Everybody Loves A Farm Loan Waiver When It Offers No Solution To Farmers

Farmers in India start an agitation almost twice every year, mostly around the time their crops come into the market. The agitation is quickly followed by suicides, which is followed by a loan waiver. Why is this tragic biannual cycle not being broken? Why do the bulk of Indian citizens who depend on agriculture as their sole source of sustenance continue to suffer? Why is it that politicians, most of whom come from a farming background, do not address this problem? Why can't a country like India solve this problem? These are some of the questions that come up repeatedly, and here are some solutions to them.

Gap between politicians and bureaucracy: While politicians do know about the problems that farmers face, as it is their largest constituency, they are unable to solve it because the system wants to keep the problem alive. The system does not want to create a lasting solution, as every time it offers a loan waiver as a solution it wins. The decision is arbitrary and the winners are the bureaucrats, who get to decide and determine when and who will get the waiver. Every time a process is broken to give powers to the system, it creates a master and agent relationship. This is what happens every time the loans are waived off. Politicians and the bureaucracy suddenly get the power to give money to a section of the population in the form of waivers.

Thus, a corrupt master and agent relationship between the government and the population gets built which avoids any systemic correction. Perversely, the criticism and debate on the loan waiver actually works as a diversion to discussing the real problem.

What is the real problem? The problem is that the agricultural system is broken. Most analysts do not study or look at it as a system; they look at pieces of it and jump to recommendations. This is one of the failings of the M S Swaminathan's report, which addresses only the MSP (minimum support price) issue. In sum, the report says price is the problem; the solution is to give or create an artificial price as markets do not always give the expected result. MSP at the end of the day is an artificial price given by the government to stabilise the market.

Let’s step back to see the system – and what everyone fails to see, including the gaps that market-led policies have created for farmers. Whether it’s a good monsoon or a bad one, the outcome is the same. When monsoons are good and production is high, the prices crash due to excess supply in a short period. When the monsoon is bad and the production is low the farmer has very little to sell but still he cannot command prices due to the warped nature of the market infrastructure.

Supplies peak during the harvest time of two to three weeks – with inevitable results. Prices crash whenever harvests are bountiful. This pushes more farmers to rush to the mandis/markets to offload their produce in the hope that they will get a better price. This is particularly true for perishables, as once the farmer has left the farm to sell, he has to complete the sale. He cannot take back or hold his produce for a better price.

The same thing happens with foodgrains also, as there is a logistical element involved. Small farmers pool their produce into a tractor trolley, and this is typically 8-15 per cent of the selling price. The cost depends on the distance and mode of transportation. But once the crop is harvested, winnowed and ready, it cannot be left on the field for long. There are no storage facilities in villages and there are certainly none in mandis by design. Merchants in the mandis want to force the farmers to sell, not hold out for a better price. Merchants, on the other hand, have their own privately-owned storage facility, even cold storage, so they have the option to sell when the price is right.

Merchants in the mandis wait for just this period to buy stock at throwaway prices. All the produce cannot be bought by the government through the Food Corporation of India (FCI) due to limited storage space. Moreover, the FCI is the most corrupt and inefficient end of the supply chain in agriculture. Farmers have to pay commissions to babus at FCI to buy their produce. Even for cash crops, the same cycle repeats itself, given the absence of FCI. If there is a bumper crop of potatoes, the price will crash during harvest time. Few farmers try to beat this price crash by timing the harvest before or after this peak arrival in the market. This timing depends on the seeds they use and the availability of water so it is not always possible for every farmer.

Now, for produce like vegetables, it would be easier if there was a cold storage infrastructure in every farming district or smaller ones in villages. Successive governments or its apparatchiks are not unaware of this problem. There have been numerous schemes to promote and build cold storage facilities. Private sector companies are encouraged and given loan subsidies to build this infrastructure. These companies build the infrastructure for just the subsidy and are not really interested in the welfare of the farmer. Their charges are sometimes way beyond what the farmers can afford. Hence, cold storage owners buy the produce at throwaway prices during harvest-time and store it for selling later. As a result the profit which would accrue to farmers is again transferred.

The only solution to this problem is that the infrastructure owned by government and farmers should be able to use it at nominal rates. They should be able to release their produce into the market in a staggered manner so that prices do not crash. A simple scheduling software which tells the farmers about the produce in the pipeline or stocks in mandis will help them plan better.

Some districts in Madhya Pradesh have developed an SMS-based tool to tell farmers when to get their produce to the market based on trolleys in the queues. The farmer also needs to see what is the total stock produced locally, how much have merchants bought. In a perfect market, like with stocks and shares, a seller can see the next 10 quotes, and volumes on a per second basis. A similar mechanism is also needed for the farmer.

The other issue is ownership: While national highways and state highways are seen as critical infrastructure where the government allocates funds for development, cold storage infrastructure is never given the same status. It took years for the government to classify it even as infrastructure.

Building cold storage infrastructure should be the responsibility of the government. Not just the physical infrastructure but even the logistics from farm to warehouse. The naysayers will argue using ideology: why should the government provide the logistics? The reason is very simple. India has the largest population of farmers with small holdings and they need all the support. The model for farmer support that India needs has to be derived locally; we cannot import models from other parts of the world.

Which is why it is very silly when the government keeps touting the e-marketplace it has developed for the farmers. How does the government expect the farmer, who cannot even get his produce from the farm to the mandi in the city, to bring his produce to a warehouse at the e-marketplace? Will the farmer negotiate the price quoted in e-marketplaces in person at the market place? What are the options left to him once he is at the warehouse?

An e-marketplace without logistics support is just a stupid idea sold by consulting companies and babus to political leaders. And they have accepted it easily as they cite it as something new that they have done while it does little to help the farmer. It just strengthens the power of the few over many.