This week, also the first issue of Capital Calculus 2.0, I examine the vexing issue of the ongoing farmer agitation on the outskirts of Delhi. The face off, which enters its 13th day, is one which is unlikely to throw up a winner. Worse, there is a very good chance, the pressing challenges facing Indian agriculture may get glossed over (yet again).
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Read on.
FARMER PROTESTS: MISSING THE WOODS FOR THE TREES
Over the last week and more angry farmers have collected at the entry points of Delhi, choking access to the national capital. They are exercised about the amendments to the farm laws carried out earlier this year and are demanding their repeal; nothing less they say. The union government on the other hand, sans any belligerence, is equally adamant that it will not walk back the farm law changes—which it sees as a vital initiative to take the market to the Indian farmer and thereby ensure a more favourable price discovery for them.
Unfortunately, the resulting deadlock and its attendant fall out is shaping a distracting narrative. In this battle of attrition, both sides are rapidly running out of options even as stands harden on either side—a recipe for disaster.
Already the waters have been muddied with the rich farmers from Punjab becoming the face of the agitation; especially with their inability to make a convincing argument linking the new farm laws to their apprehensions about an imminent corporate takeover of the agricultural supply chain (This has been succinctly addressed by Ashok Gulati, one of the foremost voices on Indian agriculture) In short the optics of the protest should worry the agitating farmers as it is hurting their cause.
However of greater concern is the fact that the emerging narrative is an unnecessary distraction. It is burying the central issue challenging all farmers: Indian agriculture is in the throes of an unprecedented crisis. To be sure this is not a new development. It has been the case for most of the last decade, ever since the terms of trade moved against agriculture after the Lehman crisis struck in 2008 and triggered a collapse in global commodity prices.
Both, politicians and public policy experts, have blundered by seeking the silver bullet to what is a structural challenge. Tragically they have been content addressing the symptoms. Like in the case of any illness to heal someone you have to identify the cause and then treat it.
The Challenge
On the face of it the challenge afflicting Indian agriculture can be summed up in one word: risk. It is an issue which is rarely discussed, leave alone addressed. The Minimum Support Price or MSP offered on 23 crops, including paddy and wheat, is a rudimentary means of underwriting this risk by providing a floor price; worse this risk mitigating mechanism is now well past its sell-by date.
The thing is that Indian agriculture has undergone a structural transformation in the last two decades; something that has fundamentally altered the risk profile of this sector. To elaborate: Foodgrain no longer dominates the agriculture basket. In fact, it now measures less than horticulture; in 2019-20 foodgrain production reached a record 296.65 million tonnes, while production of horticulture registered an all-time high of 320.48 million tonnes.
The Risks
Production of horticulture has a much better value add and therefore commands a better price. But it also means a commensurate rise in risks. Not just with respect to realisation of remunerative prices and gouging by middlemen. The farmer is most vulnerable today to the fallout of climate change—one aspect of which manifests itself in the erratic onset, progress and withdrawal of the annual south-west Monsoon.
Government studies show an increase in the number of dry days as well as one of extreme high levels of rainfall in India; intensity of droughts have worsened; cyclones are showing a clear uptick in frequency (Eight cyclones ravaged India in 2019, the highest in 43 years!); and growing frequency of unseasonal rains.
Clearly the Indian farmer is probably the only economic entity in the country to be burdened with such incredible risk and yet rarely extended any reasonable recourse to mitigation. Their counterparts in industry on the other hand have access to several back-stop options.
In the case of farmers, myopic politicians have restricted even the use of derivatives to mitigate risk. They have failed to comprehend that Indian agriculture has transitioned from an era of deficits to surplus—the risks underlying both are fundamentally different—and hence can no longer be viewed through the conventional prism.
So when angry Indian farmers vent, the country should sit up and take notice. Lend a patient ear; at the least preserve the trust quotient through dialogue. Opportunistic politicians seeking to stoke fires for short-term gains should be ignored or shown the electoral door when the moment arises.
Because the one thing the government and the agitating farmers agree upon is the fact that the only way forward for India is in reviving the farm economy. They differ only in the means to the end. In this the onus is on politicians to bridge the divide.