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Farm Sector Reforms – Slow And Steady Can Win The Race

The farm bills might have been a precursor to government reducing its involvement in farming sector through cutting down on procurement and subsidies, leaving farmers to deal with market forces.

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In the context of repeal of farm bills, the author proposes an alternative, gradualist approach to solving the farm sector conundrum. The goal is to double the farmers’ incomes over a period of 10 years, by creating pull factors to wean away a substantial portion of the small and marginal farmers from farming, thereby creating bigger farms with better incomes which are commercially viable. Industry and services sectors growth can facilitate this if schemes like production linked incentives(PLI) and smart cities and industrial corridors take off as planned. Over this transition period, voluntary exit of farmers from the sector, consolidation of farmlands, and consequent improvement in productivity would help us reach the goal, with minimum pain and distress to the farming community. Reducing the number of farmers, and substituting the role of government with markets, is the key to save farming in India, albeit over a sufficiently long transition period, during which government support must continue. The fiscal cost incurred should be considered a price paid to sustain rural communities, culture and livelihood of millions.

After the announcement of farm bills repeal, many analysts expressed disappointment and said that it is a step backward for the farm sector and that we have missed an opportunity to reform the sector. It has been rightly pointed out that support prices and subsidies for food grains above international market prices, lead to excess production which is neither eaten nor exported. This excess output gets stored in the godowns of Food Corporation of India, which involves further costs in term of transportation, handling and storage and huge fiscal implications. On the one hand public funds are being used to sustain over production and excessive utilization of resources like water, electricity and fertilizers which may not be in the interest of sustainable development. On the other hand, in spite of deployment of huge amount of resources, distress in the farm sector has not reduced even a bit, looking at statistics on farmers’ suicide and indebtedness. So, what ails India’s farm sector? In a nutshell, the problems are two fold – more number of farmers than required and the consequent fragmentation of farm lands. This may be a good time to take a fresh look and at the problems plaguing the farming sector. 

Farm size 

Data from agriculture census shows that the average size of holdings has been steadily falling in India. Fig.1 shows that it has decreased from 2.28 hectares in 1970-71 to 1.08 hectares in 2015-16. It is also worth noting that 86% of the land holdings accounting for about 50% of the total operated area, to are small and marginal farms (2 hectares or less). The net income from such farms is likely to be limited, however much modern technology or any other remedies is tried. 

Fig.1: Average size of operational holdings in India


Comparison with other countries
It would be interesting to note few highlights of farm sector in the US and other countries, as compared to India. We consider farm size, yield and percentage of labour force in agriculture. Total area of farmland in the US (900 million acres) is more than the entire land are of India (735 million acres). However, the total number of farms are just about 2 million, with the average farm size being 443 acres. In India, the state of Uttar Pradesh itself has about 22 million farms, with just about 8% farmers having land above 5 acres.  This shows the extent of fragmentation of farmland, which lies at the heart of agrarian crisis in India. 

Yield
Yield of various crops also make interesting comparison – the yield per hectare of wheat in India was slightly higher than US at 3533 kg/hectare whereas it was 3475 in the latter. China had higher yield than both at about 541629 kg. The yield both in India and US were much below that of other countries such as Germany and France. Yield of rice in India was below that of other countries, and about half of that in US. Yield is less than other countries in case of other cereals like Soybean, Maize etc. Same is the case with Millets too. Even in the case of wheat, productivity in some of the European countries such as Ireland, Netherlands, Belgium, U.K etc. are almost three times that of India, which might be partly due to more conducive climatic conditions. In case of vegetables such as cauliflower, broccoli, fruits like banas also, yield in India is much lower compared to top performing countries. Even though the yield is reasonably good in the case of wheat, we are not among the top 40 countries in terms of yield, meaning there is lot of room for improvement. 

Table 1:  Yield (kg/hectare), 2019

Country

Wheat

Rice

Argentina

3216

6492

Brazil

2671

6063

China

5629

7056

Germany

7396

--

India

3533

4058

USA

3475

8374

Vietnam

--

5817

Source: FAO Statistics                                                                                                                  

Structure of Employment and GDP
Economic growth and development brought about structural transformation in almost all countries. Table 2 shows that in countries like China and Vietnam, the decline in the share of agriculture and allied activities in GDP is accompanied by commensurate decline in the sector’s share in total employment.  Notably, in India the share of agriculture in GDP has fallen from more than 50% in the 1950s to about 15% in in 2019, however its share in employment is still a massive 43%. Why is it that this dependence on agriculture for employment did not decline, in spite of its declining share in GDP? It is the lack of employment opportunities in other two sectors – industry and services. So the solution to agriculture’s problems cannot be found in isolation in that sector, it would require an integrated approach involving industry and services. 


