Friday, August 07, 2009

An I Told You So post...

About an year or so ago, I did a post and saved it to drafts. That is where it stayed. It never saw the light of day because I am not an economist.

The post said something like this: (it was about farmer suicides)
At this point, unless the government intervenes with long term, root level reforms in the agricultural sector in general and in the agricultural marketing channels in particular, one of the following two will happen:

1. Farmers will be forced to increase the prices of the produce to a point where common food items are beyond the reach of the poor, exposing them to malnutrition in addition to poor sanitation and even more poor medical care. This will inevitably result in an epidemic of some sort. It will only be a matter of time before disease spreads from the poor to the not so poor. In effect, we are looking at a volcano of disease and malnutrition.

2. More and more farmers will commit suicide or sell their lands for commercial development, or convert to cash crops. This will lead to a real and artificially created scarcity of basic foodstuff. That means an unmanageable increase in the prices of basic food stuff. If the government considers a Band Aid treatment at that time, we will be forced to import (and pay high prices for) basic food items. These will be placed out of the reach of the common man, leading to the same malnutrition induced disease epidemic as in Option 1.
Why did I not post this then? Because I m not an economist. I am just a lowly blogger. If I can foresee this, then surely the wise policy makers at the Central Secretariat can see this too. Surely they will not let this happen.

And why is this being posted now? Because we are at Step1 of that epidemic. It’s a chance in a million, but someone might google for increase in price of food items. And land here.

What is my proposed solution?

It’s a four pronged approach –
1. Reducing the Cost of Production:

High Yield seeds have to be made available for less. We cannot allow the Monsantos of the world to make profit while we stop the next step in the chain – the farmer, from making more profit.

Cost of Labour has to go down – NREGS has ensured that the cost and availability of farm labour is impacted. The same scheme can be converted – each farmer may be given “Coupons” of labour units. He gives these coupons to the NREGS beneficiaries in return for farm labour. But that means 2 contact points with the government and twice the corruption. So an ideal situation would be to release some labour from NREGS towards farm labour. Meaning, if a person is eligible for and employable as farm labour, he must not be covered under NREGS. Let NREGS be for people who cannot otherwise obtain employment. Not for displacement of labour. And definitely not for displacement that is detrimental to the core agricultural sector.

Consolidation of Assets: During the Nehru era, some work was done in this direction and one read about with great pride and wonder. Now, the same idea must be implemented, but using the social entrepreneurs and the social structures of the agrarian society. Joint farming, sharing of equipment..

2. Improving the Marketing Channels: The produce has to be out of the farmer’s hands as soon as possible. A quick turnaround time on the capital invested means a shorter debt cycle for the farmer, and also more crops per year. If the farmer’s energy is wasted wondering when someone will buy that produce, he will not be preparing the field for the next crop for that long.

But that does not have to mean that the farmer is forced to sell his produce cheap, just because he cannot afford to hold on to it. The Marketing channels have to be driven by business, and the government has to regulate it tightly. Though the co-operative marketing and the regulated markets are in place, they are means of exploitation because the buyer’s cartel fixes a price in the morning and forces the farmers to sell at that price or hold, knowing fully well that the farmers cannot hold.

Obviously, a prime requisite for this to work, is the creation of cold storage and pest proof warehouses where the farmers can stock their produce if required. Once farmers get the power to hold, the need to hold will vanish.

Also, a portal where the farmers can see the prices at other places and sell their produce online is an idea whose time has come. In the past, this was attempted but we did not have enough internet penetration to get the volumes. Now, with e-choupals, we can achieve the penetration required.

3. The Supply Chain : Both the supply chain to the farmers and from the farmers. In Punjab, this summer, there was a government order indicating that sarkari offices will close early so that the power can be diverted to the fields. Never mind that the state still did not have enough power to save its crops. The same goes for water. We should think of canals more than borewells. Borewells need power.

4. Easy and reasonable credit /micro credit and Crop Insurance : Small farmers can do very well with micro credit. Medium and Big farmers need access to reliable credit on easy terms. This credit and its terms means the difference between a farmer who is alive and one who has committed suicide. Also, the availability of crop insurance is a must if we have to prevent farmer suicides. The only way to ensure crop insurance is to make it a mandatory requirement for all life and non life insurers to have a certain percentage of their portfolio as crop insurance. I believe that the micro credit and credit instituations should get this insurance to cover their loans. That will reduce their NPAs(Non Performing Assets) and also prevent farmer suicides in the event of a crop failure.

