Friday, January 21, 2011

Farmer Woes-II

The focus of my trip to this village near Rajahmundry was to understand the problems that farmers face:

For the ease of assessment I classified the agricultural workers into four categories.
a) A farmer who owns a land
b) A farmer who doesn't own a land
c) A farmer depending on cattle
d) Agricultural Labour

In this edition of the series, I will focus on the problems faced a), b) mentioned above.

Typically people who belong to the forward caste take-up and continue to remain in farming. Many perceived lower communities have less bonding to agriculture and easily switch to other professions. (Hence as I mentioned earlier caste is a major driving force in farming community). With Govt. allotting land to all the sections of the society, the following issues remain true to each farmer independent of their caste/creed.

Problems associated with each Parameter
Commercial Aspects
a)    The inherent nature of conventional agriculture doesn’t guarantee major revenue.
b)    The maximum revenue that a farmer can get varies from Rs30,000/- to a maximum of    Rs1-1.5 lacs per crop
c)    Since the returns are so low in farming, many farmers have opted to sell their land and pursue other activities that they can.
d)    As a matter of fact, farmer will earn more on the interest earned from the funds acquired from selling the land than on spending a whole lot of effort in doing the actual farming.
e)    There are various ways in which revenue is shared between the land owner and the farmer who takes the land on lease
f)     In most cases in case of any failure in the crop the loss of revenue is to be borne by the farmer who took it on lease.
g)    This year due to the unseasonal rains more than 70% of the crop is washed away. Farmers are not able to retrieve even the cost of production which is one of the basic reasons behind the spate of suicides.
Cost of Production
a)    The inflation effect has had a profound impact on farmers.
b)    While there has been a marginal benefit to the farmer due to increased price of the output, there has been a direct impact of the increased raw material costs.
c)    For example, seeds which used to cost Rs100/kg now exceed Rs300/kg.
d)    Similarly the cost of Fertilizers have increased manifold. On top of that, beginning from next year the subsidies on fertilizers are going to be removed. This would lead to an additional increase of Rs300-500 per bag of fertilizer which would blow a death knell to the farmer.
e)    The cost of labour has almost doubled in a single year (Detailed later)
f)     Cost of water has increase many folds
g)    Transport & Logistics cost have increased due to the rising fuel prices.
h)    On an overall basis, the costs of all inputs into agriculture have increased much more than the revenue generation.
Minimum Support Price
a)    In order to ensure a minimum guarantee to farmers, GOvt. offers to purchase the product from them a minimum support price (MSP) which is declared well in advance. The MSP varies for various grades of the crop.
b)    So, in a market yard, the food inspector checks the quality of the agricultural product and then purchases the produce at MSP or higher prices.
c)    Looks good…but there is a big catch.
d)    The obligation of transporting the produce from the farm to the market yard is on the farmer. And till the time, the product is not sold; the farmer has to stock the whole produce at his own risk. This is a huge burden on the farmer.
e)    So, in-spite of all the odds even if the farmer is able to sell the product, he will only get the MSP. Hence his revenue is MSP after the deduction of his travel costs. This reduces his overall revenue.
f)     A middleman on the other hand offers to purchase a product from the farmer’s own farm at a price which is typically 20-50% less than the MSP. But many farmers who cannot afford to take the produce to the market yard and the ones who cannot afford to store the produce for a longer time are forced to sell the product to the middlemen at prices determined by him.
Physical Aspects
Water availability
a)    Much of the crops are still dependent on rains and the irrigation facilities are not available to farmers which are at a meager 10 kms from a major canal.
b)    Even if a farm is located near canal, the flow of water in the canals is highly politicized, with politicians getting involved in disbursal of waters within their jurisdiction to satisfy their vote bank. This has lead to the reduction in an in-efficient distribution system
c)    Laying bores is not an option available to every person since the license to lay a bore is only given to a land holding of more than 4 acres. But most of the farmers have less than 2 acres as the land holding
d)    While the cost of laying a bore is ~Rs40-5000/-, the cost of getting a power connection to the motor, for which the permission from Electricity board is required, would mean an additional Rs1.5 lac of bribe. So the total cost of laying a bore is ~2lacs. Imagine this cost to a farmer who can hardly aspire to earn 50,000 per annum
e)    All the farmers with small landholding purchase water from the other farmers who have a boring connection.
f)     But the cost of water purchased from another farmer increased from Rs10 per one hour supply of water to Rs50 per one hour supply of water
Funds availability
a)    Most farmers would be glad to receive loans from banks since the interest rates offered by banks are very low.
b)    But Most of the banks do not offer loans to farmers with less land holding or no land holding.
c)    Hence farmers are forced to raise funds from non banking financial institutions or in simpler terms Money lenders.
d)    While the bank interest rates to farmers hover around 3-4% per annum, the interest rates from money lenders hover around 3-4% per month i.e. ~40-60% per annum.
e)    Farmers are left with no option but to seek funds from these money lenders, since the disbursal of funds from a moneylender is faster. Hence almost 90% of the farmers take loans from Money lenders.
f)     In case of any floods or any natural hazards GOvt. does declare loan write-offs. But this becomes applicable to only those loans which are taken from banks. Loans taken from NBFIs are not applicable for any write-offs. Hence almost 90% of the farmers are not benefitted from any special provisions from Govt. in that perspective.
Labour availability
a)    Since many farmers have small land holdings, they cannot afford machinery and hence there is a huge demand for manual labour.
b)    With the decreased revenue, the farmer is not able to afford labour at high prices. He can at best manage to pay the labourer similar wages to previous year.
c)    Since the job is quite demanding, the expectations from the labourer are very high.
d)    Considering the fact that more than 300 million Indians live below poverty line, I thought availability of labour should not be a major concern.
e)    On the contrary there is hardly any labour available.
f)     The implementation of the National Rural Employment Guarantee Scheme (NREGS) has had a huge negative impact on the farming society.
