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Note On Doubling Farm Incomes By 2022

Let’s discuss three major components of farm income in details

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Farm Income is the excess of income from the sale of his sale of produce over his expenditure incurred on producing the same. The equation, therefore, has three components:

  1. Maximization of Revenue
  2. Minimization of Costs of Inputs, Electricity, Water, Mechanization, Interest Rates and Logistics.
  3. Development of Alternate Sources of Income.

Let us address each of these in some detail now.

Maximization of Revenue

Crop Selection: The farmer is an excellent economist. Most of the times. However, in India, sometimes there is a mismatch of the crop produced with the demand for the same. This leads to surplus production, without a direct linkage to the market. In situations like these, there is usually a fall in prices, leading to distress sale by the farmer and subsequent farm losses. This phenomenon happens as usually in the previous year, the farmer has been able to get excellent prices for a crop – and he hopes for a repeat and grows more of it. All other farmers also join in with the same thought – leading to massive surplus production and subsequent fall in prices. Now, every crop’s prices are a function of global demand, supply, inventory levels, currency rates, trade flows, freight rates, interest rates, governmental policies and local politics. It takes years of study, experience and trade participation to understand a crop’s behaviour on the price front. This is what enables global supply chain organizations to trade these crops profitably. With a view of providing the same benefits to the Indian farmer to take the right decision on a cropping pattern, it is proposed that a National Crop Planning Bureau (NCPB) be set up, with a mandate to develop understanding and competencies on each of India’s major crops. This will ensure that the farmer does not overproduce wrong produce at the cost of foregoing profits on another crop. Further, we need to ensure that India creates a global competency on a few crops. India’s agri-infra is geared towards procurement, storage and movement of wheat and rice. Planners need to identify a few more crops – corn, soybean, potatoes, tomatoes and onions for example, where such competencies can be developed. Farmers usually have had an issue with their tomatoes going waste or their onions rotting or their sugarcane not fetching good prices. I have never heard anyone in India going wrong on rice or wheat. Hence, there needs to be clarity on how much of each crop can India absorb where there is no direct linkage with an export market so that we don’t overproduce that leading to losses in income. 

Yield Maximization: While as India’s population has gone up significantly, it is to the farmer’s credit that crop production has largely kept pace with the growing population. Not many of us realize it, but each crop has a research centre in India, which works on testing multiple varieties of seeds. These crop-specific centres also import overseas varieties and test them for agronomic fitment under the aegis of ICAR. Hence, a critical component of maximization of farmer revenue is continued research and development of higher-yielding seeds. The seed replacement rate also needs to improve in India, to ensure continuous enhancement of yield levels. 

Farming Practice & Mechanization: The Indian farmer is perhaps one of the most educated ones on farming globally. Every state government has a dedicated farmer extension services wing. Further, almost all mid-large sized agri-companies have farmer engagement programs in the form of krishi-goshtis, kisaan seva kendras, farm services teams etc. All these people can bring to the farmer the latest farming practices and agri-inputs. Mechanization levels too are improving in the country with the emergence of pay-as-you-use models of custom hiring. Also, such new entrepreneurial ventures are also bringing newer technologies to the ground. Such models must scale up quickly to ensure that the entire country gets quicker access to such technologies. 

Collective Farming & Bargaining: The bane of Indian agriculture has been our fragmented landholdings, which is a consequence of our huge population. As the per capita land holding is low, it is very difficult to get benefits of mechanization – as well as the benefits of aggregation. The mandi system of India, in spite of its pitfalls, has done a tremendous job of aggregating and consolidating farm produce. Now, the next step in this journey is to either form FPOs ( Farmer Producer Organizations / Companies ) or to form Farm Co-operatives ( FCs). These FCs and FPOs can be directly linked to the processor, exporter or retailer. This will help in a higher proportion of the revenue going to the farmer. 

Hence, to action these above-mentioned suggestions, each state government should give individual targets to each Extension Officer on (a) Number of FPOs / FCs created (b) Number of Tractor Hiring Centers Opened ( c) Tonnes of Seeds Sold (d) Crop Selection and Production.

This work will have to be done under a “Project / Mission Mode” in active collaboration with the private sector as a critical and necessary participant. 

Minimization of Costs 

Inputs: Cost of inputs can be minimized by ensuring : Zero tax on all participants of the value chain of manufacturing the input so as to have a low end-cost of finished product, ensuring early release of subsidies to the companies or the farmers so that any built-in interest cost can be off-set, continued priority sector lending rate benefits, ensuring adequate availability during peak season to avoid black marketing, a more rationalized subsidy calculation mechanization which negates net-back dilution on account of freight charges. 

