Gujarat Lessons: We Must Get Farmers Off Farms, Not More Goodies To Farms

With the Bharatiya Janata Party (BJP) faring poorly in many of the rural areas of Gujarat in the recent assembly elections – an outcome seen as being the result of its failure to address farm distress – everyone is betting that the next budget, due in a month’s time, will be rural and farmer-oriented.

In theory, there is nothing wrong in holding out hope to half the population that depends on agriculture, but the reality is that Union budgets can do little to alleviate the pain on the farm. It can offer band-aids for cancer. Raising MSPs (minimum support prices), investing more on irrigation, giving better insurance cover against natural calamities, and writing off large amounts of accumulated farm debts cannot be anything more than palliatives. They cannot really resolve the fundamental problem in farms: too many people living off it.

Higher MSPs can only worsen the fiscal situation by raising the subsidy burden, especially given the requirements of the Food Security Act’s pricing of Re 1, Rs 2 and Rs 3 for coarse cereals, wheat and rice. Writing off loans not only worsens credit discipline, but, by pre-empting budgetary resources, also weakens the state’s ability to invest in infrastructure – including irrigation and canal building. A waiver today leads to more waivers in future, since there won’t be enough roads or water to improve agricultural productivity tomorrow, resulting in another bout of farm distress, and new demands for waivers.

Here’s the nub: without handling the central problem of creating enough jobs to absorb the excess labour on farms, there is no way you can make farms viable. Also consider: if food, fertiliser, seeds, power, diesel and interest rate subsidies have not made farms viable, will more of the same do the trick?

Consider the numbers: according to the Agricultural Census 2010-11, marginal farmers (those holding under one hectare) are 67 per cent of the total. Add small farmers (those with one to two hectares), and the percentage crosses 85. The first lot is unviable, and the second lot is probably burdened with having to support too many people on the farm, making it tougher to invest in productivity-enhancing technologies.

To repeat: the only way to alleviate farm distress is to restore farm health by developing a viable long-term plan to get farmers off the land. Is this possible? Yes, but it needs persistence and the right diagnosis.

No 1: Any farm upliftment plan clearly has to start with a jobs plan that can guarantee at least Rs 10,000 as monthly wages in semi-urban areas or in the agri-products supply chain. It will not work unless we reform our labour laws to make hiring easier. In this context, a recent Business Standard report suggesting that the government may bring legislative changes to allow fixed-term labour contracts is a step in the right direction. Fast and quicker urbanisation will also improve the quantity and quality of jobs available for those who need to leave the farm.

No 2: The second, and bolder plan, should be to shift the onus of food security to states, by devolving the current food subsidy outlays to them. India does not need the same kind of food subsidy in every state. This kind of one-cap-fits-all solution has been the bane of Indian social security systems, causing huge leakages and unintended beneficiaries, as has been proven with the LPG subsidy. Once the overall central food and fertiliser subsidy bill is apportioned to states, we can dismantle the Food Corporation of India, or break it up into parts that the states may want to run on their own. In future, states should decide what they want to procure, and at what prices, based on their own requirements, and contributions to central buffer stocks can be allocated from these procurements in key cereals.

When it comes to ensuring food security at the national level, what we need is a food and agri-products trading company, which watches domestic and global supply and price trends like a hawk. It can then buy or sell cereals, oilseeds, pulses or onions in the futures market, or well in advance of needs, so that domestic prices can be reasonably stable, and farmers are assured of acceptable prices. You don’t need to store millions of tonnes of grain or pulses at home (often for rats to feats on) all the time; you can buy them forward, or liquidate them on the high seas, if they are not required. Even at home, the key to providing higher farm prices is to make it easy for them to sell their forthcoming produce in the forward market, with a provision for insurance to cover their contractual losses if they are not able to deliver due to natural calamities.

Much of rural anger in recent months has been the result of farmers sowing a particular crop based on last season’s prices, only to find that when they come to the mandi the crop prices have crashed. The tyranny of the mandi trader needs to be ended by giving farmers the ability to sell forward.

