Number Theory: Understanding the business of farming in India’s ‘input markets’

The challenges facing Indian farmers in input markets are quite different from what they face in output markets.

What are the issues facing farmers in input markets? Answering this question adequately and accurately will help us understand the cost side of farm finances.

Poor quality of material inputs are hardly a concern for farmers, but what is really a problem is their lack of awareness (Praful Gangurde/ HT file photo)

On the revenue side, in the first part of this two-part series, HT reported that over a third of India’s farmers do not get expected prices when they sell their crop and the presumed monopsony of APMCs (agriculture produce market committees), something which the new farm laws seek to end, has a very small role in farmers being dissatisfied with prices for their output.

The second part of this series will use unit-level data from the latest Situation Assessment of Agricultural Households and Land and Livestock Holdings of Households in Rural India (SAS) to look at the conditions facing farmers in input markets. The challenges facing Indian farmers in input markets are quite different from what they face in output markets. Poor quality of material inputs are hardly a concern for farmers, but what is really a problem is their lack of awareness in using inputs which can help them hedge risks and ensure sustainability.

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 an output from specified agricultural activities of at least ₹4,000 in the previous 365 days.

1. Fertilisers and manure are the most expensive material input

SAS seeks responses on the cost of 17 inputs used in farming. Of these, nine can be described as material inputs, which exclude cost of human and animal labour, interest and rent for land and equipment. On average, human labour has the biggest share in input costs for an agricultural household engaged in cultivation, while fertilisers and manure have the biggest share in material inputs. Share of different inputs varies the most due to lease rent for land, which increases significantly for cultivators with more land. The share of seeds, fertilisers and irrigation in total input costs goes down as the size of the landholding increases.

2. Only 22% of farmers use own seeds for cultivation

One of the biggest changes that commercialisation of agriculture has brought about is the market for seeds. Unlike in the past, when a farmer would use his own seeds for growing crops, the market for seeds is heavily commercialised now. Only 22% of India’s farmers reported using their own seeds for farming. Because data on source of seeds is collected for individual crops, households growing more than one crop were counted as many times as the number of crops they grew. As many as 71.5% of them brought seeds from private sources, including local markets, dealers, private processors, and contract farming sponsors and companies. A small proportion bought them from cooperatives, government agencies or APMCs. Whether or not farmers buy seeds from private players also depends on the crop they are growing. Forty one percent of farmers reported having used their own seeds to grow fruits compared to 31% of pulse farmers, 20% of cereal farmers, and 18% of vegetable farmers. SAS records data on purchase of seeds for four main crops a farmer reports having grown.

3. Satisfaction levels for inputs are higher than prices received for crops

Over one-third farmers are dissatisfied with the sale of their crop. That is not the case with the inputs that go into producing the crop. SAS asks an agricultural household the source and quality or adequacy of seeds for each of the four main crops for which output data is collected. For other inputs for which this data are collected, such as fertilisers or diesel, the information is agnostic of the crop for which it was used.

Only 0.3% farmers reported quality of their inputs as being poor. This does not vary significantly across states or source of input. Almost three in four farmers reported the quality as good and the rest as satisfactory. To be sure, there are significant differences in perception about thequality of inputs as good or satisfactory by states.

4. Risk-hedging is the real input market challenge

While the Indian farmer does not face a lot of problems in getting quality material inputs for cultivation, it is in risk-hedging – be it through insurance or deploying technological knowledge efficiently – that they face their biggest challenge. More than 90% of India’s farmers – agricultural households growing more than one crop being counted as many times as the crops being produced – do not insure their crops. Of those who do buy insurance, 6.2% insure their crop automatically as part of taking a crop loan. Only 2.4% insure their crop irrespective of whether they are taking a loan or not. Lack of insurance is more prevalent among smaller farmers. Only 62.8% of the large farmers (with more than 10 hectares of land) are not insured, compared to 95.8% of landless or marginal farmers (who own up to one hectare of land). About 97% of farmers growing fruits and 98% of those growing vegetables were not insured in 2018-19. This figure was 89% of pulses and 92% for cereals. Awareness is the major reason for not availing crop insurance, with 55% households reporting this as a reason for not taking insurance. Awareness as a problem decreases as size of land increases.

If a household grew two crops (say both 'wheat' and 'paddy'), it was counted twice for insurance figures; Insurace figures weighted avg. of both seasons; Land size from first visit (July-December season)

5. No payment when they do take insurance

Although awareness about insurance schemes is an issue with Indian farmers, it is not as if those who insure their crops are better protected. Fifty-nine percent of farmers who bought crop insurance did not get any documents or certificates for insurance. This problem does not go away for the larger farmer, who is more aware of insurance schemes. Sixty-six percent of big farmers did not get such certificates compared to 61% of landless or marginal farmers.

SAS asks farmers if they received insurance claims in time in case of crop loss only if they had insured the crop apart from automatic insurance (as part of a loan). As many as 79.2% of claims weren’t received on time. Only 9.4% claims were received in full. The reason for poor insurance payouts was not that the cause of crop loss was not covered, or documents were not in order. This was the case in only 6% of such cases. Unfortunately, the only other option given as a reason for non-payment is an umbrella ‘others’ category, which is the reason cited for rest of the delayed or unpaid claims.

Note: If a household produced two crops (say both 'wheat' and 'paddy'), it was counted twice; Figures weighted avg. of both seasons; Source: Unit-level SAS 2018-19.

Soil health cards

Launched as a scheme in 2015, soil health cards can help farmers increase productivity and adopt sustainable practices. It is issued to farmers every two years and gives crop-wise recommendations on a balanced use of fertilisers. However, farmers don’t seem to be using the scheme much. Only 1.5% agricultural households had such a card in 2018-19. To be sure, agriculture ministry data shows that the number of soil health cards issued at the end of SAS survey was 115 million, 92% of the target of 124.8 million. SAS counts possession of such cards only once for an agricultural household, while more than one can be issued because of scattered land holdings.

While the SAS survey could have underestimated the number of farmers who had soil health cards, it shows a bigger problem. Even among those who did have a card, only 38% used it. This usage varies a lot across states, with 74% in Odisha and Kerala using it if they had the card (the highest among major states) compared to just 14% in Assam. These facts underline the importance of policies to help Indian farmers adopt better hedging of risk and sustainable practices, without which even cutting-edge technology in intermediate inputs will not be of much help.

(This is the second of a two-part series on the business of farming in India. The first part looked at conditions in output markets for farmers)