Photo by Well-bred Kannan. Source: Creative Commons
Potential solutions for India’s agriculture sector, based on lessons from Ethiopia
On 11 March, a reported 30,000 farmers organised a protest in Mumbai, creating a logjam in India’s financial capital. The farmers arrived from across Maharashtra state and demanded that the state government fulfil their demands, primarily the waiver of past agricultural loans and the right to commercially exploit forest land. Although the state government acceded to some of their demands, there is little evidence of any comprehensive national or state government strategy to address the root causes of India’s agricultural distress.
Christopher Jaffrelot, a political scientist and South Asia expert, has in an insightful article, highlighted the three main challenges for farmers in India’s agriculture sector:
1) A steady decline in the average size of land holdings
2) A stagnation of public investment in irrigation
3) Tightly-controlled price markets for crops
In this post, I’ll focus on potential solutions for India’s agriculture sector, drawing lessons from Ethiopia, a country which has consistently achieved growth rates of over 10% per year from 2005 to 2015. Its growth has been primarily driven through an innovative value-chain based approach in the agriculture sector, and offers many useful lessons for Indian policymakers:
Shift in thinking among policymakers
The first step towards fixing India’s agriculture sector requires a shift in thinking among politicians and bureaucrats. They must recognise that the agricultural sector has significant potential to boost economic growth, rather than simply act as a drain on India’s budget. Many countries have relied on the agriculture sector to fuel their economic growth. Brazil, for instance, has become one of the world’s largest food exporters and has leveraged the agriculture sector to expand its presence in the international trading of commodities.
The wide variety of crops and fruits grown across India make the country a potential hub for the food processing industry, and the sector a valuable source of export revenues. This requires a shift to a value-chain based approach where the entire supply chain of productive crops and commodities is mapped out and the government takes a proactive role to tackle bottlenecks at each stage of the value chain.
Creation of a planning and implementation body for the agricultural sector
The government must consider the creation of an independent body that focuses on facilitating private investment in the sector. The Agricultural Transformation Agency (ATA) in Ethiopia performs this function and reports directly to the Prime Minister’s Office. The Niti Aayog (Policy Commission) could potentially fulfil this role in India, but its mandate needs to be extended beyond policy formulation, to include oversight into the implementation of policies by government departments.
An independent body isn’t saddled with the same political constraints as the agriculture ministry, and is therefore well-equipped to facilitate private investment and introduce reforms in the agriculture sector. As agriculture falls under the joint purview of the national and state governments in India, the proposed body’s role must be to align priorities and assist states in the effective implementation of policies.
Increase public investment in irrigation
Public investment in the agriculture sector has steadily declined since its peak during the green revolution in the mid-1970s. A growing food and fertiliser subsidy burden has shifted government expenditure away from productive capital investment towards recurring subsidy expenditures in the agriculture sector. In India, less than 50% of agricultural land is irrigated, resulting in a low agricultural productivity, relative to the world average for most crops. The lack of irrigation facilities also increase farmer dependence on unpredictable seasonal rainfall.
The reduction of subsidy expenditures through the rollout of the government’s biometric initiative Aadhaar is likely to free up funds for increased capital investment in irrigation facilities. New irrigation infrastructure needs to be supplemented with improved water management systems such as drip irrigation and sprinklers. Higher crop productivity through increased irrigation of farmland can help tackle the challenge of declining land holdings per farmer.
Improved access to markets
State governments must look to bolster farmer incomes by enabling closer linkages between farmers and consumers. States should follow Maharashtra’s example, and amend the Agricultural Produce Marketing Corporation Act to enable farmers to directly sell their produce to consumers, through urban farmer markets in towns and cities. According to an article published by the Times of India, following the partial relaxation of the APMC in June 2016 by the Maharashtra state government, 94 weekly farmer markets have cropped up in different cities across the state, and generate revenues of INR 5 crore (USD 769,000) per week. The ability to directly reach urban consumers will reduce the role of middlemen from the value chain, enabling farmers to claim a higher price for their produce and protect consumers from artificially higher prices imposed by middlemen.
The national government must also reconsider its opposition towards foreign investment in the multi-brand retail sector. The lack of specialised processing and cold storage technologies creates significant wastage across the value chain and deteriorates the quality of fruits and vegetables available in India’s towns and cities. Although the lifting of restrictions in multi-brand retail is politically sensitive for the incumbent BJP government, given its traditional reliance on the support of small-scale traders, the recurring farmer protests across the country are arguably a greater threat to its electoral prospects.
Promotion of contract farming for cooperatives, and medium-sized farms
The national government should introduce a policy on contract farming to enable farms to partner with companies involved in food processing. Ethiopia has successfully facilitated linkages between breweries and cooperatives of barley farmers in the past few years. Formal contracts between farmers and large-scale buyers are likely to reduce market uncertainty for farmers and improve their access to inputs, insurance and technologies, subsequently providing them higher incomes. The government needs to facilitate these linkages by implementing a policy with incentives/mandates for companies to source their raw materials locally.
Approximately 20% of farmers in India are medium to large-scale farmers and can play an important role in agriculture growth and exports. These farmers have different demands from small-scale farmers and need to be trained to use better inputs and modern technologies to increase yields and drive agricultural exports.
Leveraging technology to combat climate variability
Changing weather patterns, temperature increases and erratic rainfall caused by climate change, are likely to intensify the challenges faced by India’s farmers. According to the Economic Survey, climate change could hurt farming incomes by up to 20–25% in the medium term. The government must promote the use of modern technologies and better farm management practices to tackle the threat of climate change.
State governments need to establish a robust communication mechanism with farmers to forewarn them about extreme weather events but also to regularly train them on the optimum utilisation of inputs, pesticides and fertilisers to boost agricultural productivity and protect soil health in the long-term.