We need small farmers, shandies

Recall two well-known facts about Indian agriculture. One, the share of agriculture in the nation’s GDP has come down from 56 per cent in 1950 to 14 per cent in 2011-12, but still, lot more than half of the nation’s working population lives on agriculture. And two, more than a quarter million farmers have committed suicide in the last 15 years. The policymakers are unable to face these two facts.

But the third fact — less known one — that even by 2051, less than half of India will live in urban areas [ Twenty-first century India . Oxford University Press] makes a laughing stock of the current policies that assume rural India to be a passing phase. India will then be a strange nation — an emerging global super power with majority rural population.

So, agriculture will continue to sustain more than half of India even after four decades from now. These facts are a mere trailer. A closer look at the anatomy of the Indian agricultural economy will show how the policymaking, budgeting and national economic discourse are disconnected from reality.

labour shortage

It needs no seer to tell that Indian farming is fundamental for the food security of 120 crore Indians — projected to rise to 170 crore by 2061. No country in the world has the land or labour to supply even a fraction of the food that India will need if it falls short in food production.

And, now look at how we are handling this critical segment of the economy. Discussion Paper No 2 of National Commission for Agricultural Costs and Prices [December 2012] says that cost of production of rice and wheat has gone up by 45 per cent for three years to 2012-13 — average of 15 per cent every year. The reason, says the paper, is the ‘sharply rising labour and energy costs’, adding that ‘acute shortage of labour has cropped up in the last three years’.

The paper says that labour costs have gone up 100 per cent in the last three years and margins of farmers have been declining for wheat and rice. This has led to average annual rise in procurement cost by 11 per cent for paddy and 8.6 per cent for wheat for five years from 2007-08 to 2012-13.

According to credible studies and reports, the rural employment guarantee scheme of the UPA government has contributed to labour shortage and high labour costs in agriculture, besides also in SMEs and construction sectors.

See how this scheme hits government finances twice over. First, employment guarantee handout costs the government over Rs 40,000 crore a year and it creates shortage of agriculture labour and pushes up cost and, next, that leads to higher procurement costs, which pushes up food subsidies.

But the Ministry of Rural Development [March 2012] gloats over the labour shortage saying that it will lead to “technology advances in agriculture like it happened all over the world”. Just a look at the Report of the Working Group on Agriculture to the Planning Commission [January 2007] would demonstrate how absurd is such a comparison of Indian agriculture with the world’s.

Small is indispensable

This is how the working group report presents Indian agriculture. Some 60 million small and marginal farming households [with over 33 crore dependents] cultivate 34 per cent of the land and produce 49 per cent of rice and 40 per cent of wheat and over half of fruits and vegetables. That is, they cultivate less land but produce more. Their productivity is 44 per cent more in rice, 18 per cent more in wheat and 47 per cent more in fruits and vegetables.

Their incremental contribution to national food production during the period 1971 to 1991 was 68 per cent for rice and 48 per cent for wheat — the incremental production of the rest, medium-large farms, being just 32 per cent for rice and 52 per cent for wheat.

Global studies [Dietrich Vollrath May 4, 2004] confirm that economies of scale do not operate in farming — small farms being more efficient than large ones. The Working Group says, “the small and marginal farmers are certainly going to stay for a long time in India — though they are going to face a number of challenges. Therefore, what happens to them has larger implication for the entire economy and people’s livelihood.” It is this small farmer who is hit by labour shortage and high labour costs caused by employment guarantee. He cannot go for mechanisation. He can only give up farming.

Imagine that all small farmers are replaced by large ones; theoretically, rice production will instantly fall by 15 per cent; wheat, by 6 per cent; and fruits and vegetables by over 16 per cent. Where will the nation go for food?

QED: nation needs small farmers. They are no waste — contrary to the popular view that they are wasting their life on small farms.

Never heard of MSP

More. The basic facts about agricultural marketing in India will shock the urbanites. Out of the food production the farm family keeps 44.5 per cent for own consumption; sells 13.5 per cent within the village; and keeps 3.5 per cent in stock — all adding to 61.5 per cent. Therefore only 38.5 per cent of the production moves outside villages — which is the marketable surplus. See how this is marketed.

Some 90 per cent of the marketable surplus [38.5 per cent] is sold through some 47,000 haats [village shandies]. A study of 27,000 shandies shows that three-fourths of them meet once in a week; one-fifth, twice a week; one-twentieth daily. Half of them are held in villages with 5,000 plus population. Two-thirds of them are situated 16 km from the villages; a quarter of them 5-15 km; and a tenth of them within 5 km. Only a tenth of the market surplus [38.5 per cent] is directly taken to 6,359 wholesale markets.

According to Parliament's 19th Standing Committee Report [April 2007], an NSSO Survey has revealed that some 71 per cent of the farmers were unaware of the Minimum Support Price [MSP] which the governments announce with great fanfare and 81 per cent of those who have heard of MSP do not know how to use it. It is on the basis of these facts the Standing Committee recommended a ban on futures trading in foodgrains, as the farmers who are unaware of MSP could hardly benefit from the price determination by futures market.

Disconnect complete

For decades, government has been trying to wipe out the wasteful shandies through the wholesale marketing system and MSP mechanism. But the centuries old shandies, entirely the show of small, marginal and medium farmers, are still going strong.

Why? Says the Planning Commission working group, the farmers exchange social information at the shandies and also settle marriages. Far from being just markets for goods, they are a social and cultural institution.

With the shandies proving their durability, the Planning Commission working group suggests that the government work with, rather than ignore, them. It says that “with requisite technical support weekly shandies can also be efficient credit delivery, input marketing, procurement and other socio-economic activities”, adding that “by bringing such services to the rural and tribal haats , rather than waiting for the people to come, much more effective servicing can be provided”.

It concludes: “Under the changed economic environment rural and tribal market can be financially supporting unit and source of income to finance further developmental activities”. The nation needs shandies as much as it needs small farmers.

Yet, not a word on shandies and their intimacy with small and marginal farming brought out by the Planning Commission working group or in the Standing Committee report appears in any of the Budget speeches from 2008-09 presented after the working group report. Instead, the discourse is about connecting the farm-gate with the shop-gate through FDI in retail. The disconnect between the reality and discourse seems complete.

(The author is a commentator on political and economic affairs, and a corporate advisor)

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