It is still not too late. The government should at least wake up now and start root level reforms and start them on a warfooting. Unless, of course, the vote bankers want that malnutrition induced mass epidemic.


adee said...

it all boils down to common sense howdy. common sense and a desire to have some meaning in life. sadly, both of these are found lacking in our babus and public servants aka politicians.

Manish Raj said...

You need not be an economist..just be what you are...

This post comes with such purpose and intelligence...



BK Chowla said...

You are actually talking like a sensible man.But,Govt policies and interests do not work the way with logic.The politician sees only two sides,-power and money.Agriculture gives both.Do you believe that Rs 60000 cr loan relief to the farmers reached the poor farmer?Or did it reach the rich ones who by coincidence were all politicians?Why should the Govt import wheat at a higher price but not give a better MSP to the Indian farmers?May be there are personal interest in $millions of import?There is sugar lobby,there is an import lobby,there are black marketeers.Where do you think so much of land was given for SEZ? Why did the Govt behave like the official property dealer for SEZ land? Please check international position on corruption...we stand high.

Onkar said...

You have anayzed the situation quite well. The fact that you have cared to analyze shows your concern for the common man.

Anonymous said...

Hi, what came thru the post is your passionate and sincere concern. Thought of pointing out a few things though...

1. High yielding seeds need Higher amount of water and fertilizers: more costly.
NREGS is in offseason not during season scheme. In absence, how will the landless labour survive who have been migrating out, causing not only labour shortage in rural areas but population explosion in cities?
Consolidation of assets: Not many takers. Not even for shared cropping system where farmers become joint shareholders of a private company with consolidated land & assets. BTW, a consolidation signifies back to landlords time and a move away from the concept of socialism where land was given away to families for an egalitarian society.

2. There are enough number of warehouses in the country, the stats are public. FCI godowns generally are the ones pest infested which distribute grains to public. Farmers get their minimum support prices. Ever wondered why everyone who can, grows rice from Punjab to Andhra irrespective of suitability of the land? Becuase it gives an assured risk free income.

3. Cold storages are advocated today mostly for perishables (other than tomatoes and potatoes which have sufficient storage facilities), however in India these are grown on small holdings and serve as quick cash generators for the farmers. As for information, Rural knowledge centers - internet based has been mooted quite sometime back by the government appointed National Commission on Farmers.

4.Canals supply water to fields as and when required through tubewells and mechanisms such as lift irrigation, all require power.

5.Banks have been offering crop insurance schemes for long. Microfinance is also a well known name in the field along with self help groups. PACS (primary agricultural cooperative credit society) at village level have been in operation since ages.

Agriculture sector for all the noise created can never be ignored and is not neglected by any government. There is enough infrastructure set up , only delivery needs finetuning and the government seems to be working at it.

Just as an aside, Punjab CM recently wrote to the PM to continue the present fertilizer subsidy scheme instead of thinking of direct subsidy to farmers. Why? Because the rich farmers of Punjab will be most affected who in their pursuit of profits have been pumping more water, more fertilizers into their soils than all the others under the present subsidy regime. Direct subsidy will force them to pay attention to market forces too.

Finally, Never trust the media, there are lies, damned lies and statistics!

Anonymous said...

Hi again,

The increase in prices of commodities may have to do more with deficient monsoons and drought like situation in the country, which has led to lowered cultivated area and therefore lower supply.

How do we know said...

Hi Adee: :-)

Hi Manish: thank you.

Chowla sir: i agree... tabhi to ye haalat hai..

Hi Onkar: Not exactly my concern for the common man.. my concern for the Indian farmer.. if the farmer is starved, can the rest of us be far behind? Pure selfishness..

