July 11, 2018

Faltering Farm Incomes Threaten Indian Agriculture

Dear Reader: We are pleased to announce a new occasional blog series, Cultivating Tomorrow: Indian Agriculture Challenged, by Marshall M. Bouton, president emeritus of the Chicago Council on Global Affairs. The series will examine the state of Indian agriculture today, its areas of progress and challenge, the roles of productivity, markets, infrastructure, policy distortions and opportunities, the challenge of climate change, and the implications for poverty, nutrition, food security, economic growth, and agrarian relations. In this initial blog Dr. Bouton discusses the emerging crisis in the agricultural sector.

A farmer prepares to spread fertilizer in his maize field on the outskirts of Ahmedabad, India. Photo credits: Reuters.

Over the last six years rising pressure on farm livelihoods has become the newest challenge to Indian agriculture and the agrarian economy. Despite steady increases in total agricultural output, farm incomes have largely failed to keep pace, leading to large numbers of farmer suicides and increasing farmer protests. In many areas the pressure on farm livelihoods is driving the migration of unskilled labor to the cities, where jobs in manufacturing remain scarce and urban governance is under growing stress. Stagnant and volatile farm incomes are a drag on national economic growth, impede the structural transformation of India’s economy, and threaten nutritional security for urban as well as rural citizens.

Today Indian farm policy is caught in a bind. While agriculture accounts for only about 14 percent of GDP, about half the population depends on it directly or indirectly for their livelihoods. Small holdings, limited irrigation, and insufficient yields make poverty the defining feature of farming in India.

Little of India’s 6.8 percent average economic growth since 2012-13 has benefitted the great majority of India’s farmers. Farm incomes grew by an average of only 0.67 percent annually over the six years, a sharp decline after growing at 5.36 percent from 2004-2011.  More than four decades after the Green Revolution got underway, the rural poverty rate is 25 percent compared to 14 percent in urban areas, and agricultural households still account for about 50 percent of India’s poor.  

Small and marginal farmers cultivating under two hectares account for 85 percent of all agricultural households.  Average income for these most vulnerable of Indian cultivators, which regularly fails to meet the expenses of cultivation and family subsistence, grew on average by only 0.44 percent between 2012 and 2016, forcing many into greater indebtedness, mostly to local moneylenders.  Even larger farmers have seen their profit margins undercut over the last four years by recurrent regional droughts and large market price swings.

Farm incomes include proceeds from cultivation, livestock, wages and salaries (mostly on other farms), and nonfarm business income. For small and marginal farmers wages and salaries account for as much of total income as their own cultivation. As incomes from cultivation have faltered, small and marginal farmers have had to depend more on their labor outside the farm. The only bright spot for farmers recently has been the rapid increase of farm income from livestock, which has jumped nearly 15 percent annually from 2003 to 2013. But livestock still accounts for only 15-20 percent of total small and marginal household income.

India’s farm income crisis has many causes. Most basic is the problem of small holdings.  The proportion of farms cultivating less than two hectares increased from 74 percent in 1980 to 85 percent in 2011 due to the continuing fragmentation of holdings, with the percentage of marginal holdings (under one hectare) nearly doubling. In 2010-11 the average size of all holdings was 1.16 hectares, down from 1.84 hectares in 1980.  Small and marginal holdings are frequently made even less viable by complex and opaque land and tenancy laws and practices.

A second critical constraint is the availability of water for cultivation. Despite government efforts to expand irrigation and the rapid spread of groundwater use, 50 percent of India’s farmland is still rainfed and highly vulnerable to the increasing weather volatility. The Economic Survey of India 2018 found that the impacts of extreme temperature and rainfalls shocks on agricultural productivity are twice as great in unirrigated areas as in irrigated areas.

Productivity growth in the most widely grown cereal crops, wheat and rice, has slowed over the last two or three decades. Even in the highly productive Punjab region, the productivity growth of wheat in the post-Green Revolution period averaged only 2.5 percent compared with 4.7 percent during the Green Revolution years. The story of rice is similar. Even when productivity-enhancing technologies for these and other crops do become available, failing public extension systems keep small and marginal farmers from accessing them. The costs of cultivation, especially fertilizer and labor costs, have outstripped improvements in productivity.

Government procurement of wheat and rice has failed to provide sufficient and reliable income relief for many farmers. The Minimum Support Price (MSP) offered to wheat and rice growers has until recently been lower than the cost of cultivation, especially when the imputed value of family labor is included. The procurement system often does not reach into areas where small and marginal farmers predominate. Pulses, a nutritionally vital component of the Indian diet, were not earlier covered by procurement. At the same time despite its limits the procurement system inhibits many farmers from diversifying into higher value crops because marketing those crops carries far greater risk for the farmer, even though crop diversification is the most promising path to increasing incomes.

Recognizing the growing crisis in farm livelihoods, Indian Prime Minister Modi announced in 2016 a major shift in the priorities of agricultural policy from crop productivity to farm incomes and a goal of doubling incomes by 2022. The goal was quickly criticized as exceedingly ambitious, but the policy shift has been welcomed and reflected in a number of Central Government initiatives including proposals for marketing reform, crop insurance, supply chain improvements, and most recently an increase in the minimum support price for wheat, rice, and maize, all with the goal of better price realization for farmers.

Central Government policies designed decades ago to increase food supply—input subsidies, support prices, and government procurement—now distort markets and crowd out public investment in the infrastructure and systems needed to increase incomes. State governments, which under India’s Constitution have the lead responsibility for agriculture, spend on average less than one percent of their state product on agriculture and respond instead to farm distress and farmer protests with loan waivers and more input subsidies that bring little longer-term improvement.

India’s farm income crisis calls for a second Green Revolution—a complete overhaul of agricultural policy aimed at securing livelihoods, improving nutrition security for all, enabling the sustainable movement out of agriculture, and meet the coming challenge of climate change.

 

Check out our previous post in the Cultivating Tomorrow: Indian Agriculture Challenged blog series:

India's Emerging Agrarian Crisis

About

The Global Food and Agriculture Program aims to inform the development of US policy on global agricultural development and food security by raising awareness and providing resources, information, and policy analysis to the US Administration, Congress, and interested experts and organizations.

The Global Food and Agriculture Program is housed within the Chicago Council on Global Affairs, an independent, nonpartisan organization that provides insight – and influences the public discourse – on critical global issues. The Council on Global Affairs convenes leading global voices and conducts independent research to bring clarity and offer solutions to challenges and opportunities across the globe. The Council is committed to engaging the public and raising global awareness of issues that transcend borders and transform how people, business, and governments engage the world.

Support for the Global Food and Agriculture Program is generously provided by the Bill & Melinda Gates Foundation.

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