Shifting the procurement responsibility, and the current available central resources, to states will hopefully make them more responsive to the needs of their own farmers, obviating the need for the Centre to step in every time. States should not be given an alibi to let their farmers commit suicide and then blame the Centre for not helping enough. Food security also needs to be worked out at the district level, based on locally produced and consumed cereals. It makes no sense to procure wheat in Punjab and then despatching the same to Dibrugarh when consumption patterns in Assam can be different. Food security in Assam should be decided by the state government, which understands its people’s nutritional needs best.

No 3: Laws are needed to expand corporate and contract farming by leasing fragmented landholdings. The only proviso that needs inclusion in these laws is that the farmers and labourers displaced by large-scale corporate farming will be provided jobs, skills training and/or annuities for at least five years (or any reasonable period) from the year of displacement. This will aid the process of shifting labour from unviable farms to other activities.

No 4: Leveraging the one asset farmers own – land – is crucial to the task of getting them off unproductive farms to worthwhile jobs elsewhere. Currently, the embedded value of land is mostly captured by land aggregators and politicians with access to knowledge on future development and infrastructure projects. Anyone who knows where a highway is going to be notified, or where an industrial estate will come up, or which parts of rural areas will be declared urban agglomerations, will benefit from this advance knowledge. Unfortunately, poor farmers will end up selling their land parcels to other agriculturists, since only farmers can buy farm land. This needs to end.

The crucial change in the law that needs to be made is this simple one: any land owner should be able to change the land use pattern on his own, as long as the government is able to identify areas that are always barred for development, or restricted for development on grounds of ecology or something else. Once all states earmark these zones, any farmer should be able to use his land for any purpose. This crucial law change will shift power from land sharks to the humble farmer, and he will automatically get a better price for selling or leasing his land. The anti-growth United Progressive Alliance-era Land Acquisition Act can then be phased out. We also need to bring back property as a fundamental right, thus obviating the need for politicians to bring in laws to compensate them for loss of value. This is what Japan does, allowing land-owners to do what they want with their property. In urban areas, this actually keeps property prices stable, as it removes the artificial land scarcity created by those who control building laws and permits.

No 5: Farmers in India not only need to be fewer, but those who remain on the land should be looking at not just technology for productivity gains, but also value-additions. It is not possible for MSPs to remain forever; so, logically, farmers should be investing in forward linkages to packaging their produce, branding them, and marketing the same at higher prices. Amul and the various state-level milk cooperatives are examples to follow. You can’t get higher prices on the farm unless you forward integrate into packaging, marketing and branding. Farmers should have a choice of selling paddy at Rs 1,550 per quintal to the procurement agencies or be shareholders in a food marketing company, which can pay them upto Rs 20-25 per kg of packed and branded rice, plus the possibility of a dividend at the end of the year. Higher farm earnings need not depend on MSPs alone. At the end of the day, farming is a business, just like manufacturing or services.

No 6: Farmers need well-designed financial products that cater to their needs. Apart from low-priced crop insurance that ought to be compulsory, they also need better annuity products. For example, a farmer with a very small land parcel should be able to do a reverse mortgage where he can earn a monthly annuity until death by selling it to a land aggregation company, even while earning some money from farming on it when he is alive. Payments for compulsory land acquisitions can also be done partially through annuities, and/or livelihood guarantees for a fixed term, which could include skilling costs in other vocations.

Centre and states should have annual targets for reducing dependency on agriculture – say two per cent annually, which means creating 4-5 million jobs just for absorbing agriculture’s surplus labour – for the next 10-12 years. This will ensure that by 2030 only 20-25 per cent of Indians depend on farming for their livelihood. We can solve the perpetual farm distress problem only by getting people off the farm, not by subsidising them to remain there. This will not only help them earn better livelihoods, but also make the rest of the agricultural sector vibrant, viable and productive.