Increasing Fragmentation of Land

High dependency ratio on ever diminishing size of farms is a major cause of concern. The percentage of marginal farmers has increased from 64.8 percent in 2005-06 to 68.45  percent in 2015-16,  while the percentage of small farmers has declined from 18.5 percent to 17.62 percent, of semi medium and medium farmers from 15.8 percent to 13.35 percent and of large farmers from 0.8 percent to 0.57 percent in the same period.(Agricultural statistics at a glance-2022).It is clear that marginalization of farmers has occurred and one push of adversity could turn them into landless labourers.It is apparent that the distribution of land is highly inequitable and the situation is growing more alarming by theday. This is also in part due to laws of inheritance prevailing in our country which earlier divided land equally into all male descendants and now equally among all children. Along with this there has been a steady rise in population specially in rural areas. Also, we as a traditional society attach importance to owning land even if we do not put it to productive use.

Declining Public Investment in Agriculture

Due to increase in the number of farmers tilling very small parcels of land, income from farming is very low. So, a large number of farmers could not even fulfill their consumption needs leave alone think of investment. Thus, improvement in agricultural sector depended a lot on the government.  In the initial years after independence, the Government provided investment in agriculture. This led to an increase in productivity as well as increase in total output in agriculture. But of late, the government seems to be suffering from investment lethargy. See Table1.1 below.

Public Investment in Agriculture

Source: Economic Survey 2010 Government of India

The above table shows a steady decline of public investment from 6^th Plan to 9^th Plan before showing a slight improvement in 10^th Plan. We have already seen that majority of farmers are small landholders without any wherewithal for investment.Yet, surprisingly in recent years it is the private sector which is the major investor in agriculture. See Table2.        

Table 2:Public and Private Investment in Agricultural and Allied Sector at 2004-2005 Prices

Source: Central Statistical Organization, Government of India

Private Sector investment includes investments made by private corporates and households. The corporate sector investment includes investments made by organized corporate bodies and the household sector investment comprises investment on farm equipment machinery irrigation land improvement and land reclamation. With about 90% share, households dominate the private investment scene. But after nineties while there had been a decline in public sector investment private sector investment became stagnant, resulting in a decline in share of agriculture in total investment from 17.9 percent in 50s to5.7 percent in 2005-06. Public Sector investment in agriculture does not only results in increased productivity but it also leads to substantial reduction in poverty. (RBI occasional papers 2008).

Concomitant with the decline inpublic sector investment there has been an increase in capital intensity of agriculture in India since 1990s. (RBI Occasional Papers, 2008).

The low level of investment by the public sector clearly shows that the Government does not accord a high level of priority to the agricultural sector. The government’s capacity to invest is also restrained due to the lack of fiscal space because of the increasing burden of input subsidies whether it be electricity or fertilizer or food Subsidy.

Low Level of Productivity in Indian Agriculture

Small size of land holding coupled with declining investment has had an adverse impact on the capability to improve productivity. This can easily be discerned from the fact that though productivity in terms of yield per hectare has increased over the years in India (productivity of food grains has increased from 522 kg/hectare in 1950-51 to 1854 kg/hectare in 2007-2008) it is still quite low and has continued to remain below that of even countries like China, Indonesia etc. who were in a comparable state of development far ago. See Table 3.

Table 3:    Cereal Productivity in Kg/Hectare

Source: WorldBank website http://data.worldbank.org/data.catalog

Green Revolution and Small Farmers

We often express concern at the low level of productivity in agriculture in India and emphasize the importance of increasing output substantially so as to feed its growing millions at a higher level of consumption. Green Revolution has been one such effort. But Green Revolution requires inputs such as chemical fertilizers, HYV seeds, assured irrigation, pesticides, insecticides and mechanization. Thus, agriculture today has become a costly affair. Capital intensity in industry in a labour surplus country was already a worrisome feature and added to thus agriculture is also going on the same path.As his been seen public investment in agriculture has declined and lion’s share of private investment is done by households. These households have to depend on loans for making necessary investments as they hardly have any savings of their own. As institutional credit has started declining andinformal credit is about 40%of total credit. Thisleads toa piquant situationwhere farmers invest borrowed funds for producing commodities which may be used for themselves and not be part of marketable surplus. They may default on loansandif loans are taken from unorganized sector at prohibitive rates there are chances that small and marginal farmers may turn into landless labourers.

Limitations of Green Revolution

Green revolution has been confined to limited regions and certain crops. This green revolution has also accentuated the difference between large and small farmers because the big farmer had better access to institutional credit and information, better risk bearing capacity and ability to purchase new technological inputs (Byres,1981). Green Revolution has also had adverse environmental consequences. It has resulted in sowing of water guzzling crops in areas like Punjab leading to steady decline in water table. Free electricity for farming has led to overexploitation of water and electricity.  Subsidized urea has led to its disproportionate share in fertilizers used by farmer. All these subsidies harm the environment and put huge burden on fiscal deficit, leading to less funds left for R&D and other public investments. Excess of insecticides and pesticides harms the environment. Monoculture in seeds and crops has come up while using HYV seeds. These seeds have to be purchased from the market unlike earlier years when farmers prepared their own seeds and a large number of varieties of same crop were produced. This has led to additional cost being borne by small farmers leading to them taking loans both from formal and informal sector.

