crops, which are now a bigger part of India’s agricultural production basket than cereals. Inflation data clearly shows fruit and vegetable prices are far more volatile than cereal prices.
Will the recent farm reforms help farmers receive better prices?
Of the three farm laws the union government brought in 2020, one was targeted at eradicating the purported monopsony – a situation when there is one buyer in the market – of Agricultural Produce Marketing Committees (APMCs) vis-à-vis farmers. Supporters of these laws have been arguing that the new regime will help farmers receive better prices by selling their products in the open market rather than the APMCs, which it is claimed are dominated by vested interests. SAS data does not support such a claim.
APMCs have nothing close to a monopsony as far as the market for agricultural output is concerned. SAS data shows that only 5.4% of farmers sold their output to APMCs and an overwhelming 77.5% sold their produce in local private markets.
While dissatisfaction levels vis-à-vis prices are slightly higher in APMCs compared to what they are local private markets, the latter account for a significantly larger share of farmers who were not satisfied with the prices they received.
The SAS numbers also underline the promise of promoting cooperatives in farming. The avenue which gives farmers the highest satisfaction is farmer producer organizations (FPOs). It is noteworthy that selling to contract farming sponsors or companies directly – this is often offered as a panacea for low farm incomes in the country – does not offer significant improvements in satisfaction of sale. Here, however, the main cause of dissatisfaction is delayed payments.
The limits and strength of ongoing farm protests
The ongoing farmers’ protests against the three farm laws have displayed a unique characteristic. While they have proved to be remarkably resilient in the green revolution belt of Punjab, Haryana and western Uttar Pradesh, they have, at least until now, failed to have similar impact elsewhere. What explains this dichotomy?
The region where farmers’ protests have had the biggest traction, such as Punjab and Haryana, is also where APMCs have a larger share in sale of farm output. Also, farmers with larger landholdings sell a bigger share of their output in APMCs. Average landholding size is much bigger in states such as Punjab and Haryana than the rest of country.
While the absence of procurement via APMCs could explain low support for farmers’ agitation in large parts of the country, what has helped the cause of protesting farmers are their arguments around the reforms tilting the scales in favour of large capital vis-à-vis farmers. The SAS data shows that large farmers were hardly better-off when it came to satisfaction over prices received in the markets.
Perhaps the political reception towards farm laws would have been very different had the government focused reforms around forming FPOs – they provide maximum satisfaction to farmers – which was part of the Bharatiya Janata Party’s 2019 election manifesto, rather than selling the corporate sector as the harbinger of prosperity in Indian agriculture.
(This is the first of a two-part series on the business of farming in India. The second part looks at input markets facing farmers.)