Hi Anonymous: Thank you for taking the time to respond to the post so thoroughly. I would like to further discuss the answer a little:
High Yield seeds do need more resouces, but at this level of food demand, we cannot contest whether they should be used. Their usage is the minimum requirement for the kind of production that we need.
I have no problems with NREGS. in fact, i think its a wonderful scheme. But i do know of pockets where agricultural labour has been unavailable because they got better wages at NREGS, leaving the medium farmers with no recourse at all. I am only saying that tighter checks should be in place to ensure that NREGS does not lead to displacement of labour from the agricultural sector.

You are right that there are no takers for co-operatives and consolidation of assets. However, i do feel that if we use the social structure of the stakeholders, at least some of them can be inspired to collaborate.

2. MSP is not enough to meet the cost of production. Re. warehouses also, I am not contesting the existence of warehouses. I am advocating making these warehouses accessible to the farmers, particularly in remote locations where they are required. Also, i m not sure, one way or another, about whether there are enough warehouses, adequately distributed. I just don't know enough about that.

Cold storages, however, are required, especially for fruit, which is not a quick cash generator.

Thank you for clarifying about canals. I was under the impression that quite a few canals are diversions from rivers...

Please tell us more about the coverage of crop insurance in India, and also, if you have an opinion, on whether farmers in high risk zones like Warangal, Vidarbha and Saurashtra are covered. Also, from what i read, the farmer is expected to pay for this insurance. I am proposing that the premium should be paid by the creditor to secure their own assets. This will mean no financial burden on the farmer, and a higher security for the lenders.

Re: The increase in prices due to the drought et al, that is just what the media is saying too(and you said one should not listen to them).. i beg to differ.. and maintain that this situation is a result of years of apathy towards this sector.

Anonymous said...

Dear Ki….,
There is no dispute with the intent of the post, just pointing out that issues are not as simple and straightforward when it comes to agriculture. It’s a tight rope balancing act, agriculture being an important sector not just within the country but globally, though its never in the limelight as other sectors esp. for urban dwellers.

I do not dispute the need for high yielding seeds for food production, just the fact that it does not decrease the cost of production because of their water and fertilizer guzzling nature. The approach today instead is to reduce the existing wastages and losses in the system particularly in actual application of water and fertilizer , along with changing of policies that lead to excess and wasteful use such as subsidies.

Nothing on NREGS either , just that it is basically an offseason scheme for employment when there is no agricultural activity and retains the labour force in rural areas. Sure can do with some finetuning. One also hears of money not going to the intended beneficiaries.

On collaborative systems , AP government tried an experiment in kuppam a few years back with mixed results, and is trying out cooperative farming again with willing farmers.Lets see.

Not so sure on the MSP. The example of rice was in that context.
There is enough infrastructure available both public and private. The options to monetize the stock stored also has been studied, which will benefit the farmer.

Sorry forgot to include fruits apples, mangoes, grapes, mandarins, and other veg. like peas, chillies in the example.
Cold storage infrastructure in various states cater to the requirement of the particular region. Its not limited to just one or few crops.
The emphasis on cold storages that one came up in recent times was the requirement from the retail industry with their concept of farm to plate. That’s where the quick cash and small holdings part came up.
The present infra caters to exports mostly , needs upgradation but then exports suffer from far greater issues as well apart from lack of infra.

Yes canals are not straightforward river diversions. Mostly have led to waterlogged and saline soils on the upstream and scarce water downstream.

All the banks (and I suppose insurance entities) have a mandatory percent of their outlays marked for Agriculture/rural sector- I think between 20-30%. The large private banks have their subsidiary insurance entities, for collaterisng the loans. Warehouse receipts as a tradable instrument to monetize the crop stocks and serve as collateral is being studied under the context.

Media bit was about the farmer suicides. The details are often hidden under the statistics. Not so for the weather :-)

Thanks for your interest in the sector.

How do we know said...

hi Anonymous: Thanks a whole lot for the discussion.. you are obviously someone with an interest /involvement in the sector. If you ever choose to be not anonymous, would love to talk to you more. Thank you for a truly enriching discussion. If you can also point me to a place where one can know more abt the implementation of crop insurance, will appreciate that a lot.

Thank you.

Anonymous said...

Hi Ki...,

you may look at
National Agriculture Insurance Scheme:
Agriculture Insurance Co. of India
ICICI lombard general insurance
IFFCO Tokio general insurance, for the information.


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