Uncertainty of Output and Prices

Moreover, even after adoption of modern methods of farming, vagaries of nature could wreak havoc on the poor farmer. This makes agriculture wrought with uncertainties unlike industries where the right mix of inputs will result in a definite level of output. If Mother Nature is uncooperative, then despite the best efforts of the farmer, even after taking loans for costly inputs and providing unpaid labor, the results may be far from satisfactory.  If the output turns outto be low, the farmer may not be able to pay back his loans. And ifhe has taken loan from a non-institutional source the situation may be even more critical. On top of it, if he has sown cash crops in place of traditional cereals in anticipation of good profits, he may not even be in a position to feed himself and his family. The farmer is always subject to production risk in contrast to an industrialist who is certain of the output with given level of inputs.

This is the unfortunate situation of the farmerwhen crops fail due to some natural calamity. But what happens when there are bumper crops?  More often than not, the cultivator is faced with the scenario of poverty amongst plenty. This results from the fact that agricultural commodities are highly perishable and face inelastic demand leading to declining terms of trade vis-a- vis industrial goods. Warehousing and proper storage facilities are woefully inadequate. In case they are available, the poor farmer cannot have access to them on account of lack of funds. Often, he has to resort to distress sales. So, even if price of food articles remains high, it is only the middleman and not the farmer who benefits. Moreover, unlike industrial products, prices of agricultural commodities are controlled. Even if thereis a possibility of getting better prices abroad, exports are not permitted if there is high price scenario within the country. Moreover cereals kept in buffer stocks of government warehouse, is offloaded in the market at suchatimeso that a situation of food inflation may be avoidedandfood prices are suppressed. Consumers are preferred over producers. Consumers are mostly vociferousurban folks who appear to matter much more electorally.

It appears, firstly the farmer is mostly not in a position of charging high prices, next he is forbidden from benefiting from them by government policies. It is often remarked that MSP the Minimum Support Price is also the maximum price allowed to producerson their output. Food prices are a highly politically sensitive issue. Prices of sugar, onions, tomatoes and vegetables etc. have at times even led to electoral defeat of governments. Keeping price of food articles low is imperative for a democratically elected government of a country inhabited by a vast majority of poor people.  

Economic Reforms and Agriculture

Economic reforms and accompanying liberalization had led to unshackling of industry and led to increased productivity and competitiveness. Private sector increasedinvestment just as public sector investment declined. This led to commendable growth in industrial and services sector. But the case of agriculture was different. Here the private sector was wary of investing due to the uncertainty associated with output of agriculture along with policy uncertainty. Liberalization led to reduction in trade barriers.  Tariffs declined from nearly 100 percent to about 30 percent in 1997 and were targeted to comedown further (Reddy,2006). Quantitative restrictions on majority of agricultural products were dismantled. Green Revolution was built on the basis of institutional support by the government. But as India achieved self-sufficiency in food this institutional support began to be withdrawn. After the 1990s institutional credit to agricultural sector began declining becomingless than 60 percent of total credit. This is an alarming situation in itself but more disturbing is the fact that small borrowers’ share has declined to one third by 2001. Being part of WTO, there has been immense pressure to reduce input subsidies while rich countries provide income support to farmers along with heavily subsidized crop insurance.With opening up of trade in agriculture Indian farmer is subject not only to price and output fluctuations in the domestic market but also to similar fluctuations in international markets. Farm Business Income has begun declining since the 1990s. Opening of agricultural market for international trade needs to be accompanied with some domestic policy support. (Chand R., 1999).

Present Bleak Scenario and Possible Way Out

When we talk about solutions, we have to understand that farmers are not a single monolith and not all of them face the same nature of problems norare theyexactly similar in their capacity to withstand adversities.

There is the uppermost decile of large farmers whichhas surplus of farm income over consumption. Their problems should be considered separately from small and marginal farmers.

We have seen that about 86percent of farmers are small and marginal farmers. We also know that they are in dire straits. Earlier they used to undertake traditional farming which involved using livestock they owned and not machines for heavy work which need rental or loans with interest to be paid for. They had their own seeds which though low yielding were sturdy and did not need as much chemical fertilizers, pesticides or too much irrigation. They produced less but their input cost was low. In order to make the country self sufficient in food, farmers were encouraged to become agriculturalentrepreneurs. The farmers responded and took up modern method of farming and started growing cash crops instead of cereals for self consumption. They wished to substantially increase their incomes and for this they were prepared to take risksas well as loans.This trait of the farmer can be deciphered from the fact that more suicides due to rural distress are taking place in rich agricultural states as compared to less developed states like Bihar ,Bengal and Uttar Pradesh. (Reddy et.al., 2020).

So probably a second green revolution which takes into consideration the conditions of small farmers is required. There has been a continuous decline in public investment in Research and Development. It needs to be increased and supplemented by private corporate investment so as to provide low-cost improved technology suitable to small farms which is also sustainable in the long run.The new technology should help in reversal of soil degradation due to excessive use of water, fertilizers, insecticides and pesticides.  There is a vast swath of arid agricultural land. New varieties of seeds suitable for such areas should be developed.

