The Indian farmer needs help in breaking away from middlemen, inaccessibility of markets, price volatility and over-dependence on monsoon rains

Just a month or so ago in May, a farmer from Maharashtra made a bizarre claim (and reported in many newspapers) that he received just Re 1 by selling almost a tonne of onions in the district Agriculture Produce Market Committee (APMC).

Given that the retail prices of onion has not fallen below Rs 15 a kg in the recent past, one would be driven to believe that the farmer must be under the influence of some intoxicant to make such outlandish claim. However, if we look at the math carefully, we may become less suspicious of the helpless farmer.

Here it is: He sold 952 kg of onions at the APMC market for Rs 1,523. Out of the earnings, the middlemen took away Rs 91 as commission, labour charge was Rs 78, and Rs 33 was miscellaneous charges. It cost him Rs 1,320 to transport the produce to APMC. After deducting all the charges from the amount it received for the onion, he is left with only Re 1.

The above incident (even if it’s half true) aptly summarises the various plights of Indian farmers -- middlemen, inaccessibility of markets and price volatility.

On slippery ground

The government has in this year’s Budget set a bold target for itself — doubling the farmers’ income in five years. However, it doesn’t give any roadmap for achieving this target. Probably, it knows the enormity of the task and therefore, did not want to be very specific about the promise it made.

Here is some statistics to prove why doubling the farmers’ income is no mean achievement. While agriculture accounts for 14 per cent of India’s GDP, it supports 50 per cent of its population -- way too many people dependent on agriculture. In upper-middle income group countries, the dependence is below 30 per cent. While agriculture supporting half of the country’s population itself is a big concern, the bigger problem is that in the first three years of the current five year plan, the sector has grown at a meagre 2 per cent compared the set target of 4 per cent.

For the farmer’s income to double in five years, it has to grow at a 14 per cent rate every year, which is unlikely unless the real growth of agriculture sector is 7-9 per cent a year. To achieve this target, we need to make unprecedented investment in the agriculture sector and create infrastructure of gigantic proportion.

Farm infrastructure

One of the biggest problems of India’s agriculture sector is its over-dependence on monsoon rains. Historically, we have been witness to the inconsistencies and vagaries of Monsoon. Since 1950s, we have so far had 16 drought years (five of which were in the past five years) and eight flood years. Both of which ruin crops and affect output.

In order to make agriculture more viable and profitable, we must increase the area of agriculture land under irrigation. At present, only 36 per cent of the agriculture land is under irrigation. This has to go up substantially in the years to come -- we do not expect this number to go up much in the next five years.

While better irrigation facilities are the crying need of the time, the government must remember that it should not over exploit the groundwater level for short-term increase in productivity. Instead, we must use more sustainable methods such as building canals, water harvesting and drip irrigation facilities to make sure that we do not sacrifice the long-term for instant gains.

Building infrastructure for irrigation is just one part of the whole jigsaw puzzle of sustainable agricultural growth; the other crucial part of the puzzle is creating a network of cold chains that keep the perishable agricultural goods. The need for cold chains can be gauged from the fact that while India produces 11 per cent of global vegetables, it accounts for around 2 per cent of the global vegetable trade in absence of sufficient cold chains. According to an estimate, India has a cold chain storage capacity of only 11 per cent of what is produced (including fruits, vegetables, fish and meat, and dairy products). Besides, the storage capacity is highly concentrated in two states -- Uttar Pradesh and West Bengal, the two accounting for 65 per cent of the capacity. Certainly, we can expect a lot of improvement in this area to minimise wastage of perishable agricultural goods.

Agricultural marketing

There is large scope for improvement and expansion in this area. We have already touched upon this issue of farmer’s inaccessibility to agriculture markets and their dependence on middlemen.

The good news is that we have already taken the first step towards digital mandis. Karnataka became the first state in the country to facilitate online trading of agricommodities. Online trading had been introduced in more than 150 main markets and 350 sub-markets across the state.

Under this system, a farmer posts the details of his produce and its quality (which is certified by an accredited agency) online through registered traders and commission agents. Licensed buyers from across the country then bid for the produce. The buyer then transfers the money online to the farmer through the trader/ commission agent.

Taking a cue from this model, the Centre has recently announced its ambitious plans to integrate 585 regulated wholesale markets, or mandis, across the country under an online platform. This system would reduce the number of middlemen and give a farmer access to markets across the country. This would also ensure that farmers get the right price for his produce.

Public-private partnership

As in other infrastructure sectors, the government must promote public-private partnership (PPP) for meaningful growth. Agriculture is too important a sector for the government to leave it at the mercy of private sector. A collaborative effort would indeed be helpful in modernising agriculture sector.

Although private participation is important in this space, given the private sectors proved efficiency, the government must continue to support the farmers through easier loans, insurance schemes and at times through “populist” measures such as minimum support price to insulate a farmer from drastic fall in prices.

I have not yet taken uttered the word “subsidy”, which is considered an unpopular thing in a market economy, but let us accept that globally, most countries support their farmers through one subsidy or another.

In the end, we have to think of ways to reduce the number of people dependent on agriculture. The best way to do it is to kickstart the other engines of the economy — construction industry (where most farm labourers can easily fit in) and manufacturing.