Farmer needs a new deal

Farmer needs a new deal

Reform of agricultural markets and land lease laws must be a priority.

What can be done to remove agrarian distress? The textbook answer is to raise farm incomes.

Agrarian distress emerged as the most disturbing problem during the 1990s. Its severity and spread witnessed a sharp increase in the post-WTO period till 2004-05. Two common indicators used to show the severity of agrarian distress are indebtedness of farm households and the number of farmers’ suicides. Some people also cite the decline in the number of cultivators in the country as a consequence of agrarian distress, which may be partly true, particularly in the disadvantaged agricultural regions.

Evidence shows that the incidence of farmer suicides in India involves multiple causes. Falling farm income is one of them. When the farmer’s income is chronically lower than his family expenditure, he borrows money from some source to meet the gap. Expenditure on social ceremonies and health expenses, which are not part of regular household expenditure, also force the farmer to borrow, particularly from non-institutional sources. The accumulated debt becomes so large that it becomes impossible to repay it from the household income. Some farmers are forced to sell a part or whole of farm land and other family assets to repay loans and to meet social expenditure. Some others undergo humiliation as loan defaulters. The loss of honour pushes many to take the extreme step of ending their life.

A second cause of crisis results from a sudden income loss due to crop failure or price crash. In the absence of crop insurance or adequate relief, crop failure can have a devastating effect on farm income. Further, there is no mechanism to escape the effect of a price crash. Any loss of income of a severe nature on account of crop failure or market failure becomes a source of distress and frustration. This is more pertinent in the case of high value commercial crops. A year or two of high prices influences many farmers to direct excessive resources towards risky commercial crops. The sudden increase in supply is often met with a violent price crash. Without risk coverage, price volatility can have a killing effect on farm income.

What can be done to remove agrarian distress? The textbook answer is to raise farm incomes. This can be done in three ways. One, enable farmers to get better prices for their produce and encourage crop diversification. One acre of land under high value crops can generate more income than five acres under cereals. However, better price realisation and the success of diversification critically depend on a healthy and competitive market. Agricultural markets in India have not moved towards competition and efficiency after the 1970s. Prices of farm commodities often fall in the harvest season and skyrocket in the lean season. There are frequent cases of cartelisation in agricultural markets working against producers. Unless state governments initiate market reforms and take agriculture marketing to the next stage, farmers will continue to suffer from excessive intermediaries, low scale and segmentation. Agrarian distress can be mitigated to a large extent by an efficient and competitive agriculture market. Mechanisms like the “deficiency price payment” and price insurance for different sets of crops can protect farmers from market and price risk.

The second option for augmenting farmers’ income is to scale-up the farms. Average farm-size in India is very small and shrinking. The latest available data from the agriculture census for 2010-11 shows that 47 per cent farm households operate on plots less than an acre, with an average of 2,200 sq metres of agricultural land. Further, this small piece of land is fragmented and about half of it has no access to irrigation. Obviously, many such farmers would like to shift to non-agricultural activities and many would like to increase their farm-size by leasing land from other farmers. However, present land lease laws discourage formal and transparent land lease arrangements. The landowner fears any formal lease contract will make it difficult to get the land back from the lessee while the tenant is unable to access credit and avail other benefits available to a landowner. The liberalisation of the existing land lease laws will help both marginal and sub-marginal farmers. Those who leave farming can have secured ownership and earn rent and those who stay in farming can increase the size of operational holdings and have better access to credit and other facilities.

The third option is to provide alternative sources of livelihood to needy farm households. The estimates of farm income prepared by this writer show that income from agriculture alone is not enough to keep more than 50 per cent of farm households out of poverty. Any supply shock or price shock pushes such households deeper into poverty and the many marginally-above-poverty families into the poverty trap. However, many such farmers who earn an income from non-farm sources are able to escape poverty. The landholdings of a majority of our farmers are so small that these cannot generate income for decent living. Therefore, they need to be provided alternative sources of employment and income.


The most common cause for crop failure is water stress. Irrigation is the best insurance against crop failure. The area under public sources of irrigation has not expanded to reflect the huge investment in irrigation made after the Tenth Plan. The thrust on irrigation envisioned under the various components of the recently launched Pradhan Mantri Krishi Sinchayee Yojana offers hope as well as the scope for reducing water stress in agriculture.