Reaching the last mile of Indian agriculture: Lessons from the Madhya Pradesh farmer crisis
The growth of Madhya Pradesh’s agriculture is unprecedented in the annals of Indian history. So what went wrong?
Editor's note: From May 2017, we're featuring this fortnightly column by Mridula Ramesh, titled 'Climate Conversations'. In this column, we take a look at pressing issues pertaining to climate change — in an accessible way.
Everybody and his uncle has been weighing in on the situation in Madhya Pradesh. As farmer unrest becomes increasingly common, it is important to understand what is going on with half of India.
Let us begin by asking four questions:
1. Why should a climate change column weigh in on the situation in Madhya Pradesh?
2. What went right?
3. What went wrong?
4. What can we learn?
Onto question#1: How and why is climate change even relevant in what appears to be a wholly political situation?
It’s relevant because of all the sectors that will be hit in a more temperamental climate, agriculture will be the worst hit. This makes intuitive sense: In agriculture, both the product and the worker lie completely exposed to the elements which are becoming more menacing. A hotter climate can decimate India’s already low yields — if we don’t adapt.
It's relevant because many scientists see adaptation to a hotter climate as a two-stage process. Stage 1 means getting the non-scientific bit right and in scale — like improving access: to inputs, storage and finance and current best practices — to the smallest and most marginal of farmers. This should ideally happen in the next decade or so before the deadly ravages of global warming begin to bite in earnest. Coping with Stage 2 is a whole different story.
It’s relevant because Madhya Pradesh has taken an earnest and effective stab in getting most of pieces of Stage 1 adaptation right. Getting other states to emulate Madhya Pradesh will be impossible if the fires in its fields continue to burn.
Which brings us to question#2: What did Madhya Pradesh get right?
The government improved the resilience of farmers by focussing on water — specifically, improving water availability. They did so in two ways: one by improving canal irrigation so that water reached all farmers (this was key) during the kharif crop. Second, by improving electricity supply to farmers in winter, they improved water access during the rabi season.
Let’s go a little deeper:
India’s tryst with command-and-control approach to irrigation systems have been — to put is mildly — a sham. Between 1991 and 2007, while India invested over Rs 200,000 crore in irrigation, the area served by canals actually decreased. A negative return on investment, if there ever was one. A tragic case in point is Maharashtra, which paradoxically combines the highest number of dams of any state in India with one of the lowest levels of irrigated farm land. The inference is clear: irrigation projects benefit the contractor, not the small farmer.
One of the biggest problems in Indian agriculture is the uneven access to all inputs, including water. The larger, better connected farmers have farms that received the first access from canals. Farmers lower down receive whatever is left over, which is often very little or nothing.
But Madhya Pradesh turned this thinking on its head by ensuring the tail-end farmers (or those farmers who are farthest away from the canals) got access first. They even checked if this was indeed happening by maintaining a list of over 4,000 mobile numbers of tail-end farmers and having the chief engineer call one up at random to check if the water had reached the field!
But taking on powerful head-end farmers was not easy. Madhya Pradesh did this by empowering its irrigation department — by making administrative changes and by adding the chief minister’s clout to ensure that the department could withstand political pressure. They also ensured there was sufficient water for all by completing projects, and by fixing, lining and desilting canals. They ensured maximum reach for the same canal network by practising strict rotation of canals.
Canals helped when it rained, but what about the rabbi, or winter crop? Here, the state improved access to groundwater by creating separate feeders for farmers and charging, yes, charging, for the electricity. Farmers, desperate to grow a winter crop, and having no source of water than what could be drawn up by a tube well, were only too happy to pay for electricity. Of course, having paid for it meant that the motor use, and by extension, the water use was more judicious than it otherwise might have been. While I am not a fan of unsustainable groundwater extraction, there are case studies that suggest Madhya Pradesh has taken up water conservation and ground water recharge seriously.
