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Chapter # 6.Doubling Farmers’ Income (II): Policy & Governance

Objectives

  • Create a policy environment that enables income security for farmers, whilst maintaining India’s food security.
  • Encourage the participation of the private sector in agricultural development to transition from agriculture to robust agri-business systems.
  • Promote through government policies the emergence of ‘agripreneurs’ so that even small and marginal farmers can capture a higher share of value addition from ‘farmgate to fork’.

Current Situation

The mismatch between the contribution of agriculture to national income and share in employment has remained large and has widened. The manufacturing and service sectors have failed to absorb the excessive workforce in agriculture. Consequently, value addition per worker in agriculture grew slowly and income per farmer never crossed one-third of the income of a non-agriculture worker since the 1980s. The country took 22 years to double farmers’ income at an annual growth rate of 3.31 per cent during 1993-1994 to 2015-16; doubling farmers’ income between 2015-16 and 2022-23 will require an annual growth rate of 10.4 per cent in farmers’ real income.

Corporate investment in agricultural infrastructure has not exceeded 2 per cent. In the years post-independence, the policy structure was focused on increased production and productivity to ensure food security for India. However, to achieve the target of doubling farmers’ income by 2022-23, we need to shift our focus from agriculture to agri-business.

The current government has taken several steps to improve private investment in agriculture. 100 per cent foreign direct investment (FDI) was allowed in 2016-17. Similarly, the SAMPADA scheme targets creation of food processing infrastructure. The budget allocation to the food processing sector was doubled in the Union Budget 2018-19. Introduction of the Model Agricultural Produce and Livestock Marketing Act (2017), Model Contract Farming Act, new guidelines for agro-forestry are some other key policy initiatives taken over the past few years.

Constraints

  1. Fragmented land holdings

 Agriculture is characterised by an extremely fragmented landholding structure with an average farm size of 1.15 hectares and the predominance of small and marginal farmers, with those holding less than 2 hectares (accounting for 85 per cent of agricultural households).1 This makes it difficult for them to access credit or new technology, severely affecting farm productivity and hence, farmers’ incomes.

  1. Low price realization

 There exists a large gap between farm harvest prices (FHP) and retail prices (see Figure 6.1).2 Prices also tend to fall below the minimum support prices in a good production year, leading to agrarian distress. Mechanisms need to be developed to ensure remunerative prices to farmers, in both ‘good’ and ‘bad’ monsoon years. 

  1. Non-farm employment

 Lack of non-farm employment opportunities has resulted in excessive dependence on agriculture for livelihood among both small and marginal farmers as well as among the landless.

  1. Agricultural credit

 Despite an allocation of more than INR 11 lakh crore of commercial credit, access to institutional credit remains a constraint, especially in the case of tenant farmers. 

  1. Agricultural trade

 Exporters of agro-commodities are not successful in raising their share in global markets because of uncertainty in the foreign trading regime.

Way Forward

  • Marketing reforms

 Many of the constraints in marketing can be addressed by adopting the Model Agricultural Produce and Livestock Marketing Act (APLM), 2017,3 which provides for progressive agricul-tural marketing reforms, including the setting up of markets in the private sector, allowing direct sales to exporters/processors and cus-tomers, farmer-consumer markets, e-trading, single point levy of market fee, a unified single trading licence in a state, declaring warehouses/ silos/cold storage as market sub-yards and the launch of the National Market for Agriculture. APLM should be adopted by all states as expe-ditiously as possible.

  • Amend Essential Commodities Act

 The Essential Commodities Act, which has proven a disincentive to large investment in agricultural technology and infrastructure, should be replaced with a modern statute that balances the interests of farmers and consumers.  

  • Stable export policy

 In consultation with all stakeholders, the Government of India should come up with a coherent and stable agricultural export policy, ideally with a five to ten-year time horizon and a built-in provision for a mid-term review. Efforts should be made to achieve this urgently.  

  • Price realization 

The government should consider replacing the Commission on Agricultural Costs & Prices (CACP) by an agriculture tribunal in line with the provisions of Article 323 B of the Constitution. NITI Aayog should set up a group to examine the following:

  • Replacing the minimum support price (MSP) by a minimum reserve price (MRP), which could be the starting point for auctions at mandis.
  • Separating the criteria for MSPs for (i) surplus produce; (ii) for deficit but globally available products; and (iii) for products that are in deficit both domestically and globally.
  • Examine options for including private traders operating in markets to complement the minimum support price regime through a system of incentives and commission payments.

Raising MSP or prices can only be a partial solution to the problem of assuring remunerative returns to farmers. A long-term solution lies in the creation of a competitive, stable and unified national market to enable better price discovery, and a long-term trade regime favourable to exports.

Agriculture advisory service: An effective and technology driven Agriculture Advisory Service may be considered on the lines of those of the United States Department of Agriculture (USDA) and the European Union (EU). The mandate would be to ensure that farmers adopt an optimal cropping pattern that maximizes their income.

Futures trade: Futures trade should be encouraged. Removal of entry barriers to increase market depth should be considered.

