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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