WHY focus on Agriculture reforms?
The Agricultural sector is riddled with distortions, often trapping farmers in a vicious cycle of decreasing incomes and increasing debt. While the crisis in the sector is widely discussed and even politicized, it is seldom understood. At the heart of the crisis is the inability of the sector to provide a sufficient income to those employed in the sector. Over 45% of the workforce is still dependent on agriculture for their livelihood, while the sector only contributes to approximately 15% of the country’s GDP. Therefore making the annual average income of a person dependent on agriculture merely Rs. 7,000; a meager 3.6% of the national average.
The issues in the agriculture sector are manifold, and often interconnected. The large and inefficient supply chains riddled with intermediaries significantly impact the average price a producer receives for their produce. Inadequate infrastructure for storage and transportation increases reliance on middlemen owing to fears regarding perishability, leading farmers to resort to distress selling at low prices. On account of receiving low prices for their produce, farmers are forced to borrow funds for sustaining their personal consumption as well as the next cycle of production. In the absence of formal credit mechanisms, farmers resort to middlemen – a source of informal lending at usurious interest rates. Oftentimes, due to their inability to repay their debt, farmers are forced to sell their produce to the lender at low prices as a condition to borrowing; therefore trapping them in the same vicious cycle.
Regulatory hurdles as a result of excessive state intervention in the form of the APMC Act and the Essential Commodities Act has deterred private investment, and at times been counter-productive in curbing price volatility. The Minimum Support Price policy has disincentivized production of crops in demand, and caused a massive burden on the public exchequer along with enormous wastage on account of poor storage and leakages due to an inefficient public distribution system. Additionally, increasing dependence on imports and a declining trend of exports has prevented farmers from getting access to better incomes on account of the global trade market.
HOW can we reform?
The importance of divorcing ourselves from political frenzy and viewing the agrarian crisis objectively remains paramount. The ultimate aim of any agrarian reform must be to increase farmers incomes and better their quality of lives. The government’s role in this aspect is critical, but limited, which involves the correction of certain misaligned incentives of its own creation, along with the provision of some inputs; a few of which are listed below:
- Liberalization of agricultural markets, therefore inviting private participation and letting the market forces determine demand and supply. This would include reforming obsolete regulatory policies such as the APMC Act and Essential Commodities Act.
- Inviting retail chains within the agricultural market has the potential to revolutionize the sector. With their access to large capital and investment, retail chains will help compress market chains, reduce price volatility and bring in modern technology and infrastructure, setting the market at par with global standards.
- Enabling access to formal credit through pledge loans, and investing in better storage facilities to curb distress selling remains crucial. This would also reduce wastage and allow better post-harvest management.
- Allowing greater investment in capital and technology in order to provide economies of scale to small and marginal farmers.
- The current system of MSP promotes the over-production of under-consumed goods. Not only does this disincentivize farmers from crop diversification and increasing productivity, but also poses a huge burden on the public exchequer. Farmers must be incentivized to reduce overproduction of cereals and move to other non-cereal crops in demand such as pulses and oilseeds.
WHAT has FDR done so far?
Having consistently sympathized with the farmers’ plight, FDR has consistently advocated for thoughtful agrarian reforms. Following are a few of the major interventions:
Led the Formation of Federation of Independent Farmers Association, Andhra Pradesh
FDR launched a platform to campaign for liberalized trade for agricultural products benefiting farmers and consumers. The Association organized policy roundtables, and opinion building meetings, drawing participation from the farming sector, media representatives, researchers in agriculture, and prominent local citizens.
Published a discussion paper and held a webinar titled ‘Agriculture: From poverty to prosperity’, 2020
FDR published a comprehensive discussion paper exploring the varied challenges in the Agriculture sector, along with a set of well-thought out policy solutions mapping the way forward. Additionally, the organization held a Webinar, ‘Crisis as Opportunity’, with participation from eminent individuals including former Union Ministers, civil society members, and former Secretaries within the Department of Agriculture.