Five Ways to Reduce Farm Distress

Indian agriculture is confronted with high price volatility, climate risks and indebtedness. Since majority of farmers (86%) are small and marginal with declining and fragmenting landholdings, they are more vulnerable

 

and risk prone to any of the uncertainty. The last two budgets of the government were pro-agriculture. More resources were allocated to agriculture and number of programs were initiated to increase irrigated area, improve soil health, promote agro-processing, cover production risk, among many others. Despite of this fact, it appears that agrarian distress is silently spreading across all the states. It seems that all these programs and schemes are disjointed and function independent of each other. Therefore, it is time to have a five-point program which addresses the agrarian challenges and converge various on-going programs under one umbrella.  These are suggested as below:

Increasing incomes: Agricultural transformation is very slow in India. Therefore, the process of generating higher income from agriculture is also slow. Production increase was the main objective than raising incomes. It is welcoming that the Prime Minister has given target to double the income of farmers by 2020. This paradigm shift is expected to raise framers’ incomes. Within agriculture, it will require (i) aggressive push to improved technologies by strengthening seed sector and knowledge dissemination system; (ii) agricultural diversification in favour of high value commodities and develop value chains by linking production and marketing centres; and (iii) develop mechanisms to ensure minimum support prices in the event of crash in farm harvest prices. The condition for success will rely on how the farmers are aggregated for production and marketing through promotion of contract farming, cluster farming, farmer producer organizations and self-help groups.

Generating employment opportunities: The Situation Assessment of India reported that more than 40 percent of the farmers would like to quit agriculture if alternative opportunities are available. Agriculture is becoming crowded and does not provide regular employment opportunities. In the absence of regular employment in rural areas, the rural population, especially the youth, is migrating to urban areas to explore better avenues and income. There will be around 34 percent youth (15-34 age group) of total population in India by 2020. More than 70 percent of youth lives in rural areas. Their energy and enthusiasm need to be tapped for meeting their aspirations and transforming agriculture and rural economies. Agriculture per se would not be able to absorb the growing number of youth in rural areas.  Incentives need to be given for (i) aggregating raw and processed products (good example is of Lizzat papad that employs more than 43 thousand women). (ii) self-employment in agro-processing, agro-advisory, agriculture and rural transport, etc., (iii) private sector engagement in custom-hire services, secondary and tertiary processing, (iv) location specific non-farm employment in micro, small and medium enterprises and link them with large manufacturing sector, and (v) engagement in government programs, schools, agriculture extension, etc.

Reducing risks in agriculture: Risk in agriculture is increasing over the years. Both production and price risks are leading to agrarian distress. On production risks, the incidences of droughts, floods, rising or falling temperature and unseasonal rains and hailstorms are increasing and adversely affecting agricultural production. However, during the normal years, farm harvest prices are steeply falling and badly affecting farmers’ incomes. Already Prime Minister’s Agriculture Insurance Scheme is in place to cover some production losses.  Though the scheme is good but compensation is not enough and does not cover the risk of falling prices. Therefore, the government may consider launching ‘Prime Minister’s Climate Resilient Scheme’ that covers both production and price risks. The scheme may bundle promotion of climate smart agriculture, provide value added weather advisory services, effective implementation of agricultural insurance and ensure minimum support prices.

Developing agri-infrastructure: Agri-infrastructure, including agricultural markets, cold storage, warehouses, and agro-processing, have not developed in corresponding speed of increasing agricultural production. The pace of agri-infrastructure is far behind than it is needed to improve overall agri-food system. More focus in the past was given to production of agricultural commodities. In the absence of adequate agri-infrastructure, the supply chains of agri-food commodities are in the hands of unorganized sector which is fragmented and inefficient.  Organized private sector is slowly coming up due to less commercial viability to develop agri-infrastructure. Role of public-private partnership (PPP) is immense in developing agri-infrastructure for high economic and social gains. Government may constitute a commission to develop modalities and proposals for public-private partnership in agri-infrastructure sector. Lessons may be learnt from excellent track record of PPP in constructing of national highways, building and functioning of airports, distribution of power, etc for developing agri-infrastructure (such as rural agri-markets, cold storage, agro-processing, surface irrigation and agricultural extension). Central government may contribute to states for viable projects in PPP mode to develop agri-infrastructure.

