Erosion in value of crops continues unabated

The recent increase in Minimum Support Price (MSP) for various crops was claimed as a major sop for the embattled agricultural sector. A few weeks after the announcement of this increase, the Central Statistical Office of the Government of India released the State-wise and Item-wise Estimates of Value of Output from Agriculture and Allied Sectors (2011-12 to 2015-16). An analysis of these statistics, along with others related to agricultural costs, brings out clearly that the government not been able to move beyond marginal quick-fixes and rhetoric.

The crash in agricultural prices, as indicated by statistics, raises a number of uncomfortable questions about the viability of agriculture. That calls for useful and fundamental policy interventions that go beyond calling for greater role for the market and private sector.

There is no doubt that any attempt to analyse a complex set of issues like agricultural prices risks invariably provide only a partial picture. An overview of the erosion in the value of output is necessary to understand the decline in incomes and the resultant crisis in agriculture.

The value of agricultural crops plunged in the two years 2014-16 (the last two years covered in the report), which may be continuing to the present. An analysis of the data indicates that the decline of the value was especially drastic if we compare 2011-12 to 2015-16. The total erosion of value is to the tune of Rs 24,859.87 crore in 2015-16 compared to the previous year. The figure is sharply higher at Rs 53,987 crore if one compares 2013-14 with 2015-16.

The major erosion was in cereals (Rs 10,853 crore), oil seeds (Rs 13,677 crore), fibres (Rs 14,540 crore), pulses (Rs 3,128 crore) and sugar (Rs 1,905 crore).

The headline figures would have been worse but for the increase in value in crops such as condiments & spices (Rs 5,000 crore) and fruits and vegetables (Rs.46,309 crore) and floriculture (Rs 2,021 crore). A saving grace was the sharp increase in value of allied sectors of agriculture, especially livestock and aquaculture. In these allied sectors, major increases were seen in milk (Rs 68,922 crore), meat (Rs 31,434 crore), eggs (Rs 2,917 crore), fisheries and aquaculture (Rs 26,675 crore).

An interesting aspect of this erosion is that the area under production has remained more or less constant in the case of cereals and pulses. The above erosion in crops is aggravated by a sharp increase on all metrics such as cost of cultivation per hectare or per quintal. Thus, those earning a living from agriculture have to combat erosion in value of production, rising cost of production and rising cost of living for households simultaneously.

Therefore, in the above context of erosion in value of output, agriculture is a loss-making proposition in most cases. The only reason that most households continue to grapple with it may have to do with the lack of other viable and easily available livelihood options. Consequently, steady increase in indebtedness is the norm rather than exception, especially among the medium, small and tenant farmers.

The result of this erosion in output is now being felt in the form of reduced consumption. The reduced incomes in the past few years, especially the past two years, is already being felt in the ability to service debts. Anecdotal evidence from different segments like tractors hire-purchase indicates such increased pressure servicing debts.

Insufficient solutions

The responses of governments are either insufficient or they attempt piecemeal solutions that come too little, too late. The responses are hindered by the fact that the central government seems to lack the political will to take up the investments that are required while most of the state governments are constrained by fiscal problems.

Thus, while the Centre never ceases to harp on its promise to increase incomes by 2022, there is a renewed keenness to encourage farmers to grow crops that are currently in demand in the market, without giving much thought to the future.

This emphasis on non-foodgrains may be useful in some places but there is a need to be cautious about adopting a ‘one-size-fits-all’ solution in a diverse country like India.

This excessive focus on allied activities of agriculture risks creating new problems. Unknowns like additional water requirements in the event of a large-scale shift need more attention.

Though over the last two years allied activities seem to indicate a buffer against sharp erosion, over the long-term, the reality could be different for a variety of reasons.

First, benefits from some of these activities accrue only to a few regions. In the case of fisheries and aquaculture, about 57% of the increase in value accrues to just two states — Andhra Pradesh and West Bengal. In the case of meat, the largest beneficiaries are Tamil Nadu, Andhra Pradesh, Telangana and Uttar Pradesh. Milk is an exception.

Second, one needs to be suspicious about inferences on impact of allied activities in the context of an explosion in tenancy in most of the states.

Third, a large part of the area under cultivation is occupied by production of cereals, pulses and oilseeds. Hence, any large-scale change in production and attendant changes in supply could alter the demand in ways that are unforeseeable and difficult to deal with.

Fourth, a shift to allied crops needs large-scale investment in agricultural extension activities. In most of the states, agricultural extension services work far below the needs of agriculture. In most districts of the country, agricultural extension seems more like an afterthought than a necessity.

Lastly, any changed focus that gives primacy to allied activities will require large-scale public investments in logistics and other parts of the agricultural supply chain – something that most governments are unwilling to undertake. Instead, governments seem to wishfully believe that the market will solve the problems with the private sector taking over.

(The writer is an independent researcher based in Andhra Pradesh)