How do we enhance farm income on a sustained basis?

Farm income is the excess of income from the sale of farmer’s produce over his expenditure incurred on producing the same. The equation, therefore, has three components: Maximisation of revenue; minimisation of costs of inputs, electricity, water, mechanisation, interest rates and logistics; and development of alternative sources of income.

Let us address each of these in some detail.

Maximisation of revenue

Crop selection : The farmer is an excellent economist, most of the time. However, in India, sometimes there is a mismatch between the crop produced and the demand for the same. This leads to surplus production, without a direct linkage to the market. In situations like these, there is usually a fall in prices, leading to distress sale by the farmer and subsequent farm losses.

Every crop’s price is a function of global demand, supply, inventory levels, currency rates, trade flows, freight rates, interest rates, governmental policies and local politics. With a view of assessing the same, it is proposed that a National Crop Planning Bureau be set up, with a mandate to develop understanding and competencies on each of India’s major crops. This will ensure that the farmer does not overproduce a wrong crop at the cost of foregoing profits on another crop.

Further, we need to ensure that India creates global competency in a few crops. India’s agri-infrastructure is geared towards procurement, storage and movement of wheat and rice.

Planners need to identify a few more crops – corn, soyabean, potatoes, tomatoes and onions for example, where such competencies can be developed.

Yield maximisation : While India’s population has gone up significantly, it is to the farmer’s credit that crop production has largely kept pace with the growing population. Each crop has a research centre in India, which works on testing multiple varieties of seeds. Hence, a critical component of maximisation of farmer revenue is continued research and development of higher yielding seeds. The seed replacement rate also needs to improve in India, so as to ensure continuous enhancement of yield levels. Further, State governments need to regularly deliver updated package of practices through their extension wings. Mechanisation, which is improving in India, with the emergence of pay-as-you-use custom-hiring models, will also increase the yields by a fair degree.

Collective farming and bargaining : The bane of Indian agriculture has been our fragmented land holdings. As the per capita land holding is low, it is very difficult to secure benefits of mechanisation – as well as aggregation. The mandi system of India, in spite of its pitfalls, has done a tremendous job of aggregating and consolidating farm produce. Now, the next step in this journey is to either form FPOs (Farmer Producer Organisations/ Companies) or to form farm co-operatives (FCs). These FCs and FPOs can be directly linked to the processor, exporter or retailer. This will help in a higher proportion of the revenue going to the farmer.

Minimisation of costs

Inputs : Cost of inputs can be minimised by ensuring zero tax on all participants of the value chain of manufacturing the input so as to have a low end-cost of finished product, ensuring early release of subsidies to the companies or the farmers so that any built-in interest cost can be offset, continued priority sector lending rate benefits, ensuring adequate availability during peak season to avoid black marketing, and a rationalised subsidy calculation mechanism which negates net-back dilution on account of freight charges.

Electricity and water : State energy development authorities under the Ministry of Renewable Energy should ensure that all farms shift to solar irrigation pumps, provided by the government under the National Solar Mission.

Mechanisation : The revolution which we are seeing in urban areas on account of taxi hiring companies like Uber and Ola, needs to be taken to the farm level as well.

The effort needs to be scaled up to provide other mechanised farm implements such as rotavator, cultivator, seed drill, leveller, harrow, tiller, combine harvester, soil sensors, moisture reader, precision agriculture tools, at a fraction of their cost.

Interest rates : Interest rates on loans to farmers need to be continue being the lowest.

Logistics : An unseen component of the overall crop economics is the cost of logistics of marketing the produce. It is here that some of the benefits of having an FPO/FC can begin to percolate. The cost of transporting higher volumes leads to lower per tonne cost of transportation.

Alternate sources of income

Dairy and livestock : India needs to significantly increase its milk production to meet a 50 per cent increase in projected demand in the next five years.

The government should establish formal breeding centres and subsequent sale of such cows and buffaloes to the farmers. It falls upon the government to bring some of the best technologies from Israel, as the private sector will be never be making such investments. In addition to the breeding centres, formal cow hostels, with the best milking technologies from Israel should be established.

Financial literacy : There is a need to take financial literacy through trusted sources like the LIC to the villages, so that the larger population of the country also becomes a prime participant in economic growth – and gets the benefits thereof to a fair degree by investing into Mutual Funds through FPOs.

Crop insurance : The current models of crop insurance are factored basis rainfall, temperature and crop loss. However, a more robust model should take into account losses on account of pest attacks, quality deterioration. One of the ways can be by having formal tools of income measurement (mandi receipts) and insuring loss for shortfalls in such incomes.

Job insurance : There are newer insurance products which insure jobs. The overall family income of a rural household also has a component of a non-farm job income from the informal economy (drivers, office boys, mechanics, salesmen, cleaners). This employment needs to be formalised and job losses prevented through social security programmes.

Population control : The root cause of all of India’s farm woes are small land holdings, a consequence of our expanding population. A start needs to be made for a one-child programme, which can halve India’s population from the current 1.20 billion to 500 million by 2100. This will ensure that there is a surplus of production, higher land holdings and far higher farm incomes.

A plan to double farm incomes needs to be implemented by all State governments, irrespective of their political affiliations, so as to ensure that India becomes a fully developed country in the next 50 years.

The writer is former head of procurement and operations – India, Cargill