Improving quality of rural life: Rural India is still missing basic amenities (like sanitation, hygiene, drinking water, drainage, schooling and health centres). Three years ago, the Prime Minister encouraged each member of parliament and state assemblies to adopt one village to transform it into a model village. The main objective was to provide all basic facilities in rural areas to improve the quality of life. Former President late Dr APJ Abdul Kalam also gave a concept, namely “Provision of Urban Amenities to Rural Areas” (PURA), with the aim of providing urban infrastructure and services in rural hubs to create economic opportunities in rural areas. The scheme may be revived to improve the quality of life in rural areas. Though there are several programs and schemes to create social and economic infrastructure, these need to be converged for larger impact.

It is high time to revive agriculture sector and improve the purchasing power of the bottom of the pyramid to accelerate overall economic growth. It can only be done by focussing on key areas and implementing under one umbrella.

P K Joshi is director South Asia, International Food Policy Research Institute. This piece was originally published in The Business Standard 

Past, Present and the Future of Agriculture in India

Farmer offloading the produce at wholesale market in Lucknow.  Source:(flickr) Pallavi Rajkhowa/IFPRI
Farmer offloading the produce at wholesale market in Lucknow.
Source:(flickr) Pallavi Rajkhowa/IFPRI

With rising concern to meet the growing demand for diversified food of the increasing population, food security has been the top priority on the policy agenda. Over the years, despite the decline in its share in the gross domestic product, agriculture continues to be important in the Indian economy for food security, employment generation and poverty reduction.

In a recent IFPRI discussion paper on Changing Sources of Growth in Indian Agriculture, the authors have shown how the policy shift over the past three decades (1980/1981 to 2009/2010) have stimulated patterns and sources of agricultural growth in India and evaluated their implications for regional priorities for sustainable and inclusive growth.

Since 1995/96 policymakers have been targeting to achieve 4 percent growth for the agricultural sector, but it has been fluctuating over/under 3 percent since the last two decades. P S Birthal, principal scientist at the National Centre for Agricultural Economics and Policy Research (NCAP), highlights that in the 1980s technology was the main source of growth which was followed by crop diversification in the 1990s. The price effect that emerged as strong factor in the 1990s also faded in the following decade, with technology reemerging as an engine of growth in the 2000s.

Over the time it was observed that agricultural policies in India been cereal-centric especially towards wheat and rice. But with change in consumption pattern, income growth and improved infrastructure, the shift towards high value crops played an important role in cushioning agricultural growth. Examining spatial decompositions of growth - the northern region followed a technology-led growth path, while the western and southern regions relied more on diversification in their growth strategy.

Learning from the past, evaluating the present for the future food security of the country, the authors lists its analysis in the study under four dimensions-

  • With limited land available for cultivation, sustainable intensification and diversification of agriculture are the options to accelerate agricultural growth.
  •  Investment in agricultural research and strengthening of service delivery systems are crucial for future improvements in yields of  grains and horticultural crops.
  • With limited scope for sustaining price-led growth in long run, investments in markets, infrastructure such as roads are necessary to reduce marketing and transaction cost, thus directly benefiting the small farmers.
  • Opportunities for small-holder farmers to increase income and escape poverty lie in diversification towards high value crops.

IFPRI’s, P K Joshi, stresses that, “the sustainable agriculture growth must come from technological change and diversification towards high value crops. Dr. Joshi, emphasized that both central and state governments need to take corrective measures to increase investment in agriculture research, and create favorable business environment through enabling policies towards high value agriculture.”