g)    In NREGS there is a minimum guarantee of work and wages assured to most labour. They get wages of around Rs150-250 per day of work. Whereas a farmer can only afford to pay 100-150 per day of work.
h)    Moreover, while labour work in a farm involves a hard 9-10 hour job, in NREGS a day of work would involve a simple work of around 3-4 hours a day. Hence labour is reluctant to do any farming.
i)      Even if the labour is available, they demand similar working hours involved in NREGS which a farmer simply cannot afford.
Storage space availability
a)    In the existing conditions, a farmer is forced to immediately sell his product once the crop is cut.
b)    The necessity of having good storage area:
a.     A small farmer cannot afford to use chemicals to increase the life of the produce which a big farmer/good warehouse or a professional entity uses
b.    In case of unseasonal rains the produce gets spoiled without proper storage facilities
c.     The market facilities are more than 10-20 kms away and good storage facilities are required to counter the vagaries in the market yard.
d.    Whenever there is a huge & good crop the prices of the product anyway go down. But even when the produce is not high, the middlemen collude and decline to offer higher prices to the farmers. Once the middle men collect the produce, they store it, thereby creating a supply side constraint and drive the prices higher and then sell the product once the prices have increased.
e.    So, without proper storage facilities the farmer is forced to sell the product at prices determined by the middle-men but not by the actual market prices
Seeds,  Fertilizer & Pesticides availability
a)    Original seeds & fertilizers are in short supply
b)    If a vendor supply fake seeds & fertilizer he is not liable for any damage to the crop later
c)    Moreover a farmer cannot afford to wage a legal battle over the improper sale of seeds & fertilizers
d)    At times even the availability of fake seeds & fertilizers also becomes scarce. Last year there have been riots due to the non-availability of fertilizers.
e)    Without proper seeds, fertilizers & insecticides no farm can expect to achieve basic output
Information availability
a)    There are many agricultural universities and govt. officials designated to educate the farmers.
b)    But hardly any farmer gets inputs from these folks. Close to 90% of the farmers rely on their traditional methods and experience to grow the farms.
c)    Most farmers do not have any clue about any improvements in seeds or if there are better seeds available that can provide better yield. They are forced to rely on the information provided by the vendor who sells the seeds and in most cases he seeks his own benefit rather than the benefit of the farmers.
d)    There is no guidance given on which fertilizers to use to improve the overall capacity of the farming land or to increase the yield.
e)    Apparently the pesticides seller is the one who provides better inputs to the farmers. More like a pharmacist who provides instant solutions to any disease a pesticide seller suggests the farmers on which crops can bear which insects and in case of any disease he offers the best solution. But how many days will you rely on the inputs provided by pharmacist instead of a doctor???
f)     No guidance is provided on the market dynamics or the commodity price projections. This would have provided better inputs to farmer to setup the right product.
Market Access & availability
a)    Farmers do not have access to retail markets and hence are not able to benefit from the huge prices existing in the markets.
b)    Even the wholesale markets in which the total produce is sold, is at-least 10-20 kms away.
c)    Farmers who grow vegetables carry the total farm output on their cycles and travel to the market which is 15-20 kms away at 3:00 in the morning and have to sell the produce and return back to the village by 9:00 am so that they can continue with the regular farming.
g)    Moreover, most of the farmers do not even think beyond their local markets. If only they had economies of scale they could have aspired and afforded to reach out to more lucrative markets
Power availability
h)    There is an assured supply of 7 hours per day for agriculture needs. But at times this power supply is not enough for all the needs.
Softer Aspects
Pressure from Society
a)    Many farmers realize that agriculture is not affordable, but they continue to do so because of a false prestige.
b)    If a farmer becomes a labourer it is considered as a major negative image to the farmer, and hence he sticks to his own profession.
c)    So a farmer who owns a land is more compelled to continue farming than the one who doesn’t own any land/or the one who is traditionally not a farmer.
d)    In-fact the whole farming communities are typically divided on caste basis, with the lower communities not owning the land and preferring to be labour and the perceived higher communities own the land and hence continue to remain in farming.
Attitude of Farmer
a)    Dr. Nash while proposing his game theory explained that the best results are achieved when everyone strives for the benefit of a whole lot than for the benefit of individuals. But the farmers do not seem to realize this.
b)    No farmer is willing to join hands with another farmer to get economies of scale.
c)    Caste differences, Economic differences keep them apart.
d)    For example, if there are 2 farmers with 2 acres of land holding each, they know that individually they will not get a license to install a bore and that if they come together they will get the license. There are many other benefits that are possible. In spite of that they do not come together because each thinks that their farm is superior or that they themselves are superior to the other person. With these impressions each farmer continues to suffer.
Role of Middlemen
a)    While the term “Middle men” has a negative connotation, his presence is actually required in ensuring that the farmer is able to sell his goods.
b)    The role of middle men is involved in funds disbursal, sale of raw materials to the farmers, purchase of goods from the farmers etc.
c)    But instead of optimizing the interests of farmers, the middlemen typically collude with the purchasing party which in most cases are the mill owners or the retailers and reduce the gains to the farmers.
d)    The way forward apparently is not necessarily the elimination of the middlemen, rather ensuring a transparency in the role and returns offered by the middlemen.
Govt. Support
e)    The role of Govt. has become equivalent to that of a passive player.
f)     Govt. doesn’t take stringent legal actions against the people selling fake seeds/fertilizers/pesticides.
g)    Govt.’s stand on MSP keeps changing frequently. While farmers do not even get the MSP, it continues to import goods at 3-4 times the prices
h)    Govt.’s stand on insurance and other financial aspects like access to funds and more importantly monitoring the disbursal of funds etc. is left wanting.