Electricity & Water: State Energy Development Authorities under the Ministry of Renewable Energy should ensure that all farms shift to Solar Irrigation Pumps, provided by the Government under the National Solar Mission. This will significantly reduce electricity charges, while at the same time ensuring 24x7 availability of water without any power cuts. 

Mechanization: The revolution which we are seeing in urban areas on account of taxi hiring companies like Uber and Ola, needs to be taken to the farm level as well. While as there are some companies which have entered this market, the model needs to be replicated in other states and the effort needs to be scaled up. This will ensure that the farmer no longer has to own an expensive, constantly depreciating asset – but will pay only basis usage. It will also ensure that in addition to the tractor, he will get access to other mechanized farm implements such as rotavator, cultivator, seed drill, leveller, harrow, tiller, combine harvester, soil sensors, moisture reader, precision agri tools etc at a fraction of their cost. 

Interest Rates: Interest rates on loans to farmers have been the lowest. They need to continue being the lowest.

Logistics: An unseen component of the overall crop economics is the cost of logistics of marketing the produce. It is here that some of the benefits of having an FPO / FC can begin to percolate. The cost of transporting higher volumes leads to lower per ton cost of transportation. Further, there would not be un-productive blocking of either equity or equity plus debt, if one were to transport on hired machinery versus owned tractor. 

Hence, to action the above suggestions, each state government should prepare a ‘Farm Economics / Crop Economics Matrix’ and assess how each cost component can be reduced basis the above suggestions.

Hence, overall if the total revenue is Rs 100,000 and the total costs are Rs 60,000 – then the net margin will be Rs 40,000. So, what needs to be studied is how to make the revenue Rs 120,000 and the total costs at Rs 50,000 – to have the net margin at Rs 70,000 – which may not be an exact doubling – but will surely be a step in the right direction. The balance Rs 10,000 should come from his alternate sources of income.

Development of Alternate Sources of Income

Dairy & Livestock: India’s milk production is at around 140 million tonnes. This is against a projected demand of 200 million tonnes by 2022. Hence, India needs to significantly increase its milk production. Towards that end, the government should actively consider the establishment of formal breeding centres and subsequent sale of such cows & buffaloes to the farmers. This may be a slightly unconventional suggestion, but it falls upon the government to bring some of the best technologies from Israel and other countries, as the private sector will be never be making such investments. In addition to the breeding centres, formal cow hostels, with the best milking technologies from Israel should be established. Here, the farmer will deposit his cows with the hostel – and he will get a substantially higher share of income from the enhanced yield of milk from the cow.

Educating and Investing in National Economic Activity: Currently, the level of financial education at the farm level of India’s booming economy is non-existent. There is a need to take this financial literacy through trusted sources like the LIC to the villages so that the larger population of the country also becomes a prime participant in the economic growth of the country – and gets the benefits thereof to a fair degree. This can be achieved by channelizing their savings to debt instruments or relatively stable large-cap mutual funds, where the interest rates are far higher than the savings deposits in the banks.

Crop Insurance: The current models of crop insurance are factored basis rainfall, temperature and crop loss. However, a more robust model should take into account losses on account of pest attacks, quality deterioration etc. One of the ways can be by having formal tools of income measurement (mandi receipts) and insuring loss for shortfalls in such incomes. This model, while still in a proposal stage, will have to be thought through more thoroughly through a specifically appointed study group or commission.

Job Insurance: There are newer models of insuring jobs, which have of late made their appearance in India. The overall family income of a rural household also has a component of a non-farm job income from the informal economy (drivers, office boys, mechanics, salesmen, cleaners etc). This employment needs to be formalized and job losses need to be insured through social security programs. 

Population Control: The root cause of all of India’s farm woes are the small landholdings, which is a consequence of our expanding population. A start needs to be made for the one-child program, which can half India’s population from the current 1.20 billion to 650 million by 2065, as well as 300 million by 2130. While as of this maybe 100 years from now, the seeds need to be sown by this generation. This will ensure that there is a surplus of production, higher land holdings and far higher farm incomes.

It is good that there has been an articulation of this directly from the Prime Minister, the plan needs to be formalized on a ‘Mission / Project Mode’ and subscribed by all State Governments, irrespective of their political affiliations so as to ensure that India becomes a fully developed country in the next 50 years – and a prime participant and leader of the free democratic world.

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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Girish V Aivalli

The author is Chief Executive Officer – South Asian AgTech Hub for Innovation Pvt Ltd. Former Country General Director - India, Archer Daniels Midland ( ADM ) and Former Head of Procurement and Operations – India, Cargill.

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