A spurious link

Structural issues and unscrupulous middlemen — not demonetisation — are responsible for farmers’ plight

Written by Rajiv Kumar | Updated: July 8, 2017 12:47 am
Demonetization Farmers, Demonetization Farmers protest, Demonetization agriculture, Harish Damodaran, Rajiv Kumar, Swarajya magazine, Farmers suicides The link between demonetisation and decline in F&V prices and further to farmers’ distress and agitation is not borne out for the following reasons. There is no reason to admitting mea culpa on demonetisation on this count.

An article in Swarajya magazine (June 14) has postulated a direct link between demonetisation and recent farmers’ unrest across many states. The writer makes a two-step argument. First, that traders and intermediaries in agriculture markets (mandis) were left completely cashless. Consequently, these hapless intermediaries could not pay farmers fair prices for their output of seasonal fruits and vegetables (F&V). So, prices have crashed. Second, that decline in F&V prices has pushed the otherwise docile farmers to violent agitations resulting in unfortunate casualties.

The empirical basis for this argument is essentially taken from an article by Harish Damodaran (IE, June 12). I want to argue that it is too facile and perhaps misleading to link widespread farmers’ distress and even the recent farmers’ unrest in Madhya Pradesh, Tamil Nadu and Maharashtra to demonetisation. The link between demonetisation and decline in F&V prices and further to farmers’ distress and agitation is not borne out for the following reasons. There is no reason to admitting mea culpa on demonetisation on this count.

First, it must be conceded that the acute distress being experienced by farmers predates demonetisation by years if not decades. Farmers’ suicides in Vidharbha perhaps date back to the nineties and these numbers have remained tragically unchanged over the years. As Surjit Bhalla points out (IE, June 10) farmers’ suicides, of course most unfortunate, have declined in 2016-17 to 12,600 from a peak of 18,241 in 2004-05. Farmers’ distress has been long-standing and widespread in India. Let’s not link it to demonetisation.

Second, it is indisputable that the cash crunch was far worse in the first 60 days of demonetisation than in subsequent months. Thus, farmers should have suffered far more in December and January than in May and June. But that has not been the case. The decline in F&V prices, during November 2016 to January 2017, was relatively less steep than in later months and did not resemble “fire sales” (RBI’s term) experienced in May.

Third, it should be noticed that sugarcane prices did not decline in the crushing season that has just ended. Data from the office of the Economic Advisor reveals that price index for sugarcane during January to May 2017 was 169.7 as compared to 154 in the same period in 2016 (Base 2011-12=100). Prices at “crushers” that produce gur and non-refined sugar were also higher. In fact, sugarcane farmers have fared much better in 2017 because not only were prices higher but their dues have also been cleared more expeditiously.

Similarly, milk prices have also ruled higher. The WPI price index for milk has been between 135-138 during January-May 2017 compared to 131-134 in 2016. The more important point is that agro-products like sugarcane, milk, poultry and meat for which markets are better organised have not suffered any price decline in the post-demonetisation phase. Farmers have traditionally been exploited by ruthless traders operating in mandis and in this instance demonetisation has been used as ready excuse to intensify farmers’ plight.

I should know. My wife, a part-time farmer, grows vegetables, fruits, some organic cereals and cows’ milk at her farm in village Pooth in Garhmukteshwar in west UP. Her vegetable price realisation can be up to 200-300 per cent higher when delivery is to retailers instead of selling in local wholesale mandis in Sayana, Hapur or even Ghazipur in Delhi. But trying to escape the traders/adhatiyas operating in wholesale mandis is not in the absence of any local aggregator, either official or private. Being “connected”, we have found some reprieve but our neighbouring farmers continue to wallow in their helplessness and penury due to their dependence on local mandis. I have not once heard them criticise demonetisation.

Finally, Surjit Bhalla has correctly pointed out WPI and CPI indices for fruits rose by 6.1 and 5.5 per cent respectively in 2016-7 over 2015-16. A bit of digging into publicly available data reveals that apple prices in May 2017 were 13.5 per cent higher than in May 2016 and guava prices 34 per cent higher. Yes, most other F&V prices have declined but that is clearly not because of a generalised phenomenon of cash scarcity caused by demonetisation. The proximate cause seems to be a supply glut. As always happens (the Cobweb theorem in Economics 101), farmers made the switch to crops for which prices were relatively higher in the previous year. It is ingenious to make the link between F&V price decline and notebandi.

The perennial tragedy of Indian agriculture has been the farmers’ inability to break out of the clutches of traders and intermediaries. They receive a pittance from these cartelised middlemen who make a killing themselves through mark ups, often several times the price received by farmers. In times of even marginal over-supply of agro-products, these invidious intermediaries have no compunction in screwing down prices to rock-bottom levels. I have experienced the situation where prices offered in the nearest mandis did not even cover transport costs and vegetables were consequently ploughed back into the fields. At the same time, prices of the same vegetables reigned at Rs 20-25/kg in Delhi — a 100 km away.