Until this happens, we need to recognize that while modern and capitalist method of agriculture has certainly led to substantial increase in output, turning us from a food importing nation to an economy which produces surplus food, it has not led to substantial change in real income of the farmer. The problem gets compounded in the case of tenant farmers and sharecroppers. Landless agricultural labour and his distress is not even considered by policy makers. The small farmer who takes up risky capitalist mode of cultivation in order to reap benefit of abundant production and increased income may have to suffer due to output fluctuations and price fluctuations. As such small farmers should move out of this environment degrading method of agriculture and revert towards organic method of farming.Nowadays there is great demand for organic food produced without chemical fertilizers, insecticides & pesticides.  Several high-end consumers are prepared to pay markedly higher prices for organic farm products. But they might not be prepared to purchase these products directly from the farmer in absence of certification.  To solve these problems of faith, it would be imperative on the part of small and marginal farmers to form a co-operative for organic products on the lines of Amul in dairy farming. The farmers need not pool together their land. Instead, they only need to pool together their produce. Farmers Producers Organizations would be an important step in this direction. Organic farming would lead to lower production, but it will also lead to a sharp reduction in input costs. Organic farming should not mean farming without technology but farming with organic fertilizer made of natural waste, natural insecticides and technology suitable for small farms. It would also help in reversing the problem of soil and environmental degradation and overexploitation of natural resources. But before we embark on this path it would be advisable to go for a pilot study to understand loss of total output that this move may cause because the vast majority of population will not be prepared to shell out high prices for food grains and it could lead to nutritional insecurity. So,diversificationin agriculture into non cereal crops and engaging into agriculture flied activities would be more promising.

Most of the studies have shown that given the small size of holdings, non-farm income is needed to supplement income from farms.As the services sector and the industrial sector are not absorbing surplus labor from the agricultural sector, it is of utmost importance that greater opportunities for livelihood are created in rural areas. Rejuvenating the traditional handloom and cottage industries could help. Pisciculture, horticulture, sericulture and dairy farming could supplement agricultural activitiesand provide additional income to the cultivator.It has been seen that income of farmers growing fruits and vegetables has grown faster than those growing cereals. They have required no MSP to expand their output. The growing demand of the consumers is their biggest incentive. In an aspirational economy like India, it is natural for consumers to demand less of cereals aa their income increases. They will demand more of fruits, vegetables, dairy and poultry products as they become better off. So, cereals may get relegated to Giffen goods status. As such encouraging the farmers to grow them more than the consumption needs of the country via continuous increase in MSP could be counterproductive. Export market for agriproducts in rich countries are heavily protected. As such excess output does not have an assured market for exports. (Even otherwise when prices are high in world markets, government indulges in export banand when prices are high domestically it imports agriproducts to dampen domestic prices. But the same government provides no compensation to farmers in case of price crash due to excess output).

So, it would be better if policy intervention in favour of increasing non-farm income took place. Establishment of modern agro based industries would be of great help. These could provide employment in the slack season. Food processing industries especially could provide succor to the poor peasants. They could help salvage food produce rendered surplus due to output greater than local market demand. Other than cereals, pulses and oilseeds, products like fruits and vegetables are highly perishable. They also face the problem of inelastic demand in the short run. Processing of such food articles would not only preserve their nutritional value for a longer time but would also lead to greater income from products higher up in the value chain. Linking agri-food processing to production through efficient value chains, contract farming and direct linkage between factory and farm offera considerable scope for rural employment generation as well as for raising farmers’income (NABARD 2022). Empirical data shows that thesmall and marginal farmer is increasingly combining production of cereals for subsistence with the production of vegetables, fruits and animal products for the market. And the SF/MF is eminently suitable for this task as their production is highly labour intensive.

Unlike small and marginal farmers, the large farmers have the wherewithal to save, invest and take risk. These large-scale farmers should be provided with latest technology so as to increase productivity using HYV seeds for all crops, cereal as well as non cereal. But even with best available technology agriculturestill suffers from greater susceptibility to climatic changes and changes in weather patterns as compared to industrial production. Moreover, in case of bumper crops prices will go for a free fall.Therefore, increased productivity, should be accompanied with better storage and processing. Also, futures and forward markets in agricultural commodities should be developed to provide price signalling inadvance. The productivity of these largefarmers could be improved with adoption of best technology and best practices.  Price Signals from futures market would help them decide crop mix in advance. But if large farmers are to play by the market, then governments should also not indulge in price suppression measures like banning of exports. Futures markets will work well only in a stable policy environment. Frequent and unpredictable changes in stocking rules, sudden suspensions of goods from the market and high margins for the trade of “sensitive” commodities have dissuaded would-be speculators from participating. (Gulatiet.al., 2017). Policymakers seem to be unwilling to relinquish control and indulge in micromanagement defeating the purpose of the market. Problems regarding settlement also need to be removed so that trust between various stakeholders is built.