Mangoes: Understanding its Value Chain

Mangoes Seller in Hyderabad. Source: Flickr- Pallavi Rajkhowa/IFPRI
Mangoes Seller in Hyderabad. Source: Flickr- Pallavi Rajkhowa/IFPRI

Pallavi Rajkhowa is Senior Research Assistant at IFPRI’s New Delhi office

Despite being the largest producer of mangoes, adding to about 40.5 per cent of world production, the mango value chain in India suffers from inefficient markets, unavailable formal finance, low prices to farmers, and infrastructure bottlenecks etc. Even today, the traditional mango value chain moves from mango grower to contractor, village trader, commission agent, distant traders, processors, retailers/exporters before it reaches the end consumers. Not to forget, even regulated market such Azadpur Mandi (New Delhi), Asia’s largest fruits and vegetable market is ill equipped to handle perishables such as mangoes due to absence of basic amenities such as (i) Lack of roads and parking space (ii) Poor traffic management (iii) Lack of drainage and (iv) Insufficient marketing space etc.

IFPRI’s on-going study on ‘Innovative Financing for Agriculture and Food Value Chain in India’ is focusing on various mango marketing channels and sources of financing of the value chain in two major mango producing hubs i.e. Andhra Pradesh (AP)and Uttar Pradesh (UP). The study aims to understand the various financing methods in existing value chain. The sample size of the survey is 400 covering all players in the mango value chain in AP and UP.

Financing the value chain
Mango value chain in India is primarily financed through short term informal finance whereby, advances are made from buyers within the value chain to farmers or contractors.  IFPRI researchers in the on-going field survey found that in these markets, commission agents usually use their own equity or borrow money from informal brokers to drive the value chain. These credit flows are generally called trade credit, or chain credit. They consist of short-term, tailor-made loans to ensure assured supply of products and maintain long-term relationships. These contracts are usually verbal based on trust and repayment is done in cash or kind.  The main objective of this kind of finance is to improve chain efficiency rather than earnings from interests. Most players prefer this mode of financing rather than formal financing due to lack of collateral, access to quick, tailor made loans and flexibility of repayment.

Infrastructure Bottlenecks
Due to unavailability of cold storage and to increase the shelf life, most contractors pluck the fruit before they ripen and use calcium carbide, a banned substance to ripen it. Researchers found that Uttar Pradesh has a few pack houses exclusively for mangoes in Sahranpur and Lucknow. They are equipped with pre-cooling chamber, cold chamber and ripening chamber. However, these pack houses are currently not utilized to its full capacity. This is because contractors are obliged to sell their produce to commission agents who are also their financiers. Lack of short term, tailor-made formal finance has led to increased dependency on commission agents for finance, which in turn has resulted in underutilization of the mega pack house. Also, mango is a seasonal crop therefore the pack house is only functional for 2 months.

Mangoes Street Seller, Warrangal, Andhra Pradesh, India. Source: Flickr, Pallavi Rajkhowa/IFPRI
Mangoes Street Seller, Warrangal, Andhra Pradesh, India. Source: Flickr, Pallavi Rajkhowa/IFPRI

Conclusion
Though the final report is yet to come, but based on field visits to Andhra Pradesh and Uttar Pradesh some preliminary suggestions are as follows.  It was observed that mango orchards are mainly contracted to reduce marketing and price risk, which has resulted in use of inefficient cultivation practices as contracts are for short durations and contractors’ sole aim is to make profit without investing in the orchards. There is need for greater awareness of best practices for contractors and farmers such as (i) rejuvenation of trees; (ii) timely pruning and management of canopy; and (iv) introduction of new varieties of mangoes.

Moreover, mango being a perishable requires efficient marketing facilities. Lack of infrastructure has led to adoption of malpractices such as use of carbide to ripen the fruit, therefore focus should be to create adequate infrastructure.  Also, to utilize the existing facilities to its full capacity, other perishable commodities should be brought after harvesting to the existing pack houses.

Finance plays a vital role in smooth functioning of the value chain. Most actors in the mango value chain prefer informal sources of finance due to its hassle free, quick and tailor-made nature. Such informal financing are opaque transactions and it increases the possibility of exploitation.  Formal financial instruments such as short term and smaller sized loans, warehouse receipts and weather insurance by formal institutions to actors within the chain by creating a triangle of cooperation between the seller, the buyer, and the financial institution can not only enhance the efficiency of a value chain but also assist in transforming traditional value chains to modern value chains. This kind of triangle of co-operation brings in product flow, finance flow, information flow and risk management.

Read more on: Research Program

 

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