The second aspect of Madhya Pradesh’s action was to improve physical access to the last mile — it did so mainly by improving roads even to remote interior regions. On a more personal note, the company I work for has been buying cotton from Madhya Pradesh for the better part of two decades. Our manager who has visited the remote fields over decades related how the roads used to be so bad, that it took nearly 15 minutes to cover a kilometre and he was often tempted to leave and source cotton elsewhere. But that has changed.
The third thing Madhya Pradesh did, is to improve procurement both by deepening access and transparency through initiatives such as the e-Uparjan, the bonus on MSP for wheat and by increasing storage facilities. But not enough. Here was a potential faultline. We’ll come back to this.
These measures taken together caused agriculture in Madhya Pradesh to really take off.
The growth of Madhya Pradesh’s agriculture is unprecedented in the annals of Indian history: Agricultural GDP grew by 9.7 percent each year from 2005-06 to 2014-15. A testament to the success of the water management was that even during the drought of 2009, where the rest of India’s agriculture was beset, Madhya Pradesh’s farms’ output managed to grow at nine percent.
Acceleration of growth really stepped up after 2011, when wheat production and vegetable soared. Onion production, for instance, nearly tripled from just over 1 million tonnes in 2010-11 to 2.8 million tonnes 2013-14.
These efforts translated to electoral success as Shivraj Singh Chouhan was voted for a third time as chief minister with an increased seat share in 2013.
So, what went wrong?
As supply went up, prices crashed.
The elites and the urban readers of newspapers see inflation as a bad thing, and the controller of inflation as the slayer of dragons. Remember, inflation represents the increase of prices of a basket of commodities and services from a previous year. And in food inflation, the price paid by the consumer is to some extent a function of the price received by the farmer. Looking at the consumer price inflation closely, we see that the price fall of vegetables and pulses are the main culprits of current low inflation. While the pulse price dynamics have elements of a trade policy story, vegetable prices are mainly linked to rising production.
When yields soar, as they should with good farming practises and the right inputs, the costs of production should fall, given that a large proportion of costs are fixed. This should be a good thing — for farmers and the country. But it’s not. Why?
Let’s get back to onions. Half of India is always unhappy about onion prices.
Even in this season of plenty, onions at the wholesale market trade at Rs15 per kg in Tamil Nadu. Farmers on the fields of Madhya Pradesh received (until the recent government intervention) between Rs 2-5 per kg — a price so low, that many farmers left the crop to rot on their fields.
One big reason for this gap between consumer and farmer is freight. Road freight costs in India tend to be expensive. Textile spinning mills cry hoarse that it costs more to transport cotton from Gujarat to Tamil Nadu than it does to transport cotton from Gujarat to China!
Transport costs add between Rs 4-5 per kg of onion from Madhya Pradesh to Tamil Nadu. Other costs such as weighment, aggregation, commission etc. adds up to another rupee or so. Which leaves a gap of between Rs 4 to 7 to explain.
This goes to the traders. Traders lay claim to this share because they are the only bridge that currently crosses the last mile of farming.
Agriculture has a long working capital cycle. The farmer must prepare the land, plant the seeds, engage labour, live, buy stuff for his family, buy fertilizer and pesticides, pay the transporter and then sell his crop to receive revenue. The farmer often has little or no liquid savings and borrows to meet these expenses. Farmers, especially small and marginal farmers, often have no other asset other than their land (and precious little documentation on that too). To get a loan from a public-sector bank, or from cooperative or NABARD, a farmer needs to provide some form of collateral — given the sorry state of land records, this is a serious impediment. Many farmers are also in default of their existing loans, making them unattractive candidates for further loans.
In this context, it is important that we consider the role of loan waivers. Loan waivers are often the first port of call for any government wanting to be seen as farmer-friendly. In truth, waivers are anything but helpful to the farmer but make for a wonderfully effective election gambit. The UPA swept into power in 2009, many believed, in large part due to the large loan waiver. Multiple governments have used it since. The latest to succumb is the BJP in their UP election. Knowing the government’s predilection to waive loans, farmers become complacent about moneys borrowed from government controlled entities – what is called “moral hazard” by economists.