Crop insurance: PMFBY needs to be modified to –

  • Promote weather-based insurance.
  • Increase non-loanee farmers’ insurance coverage.
  • Allow for mixed cropping and increase the number of crops notified.
  • Contract farming

 Encourage states to adopt the Model Contract Farming Act, 2018: Contract farming can be thought of as a form of price futures. The contract will specify the price and quality at which the farmers’ produce will be purchased. This protects the farmer in cases where prices fall below the MSP.

Box 1: Salient features of the Model Contract Farming Act, 2018

The Draft Model Contract Farming Act, 2018, is an attempt to provide an enabling environment for contract farming to thrive. First, the Act takes contract farming out of the ambit of Agricultural Produce Marketing Committees (APMCs).

 

Under the Model Act, every agreement shall be registered with a Registering and Agreement Recording Committee, consisting of officials from departments such as agriculture, horticulture, animal husbandry, marketing, fisheries and rural development. The committee can be set up at the district, block or taluk levels. The Act also contains a provision for the creation of a State-level Contract Farming (Promotion and Facilitation) Authority.

Dispute resolution is essential to the smooth functioning of the Model Act. Both farmers and buyers need to be protected from risks pertaining to executing the contract. For example, buyers are exposed to the risk of the farmer selling his produce to a third party, whilst the farmer is exposed to the risk of receiving a price below the agreed price. The Model Act contains several provisions for dispute resolution. Briefly, these are (i) negotiation and reconciliation for a mutually acceptable solution, (ii) referral of the matter to a nominated dispute settlement officer and (iii) appealing to the Contract Farming (Promotion and Facilitation) Authority if no suitable solution is found through solutions (i) and (ii).

  • Land aggregation
  • Encourage states to adopt the Model Agri-culture Land Leasing Act, 2016: The Model Act aims to improve land access to small and marginal farmers through land leasing, whilst also providing for a mechanism for tenants to avail of institutional credit. A major constraint to land leasing under the present regulatory environment is the un-willingness of landowners to lease out land due to fears of land capture by tenants. The Model Act spells out the rights and responsibilities of both landowners and tenants. Like the Model Contract Farming Act, 2018, this Act too contains provisions for dispute resolution within a specified timeframe.
  • Digitize land records: Complete digitiza-tion of land records is a must for effective implementation of land leasing. Geo-tag-ging, along with location agnostic online registration of land records to generate updated land records, must be carried out.4
  • Promote farmer producer organizations (FPOs): There are now 741 FPOs in the country, managed under the aegis of Small Farmers Agribusiness Consortium (SFAC). They have demonstrated that aggregating farmers can help achieve economies of scale. The benefits accord-ed to start-ups under the Start-up India Mission need to be extended to FPOs as well. National Bank for Agriculture and Rural Development (NABARD’s) model of joint liability groups can be promoted to channelize small growers into the value chain.
  • Research & development
  • Focus on precision agriculture: Support research on energy friendly irrigation pumps, micro irrigation, climate smart technologies, internet of things (IoT), and use of technology in animal husbandry to monitor animal behaviour, health and production to prepare for future challenges.
  • Raise research spending: Research spending, currently at 0.3 per cent, needs to be increased to at least 1 per cent of agricultural GDP.
  • Create a knowledge hub to disseminate best practices: It is essential that new technology be adopted at the farm level. The performance of Krishi Vigyan Kendras (KVKs) should be regularly reviewed by external agencies and well performing KVKs must be strengthened to disseminate best practices at the field level.
  • Develop models of integrated farming: Research so far has focused on practices for individual crops or enterprises. The Indian Council of Agricultural Research (ICAR) and State Agriculture Universities (SAUs) should focus on providing recommendations across the farming value chain, covering production, post-production, processing and other value-addition activities.
  • Innovation  

Several breakthroughs have the clear potential for quickly doubling farmers’ income.

  • One is the recorded success of zero budget natural farming by Subhash Palekar. It is now being adopted across the country and providing notable increases in farmers’ net income by sharply reducing costs of production and improving incomes by raising yields and improving the quality of agricultural produce.
  • Two, there are patented herbal inputs that improve soil quality and make plants more pest resistant. These herbal inputs, for which actual performance data is now available for a few thousand farmers, need to be applied across the country.
  • Three, rapid progress has also been made in organic farming techniques, which have also helped improve incomes of cultivators and dairy farmers. These should be carefully examined for possible application across the country.
  • Non-farm income
  • Moving labour out of agriculture into manufacturing will go a long way towards the goal of doubling farmers’ income. According to estimates prepared by Chand, Srivastava & Singh (2017), nearly two-thirds of rural income is generated in non-agricultural activities. In non-agricultural activities in rural areas, another avenue is shifting farmers to agro-business and farm-related skills which are currently in short supply. Create and nurture agripreneurs for achieving greater value addition through agro-processing and propagation of modern extension services.
  • India will also have to accelerate growth in the manufacturing, services and exports sectors to wean labour away from agriculture. This will result in higher productivity and income for farmers.

 

NITI AYOG - New India @ 75

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