Why The Market Has Not Worked For Farmers

SMALL landholdings and uncertain monsoonal rain make India one of the world’s most expensive places to farm, while the country’s rural economy provides few other job opportunities. Vagaries impact farming: good monsoon = good yield, bad one = crop failure. Ironically, farmers have fared badly in both good and bad monsoon years. They lost out in the good harvest year as a result of falling prices because of the supply-demand imbalance.

They often do not gain in terms of higher prices when the output is lower in bad monsoon years because the government – which fears inflation may hurt vocal urban consumers and corporates – often chooses to address production shortfalls and actual or potential price increases by releasing accumulated stocks and augmenting domestic supplies with imports from abroad.

2017 saw the highest ever domestic production of pulses at 22.95 million metric tons (MMT). Sufficient to meet domestic demand but in an example of gross maladministration, the government imported a record 6.6 MMT of pulses (at zero import duty). This excessive supply led to a crash in prices affecting farmers and domestic market, pushing farmers into vicious cycles of poverty and vulnerability.

The government’s reform programme deregulated prices of inputs. There are no government controls on prices of seeds, pesticides and other plant protection chemicals, and fertilisers other than urea. While, agro-business companies are free to set prices of these crucial inputs, many of them patented and produced by large monopoly transnational corporations, at whatever level they like, over the years, subsidies have been reduced in the case of important inputs like fertiliser, raising their costs.

Recent years have seen a sharp deceleration in the minimum support prices (MSP) announced by the government. The rate of increase of MSP started declining during the 2010 onwards, and fell further post-2014. While the average annual growth [in MSP] between agriculture year 2009 and 2013 was 19.3%, it was only 3.6 per cent between 2014 and 2017.

Fiscal conservatism has adversely affected public investment in irrigation, drainage and flood control. Real investment in agriculture declined at 2.3% per annum between 2013–14 and 2016–17 and growth in agricultural credit slowed down to 12.3% between 2014–15 and 2016–17.

Liberalised imports of agricultural commodities including food grains and cotton have dampened domestic prices. India’s export of agricultural produces has dipped. It recorded more than five times growth during 2004-2014: from Rs 50,000 crore to Rs 260,000 crore. In a year it dipped to Rs 210,000 crore in 2015-16, with a market potential loss of Rs 50,000 crore. But agricultural import has reported constant growth. It was Rs 30,000 crore in 2004-5, which increased to Rs 90,000 crore in 2013-14. In 2015-16, it reached to Rs 150,000 crore.