While all the above mentioned issues are pertaining to the specific area in which the interviews are done, most of the issues are relevant to the farming community in general in India. 

Monday, January 17, 2011

Farmer Woes-I

Apart from the well known fact that more than 100,000 farmers have died in India in the past decade alone, did you know that the..

  1. Per capita income for a farmer from Paddy is ~Rs30,000/- per crop?
  2. Cost of capital for a farmer varies anything from 24-75% per annum?
  3. While the cost of drilling a bore is Rs40,000-50,000/-, the cost of installation of a motor and getting access for power to that motor costs another Rs1-1.5 lacs?
  4. If a person has less than one acre of land holding, he cannot even drill a bore?
  5. Much of the farming society doesn't own any farming land?
  6. Caste drives the farming activities in India?
  7. The debt write offs mentioned by Govt. impact only 10-15% of the total farming community?
  8. In spite of the wide-spread un-employment there is a dearth of labour available to a farmer?
  9. Farming as an activity has the highest attrition rates?
  10. Minimum support price offered to the farmers doesn't include the travel costs, and those costs are to be borne by the farmer himself?
  11. Many farmers stick around to farming, more because of society pressures than economics?

In order to understand the above and the other factors affecting farming community I travelled to coastal Andhra pradesh. The region is considered to be one of the highest paddy producing areas in India. But this year 70% of the total farm output got washed away due to the un-seasonal rains which lead to death of lot of farmers. 

The details of the trip are going to be mentioned as a series of articles beginning from this one...