Leaving Small Farmers Behind: The Other Side Of Farm Agitations

Their demands are of three kinds: (1) price guarantees; (2) higher wages and additional provisions that may ultimately harm competition; and (3) seeking change in policies that favour corporate agriculture at the expense of smallholder farmers. 

India's agriculture sector is the backbone of its economy, with a significant portion of the population engaged in farming activities. Out of the 93.09 million agricultural households in India, a staggering 82 per cent belong to the category of small and marginal farmers, typically holding less than 2 hectares of land.

Despite being the lifeblood of the nation's food production, the average monthly income of Indian farmers hovers around a mere US$ 120 per month, starkly lower than the national average per capita income of US$ 250 per month.

Farmers from Punjab and Haryana are among the wealthiest in India, with a per capita income of US$ 314 and US$ 268 per month, respectively. Out of 93.09 million, Punjab has approximately 1.46 million agricultural households, while Haryana boasts about 1.96 million agricultural households.

Together, these two states account for only 3.67 per cent of India’s agriculture household population. Despite their relatively small population within the agricultural landscape, these two states have been at the forefront of farmer protests. 

Most of the small and marginal farmers, with 73 per cent of them concentrated in the southern and eastern states, hardly take part in the protest. In stark contrast, Punjab and Haryana are dominated by large farmers, with only 1 per cent of the farmers falling in the category of small and marginal farmers. 

Analysing Major Demands

Minimum Support Price (MSP): The issue of MSP remains a contentious point in India's agricultural discourse. While the government procures 23 essential food items from farmers through agencies like the National Agricultural Cooperative Marketing Federation of India Limited (NAFED) and the Food Corporation of India (FCI), the reality is far from ideal for small farmers.

MSP often seems like a lifeline, offering a price floor above market rates. However, logistical challenges and limited procurement centres render MSP benefits inaccessible to many.

Firstly, it's important to note that not every village can access NAFED or FCI outlets. Also, over five decades since MSP was introduced, NAFED and FCI primarily procure rice and wheat from a limited number of states.

Approximately 70 per cent of rice procurement occurs in Punjab, Andhra Pradesh, Chhattisgarh and Uttar Pradesh, while 80 per cent of wheat procurement is concentrated in Punjab, Haryana and Madhya Pradesh. Moreover, the timing of procurement dates often clashes with harvest seasons, making it impractical for small farmers to sell directly to FCI. 

In India, the average agricultural yield is 20.7 quintals per hectare. But given their landholding size, which is around 1.15 hectares, small farmers can at the most produce 24 quintals. To store their perishable stocks in cold storage, farmers are required to book a minimum quantity of 50,000 quintals for their produce for government cold storage, a daunting requirement for small-scale farmers.

Private cold storage can accommodate as low as 5,000 quintals, but even that is quite an ask for small farmers. Alternatively, farmers may choose to take their produce directly to a government-designated local mandi.

However, with only 7,700 mandis available across India's 6,60,000 villages, arranging transport poses a significant challenge. Booking an entire truck with 400 quintal capacity for themselves may not be financially viable or logistically feasible for individual farmers.

Consequently, many are forced to sell at local markets or to village-level aggregators, often falling prey to exploitative pricing. Thus, while MSP discussions dominate headlines, its benefits trickle down unevenly, failing to uplift the majority of small and marginal farmers.

Effectively, MSP always stands to make gains for the traders and middlemen (arhtiyas and banias), mostly belonging to the states of Punjab and Haryana.

The large farmers from these two states are also demanding that a guaranteed MSP be extended to other crops, beyond the traditional wheat and rice. The falling water tables in northern India are making rice and wheat cultivation unsustainable.

Large farmers fear that their income could be jeopardised if the government does not extend MSP to other less water-intensive crops. 

Farm Loan Waivers: The concept of farm loan waivers, though seemingly beneficial, has its pitfalls. In a country where only 15 per cent of marginal farmers have access to formal credit, loan waivers predominantly benefit those with formal loans. Evidence indicates that farm loan waivers often fail to benefit small and marginal farmers.

Once a loan waiver is announced, banks typically cease lending to farmers eligible for waivers in subsequent loan cycles. As a result, many small and marginal farmers, who are otherwise eligible for formal loans, find themselves unable to secure financial assistance.

As a result, they now have to depend on loans from the informal sector. The cost differential between loan rates in the formal and informal sectors varies from 30 per cent to 45 per cent annually. 

Additionally, loan waivers risk fostering a culture of moral hazard, incentivising strategic defaults among otherwise solvent farmers. Evidence suggests that funds from loan waivers are often diverted towards consumption rather than productive investment, offering temporary relief rather than sustainable growth.

Agricultural households that received loan waivers had no significant productivity difference when compared with the households that were ineligible. Even many big farmers from Punjab are highly indebted, as they use the loan amounts for consumption purposes.

Thus, while touted as a solution, loan waivers may inadvertently exacerbate financial disparities within the farming community. 

World Trade Organisation (WTO): The debate surrounding India's involvement in the WTO underscores broader tensions within the agricultural sector. Commitments to reduce food subsidies, coupled with proposed reforms in agricultural produce market committees (APMCs), raise concerns about the corporatisation of agriculture.

It is costly to procure and distribute food grains on the part of the government, and further reforms would entail corporate participation. While proponents argue that privatisation could streamline procurement and distribution processes, critics fear it could deepen the grip of corporate interests, further marginalising small-scale farmers.

The concept of an unregulated market, operating independently of the government’s oversight, frequently endangers issues such as uncertainty, collusion, quality control, information asymmetry and potential abuse of non-economic power.

These factors contribute to various forms of market failure, highlighting the importance of a regulatory framework to mitigate such risks. 

(The author is a professor at Mahindra University. Views are personal)