               Table 2: Structure of Employment and Value Added in Selected Countries (%)



2005

2010

2019

Decline/increase        (2019 - 2005)

Share in Gross Value Added (2019)

China

Agriculture

44.8

36.7

25.3

-19.1

7.4

Industry

23.8

28.7

27.4

3.6

39.2

Services

31.4

34.6

47.3

15.9

53.4

India

Agriculture

56.0

51.5

42.6

-13.4

17.7

Industry

18.8

21.8

25.1

6.3

29.1

Services

25.2

26.7

32.3

7.3

53.1

Malaysia

Agriculture

14.64

13.3

10.28

-4.36

7.3

Industry

29.72

27.62

27.01

-2.71

37.8

Services

55.64

59.09

62.72

7.08

54.8

Vietnam

Agriculture

54.8

48.7

37.2

17.6

15.5

Industry

18.7

21.7

27.4

8.7

38.3

Services

26.4

29.6

35.3

8.9

46.2

USA

Agriculture

1.4

1.4

1.4

nil

0.8

Industry

22.3

19.6

19.9

-2.4

18.6

Services

76.3

78.9

78.7

2.4

80.6


           Source: World development indicators, World Bank & UNCTAD statistics


Need a long term strategy

Given the fact that more than 50% of the population directly depends on agriculture for livelihood, any abrupt change in policies, such as those contained in the repealed farm bills, would prove detrimental to the wellbeing of vast number of people in this sector.  What is required is a gradualist approach and strategy to double farmers’ incomes over a period of next 9-10 years. It would involve reducing the employment share of agriculture to 25% from the existing 43%, by moving farm hands to industry and services. A lot of this reduction would happen when children of farmers, with proper education and training decide not to go back to farming, but pursue other vocations in entrepreneurship, industry and services. Government schemes such as production linked incentives (PLI), PMKY and the Industrial Corridors have the potential to facilitate the above transition. In addition, urbanisation through development of greenfield cities and sub-cities would also go a long way in creating livelihood opportunities for farmers willing to move out. In short, pull factors must be created (by providing attractive options to farmers and their children) for voluntary and distress free exit of a substantial number of small and marginal farmers from the sector, leading to consolidation of farmlands. Consequent improvement in productivity would help us reach the goal, with minimum pain to the farming community. This approach would help us to avoid major disruptions to the rural and agrarian economy, on which the disproportionately large section of the population is dependent.  

Until such shift of work force happens, support by government through various subsidies and MSP should continue, even though it involves huge fiscal burden. But subsidizing the farming sector is something which most of the countries – developed and developing - are doing. This is because agriculture is not just about food production, but protecting rural communities’ way of life, and culture of a society.  

Use of Technology
Cooperative farming through land pooling by small farmers can be helpful in adopting modern techniques of production and increasing productivity. However, the model cannot solve the problem of limited income of small farmers.  Focus on allied activities like livestock, fisheries and farm tourism can also help supplement farmers’ income. But for sustained increase in farmers’ income, it is necessary for farm size to increase and this can happen only when small and marginal farmer quit in favour of better options in other sectors. Large farms can afford to use modern techniques of production. For example, artificial intelligence (AI) and internet of things (IOT) might be used for optimizing input use. Drones can be used to monitor crops and spray pesticides and fertilizers. These technologies can be better employed by large, rather than small and marginal farmers. 

A study by Ashok Gulati et al. in 2009 showed that farm sector GDP of Gujarat expanded by 9.6 per cent during 2000-01 to 2006-07. Even if measures suggested above lead to 7% percent annual growth, rule of 72 says that in 10 years farmers’ incomes would double. Large farmers who remain in farming would be in a better position to take advantage of markets as farming would be commercially viable, reducing fiscal burden to the government.

The farm bills might have been a precursor to government reducing its involvement in farming sector through cutting down on procurement and subsidies, leaving farmers to deal with market forces. However, without government support, vagaries of market place could have added to the distress of the farmers. It is also true that India has far too many farms and farmers than required, surviving on government support.  To ride out of this conundrum, we favour a policy of gradual transition as detailed above, retaining the government support of the sector for another 8-10 years. During the same period, make it attractive to large number of farmers to voluntarily shift out of the sector by making available other attractive opportunities. Thus, we will be able to save Indian agriculture, by reducing the number of farmers.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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agriculture farm bills farm bills 2020

Dr V J Sebastian

The author is Associate Professor - Economic Environment and Policy, IMT Ghaziabad

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