WHY ARE FARMERS DISTRESSED ACROSS INDIA?

Author: Vikas Vasudeva

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The agriculture sector is characterized by instability in incomes because of various types of risks involved in production, market and prices. The National Commission of Farmers (2006), chaired by M.S. Swaminathan, had pointed out that something “very serious and terribly wrong is happening in the countryside.” The growth rates in agriculture have been unsteady and unpredictable (negative in some instances) in the past.

Main reasons for the crisis:

1. Rising pressure of population on farming and a steady declining trend in land holdings: The small and marginal land holdings (less than 2 hectares) account for 72% of land holdings and this predominance of small operational holdings is a major limitation to reaping the benefits of economies of scale. Since small and marginal farmers have little marketable surplus, they are left with low bargaining power and no say over prices.
2. Risks in production, weather and disaster, price, credit, market and those in policy: crop production is always at risk because of pests, diseases, shortage of inputs like seeds and irrigation, which could result in low productivity and declining yield. The lower than remunerative price in the absence of marketing infrastructure and profiteering by middlemen adds to the financial distress of farmers. Uncertain policies and regulations such as those of the Agricultural Produce Market Committee (APMC Act), besides low irrigation coverage, drought, flooding and unseasonal rains, are some other factors that hit farmers hard.
3. Predominance of informal source of credit: predominance of informal sources of credit, mainly through moneylenders, and lack of capital for short term and long term loans have resulted in the absence of stable incomes and profits.
4. Price risks due to low resilience: Price risks are severe for farmers in India since they have very low resilience because of the perishable nature of produce, inability to hold it, hedge in surplus-shortage scenarios or insure against losses.
5. High production cost: along with the slowdown in agricultural growth, the costs of farm inputs have increased faster than farm produce prices. The cost of capital too has increased manifold over the years which forces the farmers to borrow from informal sources of credit thus deepening the crisis.