The government is cognisant of the farmers’ plight. It has established eNAMs and the “Small Farmers Agro-Consortium”. But these have not gathered momentum. We need a concerted effort to connect farmers with direct retailers. We need “aggregators” like Al Tejar in Argentina and our own Mother Dairy that will help farmers bypass unscrupulous middlemen. The PM must seriously reconsider liberalising FDI entry in the retail of fresh agro-produce and in multi-brand retail more broadly. It can contribute significantly to reducing the farmers’ plight. Agriculture needs marketing reforms urgently. No need to wait for another round of studies by the Niti Ayog. These are rather well known.

The writer is director, Pahle India Foundation, Delhi

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  1. H
    Jul 9, 2017 at 12:08 pm
    We need more schools of Economic s than blindly mushroom ing engg college s all over India. Second, our data gathering agencies be made independent. Currently, there's hardly any Pvt authority which is not depending on NSS, ICAR , NITI or so called Eco Survey for compiling primary data on Agriculture economy. Third, an unbiased individual economists who rise above the political affiliation s are a rare species. Surjit Bhalla is a mouthpiece of BJP. I saw his name in the poverty alleviation committee of so called NITI ayog, which itself has become a laughing stock. But, I ask Mr Bhalla what he has done to do his assigned task and after 3 years where is their report, leave aside action plan. Fourth, All govt focused on increasing only agro GDP. But no one was enough visionary to foresee the future with rising urbanisation and arrange for higher income for the poor farmer. They not only produce our food, but surrender their fertile land for laying industrial corridor s . Living Martyrs!
    1. I
      Jul 9, 2017 at 7:10 am
      Sir you have indirectly demonstrated the necessity of 'unscrupulous middlemen'. For since demonetisation destroyed their networks, the public has to take on the responsibility of forgiving farmer loans as the anti ted income from the bumper crop did not materialise. This is very clearly because the middlemen could not provide their normal hedging functions by storing up excess produce for future s and distribution . These middle men were an important part of the cash and storage nexus. Since the government under Modi destroyed them in the sure knowledge that there were short term electoral advantages, it is the BJP's own responsibility to correct what they recklessly promoted to their voting advantage. Incidentally doesn't the size of the loan write offs show that the middlemen hated as they are provided an indispensable function?
      1. I
        Jul 9, 2017 at 7:15 am
        a n t i c i p a t e d... And it is really silly to argue in economics that if only middlemen were Mother Theresas we would not have this problem. Self interest, is axiomatic when arguing about costs and benefits.
      2. S
        Jul 9, 2017 at 2:17 am
        you must be an ostrich with his head buried in jhandelwalan propaganda
        1. S
          Sudheer Thaakur
          Jul 9, 2017 at 1:20 am
          those who connect demonetisation assume: all trade was financed by cash of dubious origin. that is why it could not be put back in banking system by dec31. if it was legit cash it must have got back in the system. stupid.
          1. J
            Jai him
            Jul 9, 2017 at 1:14 am
            Please commit hara kiri, your source is the swarajya. Why do you go talk to the farmers instead of a borrowing propaganda. Crops sowing wasn't affected because they were already planted and as predict by economics who believed it would harm the poor were true. our hard working son of a mother didn't care about implementation and the same is a repeat with gst. There will be an army of trolls to defend this as article. And there's just one thing to say. Not in my country, not in my name. Corporeal corruption se Azadi. Inqulab zindabad aur bharat Jai ho
            1. S
              Jul 8, 2017 at 10:58 pm
              I clearly remember many so called economists and generalists making dire predictions during notebandi that because of notebandi the planting of crops would be severely affected . It happened the other way round. There was bumper production of woodgrain and those eminent people who wrote carping articles looked foolish.Now they created a cooked up spectacle of farmers revolt in certain districts of Madhya Pradesh to produce the evidence that demo had really affected these farmers. It is simply not true. Newspaper reports indicated that about a thousand crores worth milk and vegetables were destroyed by spilling these on road!How can farmers who are short of cash can indulge in that kind of criminal wastage? It was an well organised conspiracy funded by interested parties. DeMo was disruptive in its nature and it no doubt caused temporary distress both physical and monetary. But it is still debatable whether it affected economy in medium or long term.
              1. P
                Jul 8, 2017 at 9:20 pm
                I remember this Rajiv Kumar to be a staunch supporter of failed demonetisation
                1. O
                  Onkar Singh
                  Jul 8, 2017 at 8:44 pm
                  Rajeev Kumar if the BJP has any civilian honour or award you and others like you would have surely shared it amongst themselves: for speaking in praise of demonetization!!! That's the way sycophancy works in this country. For a better understanding of what ails Agriculture,I recommend you to listen to Shri Devinder Sharma, P.Sainath and the Professors of Agriculture from Punjab like Suchha Singh Gill and others,then all that shine of demonetization will wear off.But for heaven's sake stop praising demonetization.Ask what is the fate of small time labourers who had to go back home to their remote villages.Directors like you who live in cities had a nice time to see people die to get their own hard money exchanged.
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