Banks are aware of this and with the spotlight shining brightly on their non-performing assets or NPAs, they are taking strong precautions while lending to the farmers. There are enough loopholes in the current priority lending scheme that bankers need not lend to the true small and marginal farmers to meet their quotas. Look at it from a bank officer point-of-view: He does not personally gain anything by lending to the smallest of farmers, but he runs the very real risk of default.
But this drives the farmer squarely back into the arms of the informal loan market. In many villages, the same person(s) runs the fertilizer shop, the local grocery shop, provides information, acts as the loan provider and buys the produce. He is an important person in the farmer’s life, who the farmer will not flout and he is the last mile in Indian agriculture.
Coming back to onions, prices often crash for any agricultural commodity as the crop first comes in. If one can hold out, there is a good chance that prices will rise in the weeks that follow, allowing one to capture a higher price. But to hold out, the farmer needs two things: financial capacity and storage capacity.
Small farmers have neither. Traders do, so they eat the profits.
While the Madhya Pradesh government have increased storage facilities for vegetables – it simply was not enough. The state had just 0.8 million tonnes of cold storage as against a production of vegetables of 14.2 million tonnes in 2013-14. This is a problem: a farmer has very little leverage to hold the onions if he faces a real risk of spoilage if he does.
But this equation has existed for a long time, why the protests now?
Speaking to traders and farmers offers a few plausible reasons: farmers are used to suffering during drought years — after all everyone does. But they expect to make good during the bountiful years. This year, the rains were bountiful. They suffered. The traders did not. This was strike #1.
Strike #2 mentioned anecdotally was the difficulties/ban on exports of onions. Demonetisation and uneasy relations with our neighbours have both hampered the export of our produce, so one avenue of demand came down.
Strike #3 came with demonetisation. Demonetisation combined with GST meant tougher times and liquidity issues for traders who have traditionally not been renowned for maintaining accounts. This made clearances of stock harder, which in turn caused markets to stall. For perishable produce, quick sales are everything, so prices fell. For those who advocate increased MSP, it is important to note that MSP can be a theoretical concept for farmers who need money now. Government procurement may pay higher prices, but the money will take up to two weeks to hit the farmer’s bank account. That’s two weeks too late for desperate farmers. This desperation can be used to pay lower prices for cash payment.
Opening up the APMC markets is a great long-term step in bettering agricultural markets. However, many farmers are too small to take advantage of this opening up. When a small farmer needs to take a loan to transport his small crop to the nearest mandi, selling nationally is a pipe dream that is (currently) out of his reach. While in the medium to long term, demonetisation, GST, opening up markets and direct benefits transfers are great schemes for the farmer, the short-term pain is real. And can, if not taken cognisance of and managed, queer the plot.
Strike#4: Into this already unhappy situation came the UP loan waiver. Suddenly, there was a rallying cry for the opposition to organise the farmers into dramatic protests. A farm loan waiver sustains the current unhappy credit dynamics of rural India, puts a large burden on beset banking system but wins political brownie points for the waiver. Moreover, in this case, the ruling party is not coming off as the good guy. What a waste of political capital, not to mention financial capital.
What are the lessons?
Lesson#1: Farmers need to have some control over the price set. Mandis are often monopolised by entrenched traders for whom free markets are a four-letter-word. A good way to enable better prices is by allowing more buyers into the market — corporates, exporters, retailers (more on this next time). Madhya Pradesh has had some food processing industries come up, but it needs a lot more. There is also a link between this lesson and #3 below. Both can receive a boost from FDI in Food processing.
Lesson#2: In this age of digital payments, payments from governments should come immediately, not be delayed by two weeks. This would make government procurement an attractive offer for farmers, and add bite to the MSP.
Lesson#3: Aggressive scale up of cold storage. In a hotter climate, this is a no brainer. Again, corporate India, especially retailers, should play a role in this. When the e-commerce giants are spending thousands of crores on supply chain, this is one easy win they can focus on.
Lesson#4: Understand spillover effects of one state’s actions onto another. The tinder on this whole crisis was sparked off by the loan waiver in Uttar Pradesh.
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