The government wants farmers’ incomes to double in five years by 2022. While a laudable objective, the reality today is that farmers are suffering stress, if not shrinkage, in their incomes.
The government wants farmers’ incomes to double in five years by 2022. While a laudable objective, the reality today is that farmers are suffering stress, if not shrinkage, in their incomes.
The demand for loan waivers, and political pressures to implement these, is only a reflection of this underlying reality vis-à-vis well-intentioned goals.
Let’s view these issues a little differently from the perspective of an industry — dairy — with which I am associated. Agriculture and allied activities, in 2015-16, contributed 17.7 per cent of India’s overall gross value added at current prices. But within this larger agriculture sector, milk’s share in output value was 19.7 per cent, which means one in every five rupees of farm income comes from it: Almost every farmer, irrespective of which main crop he or she grows, also produces some milk whose total value of output in 2015-16 was estimated at Rs 5.61 lakh crore.
Milk’s advantage is that it is sold daily and generates income round the year. This income is, moreover, steady — milk prices are generally not volatile unlike other agri-commodities — and a source of liquidity that can take care of the farmer’s day-to-day household expenses. It, therefore, reduces dependence upon the moneylender, at least to keep the home fires burning.
Unfortunately though, milk, too, in the recent period hasn’t been spared from the crisis facing other crops, arising largely from an inability and the lack of a framework to handle surpluses. Our policymakers are past masters at managing shortages — imposing stockholding limits on trade, banning/restricting exports, allowing duty-free imports, etc. But in the new scenario of surpluses and depressed crop realisations, all they are able to offer is unimplementable minimum support price (MSP) hikes and fiscally unaffordable farm loan waivers.
Take the milk that dairies procure, the excess of which, especially supplied by farmers during the “flush” winter-spring months, they convert into skimmed milk powder (SMP) and white butter/ghee. India produces 5.5-6 lakh tonnes (lt) of SMP annually. Till about four years ago, over one lt of this was getting exported. However, with a crash in global SMP prices, the shipments dwindled to 10-15,000 tonnes, leaving a surplus of roughly one lt every year from 2015-16. As stocks kept piling up and domestic SMP rates collapsed from Rs 200-230 to Rs 130-140 per kg, dairies had to either curtail procurement or pay less to farmers. Most dairies in Maharashtra are currently procuring milk at Rs 18-20 per litre, as against Rs 27-29 earlier. This kind of fall we have never seen in milk.
From a policy angle, the right response would have been to anticipate these surpluses, which was known to every industry person and dairy sector watcher. Had the one lt surplus powder been bought by the government at, say, Rs 180/kg from cooperative dairies and given as commodity aid to milk deficit countries in South and Central Asia or Africa, the total cost even over three years would have been just Rs 5,400 crore. That cost may have been still lower — Rs 500-600 crore annually — if the powder was sold at Rs 120-130 per kg, just below international prices. Either way, we wouldn’t have had the current situation, whose impact extends beyond farmers’ liquidity to also their cows and buffaloes: These underfed animals will produce less in future and their calves, too, are likely to grow into poor milkers.
Something similar seems to have happened in pulses as well, where India’s production in the last two years has more or less equalled its consumption requirement and yet large quantities have continued to be imported. No wonder, farmgate prices have significantly fallen. The cause is again the inability to anticipate surpluses — in this case from excessive imports — and the lack of a framework to handle these, as opposed to shortages.
The poor understanding of agricultural commodity market dynamics is also seen in the response to farmer distress though increases in crop MSPs. Who will buy at these prices, totally out of sync with market supply and demand conditions? How much can even government agencies, if at all, buy? To double farmers’ incomes, what we need is a new market intelligence-based framework for handling surpluses, besides a focus on reducing production costs that I shall illustrate through milk.
An adult cow requires about 750 grams of crude protein (CP) daily for its basic body maintenance and mobility. In addition, 100 grams is needed for every litre of milk produced. So, for 15 litres, the total CP requirement is 2,250 grams/day. One reason why milk production costs are high is that farmers now supply much of this CP requirement through costly compound cattle feed or de-oiled groundnut/mustard cake. So, they end up feeding only the animals already in milk, while giving the ones not producing — including the young calves — ordinary green fodder or straw and some de-oiled cake.
My company has worked with the Tamil Nadu Agricultural University, Coimbatore to take up production of bajra-napier fodder grass hybrids such as Co-4 and Co-5, developed by its scientists, in farmers’ fields. We have shown that farmers can more than meet the 750-gram daily CP requirement for body maintenance-cum-mobility of animals simply by growing these high-yielding protein-rich hybrid grasses. They, then, need to purchase concentrate feeds and oilcakes only to give to cows during the lactation period. The cost savings due to farmers cultivating their own high-quality green fodder (reducing compound feed use) and deploying selective mechanisation (brush-cutters for harvesting and rain guns to lower water consumption) comes to over Rs 5 per litre. For a farmer keeping 30 cows and exclusively growing Co-5 fodder on five acres, the annual savings from sale of 250 litres daily on an average would be Rs 4.6 lakh. These savings are nothing but additional income.
Farmers’ incomes can similarly improve by cutting out the middleman. We were the first dairy to go beyond direct procurement of milk to making payments directly into farmers’ bank accounts — even before demonetisation happened. When farmers have money in their accounts, bankers start viewing them as creditworthy customers. They can now borrow at 10-12 per cent, as against 48-72 per cent charged by loan sharks.
Farmers should be made aware about the limitations of price increases and the potential to raise incomes through lowering production costs and disintermediation. But falling prices is something they cannot deal with; why will anyone invest in cost cutting technology if it does not even preserve, leave along boost, incomes? The onus lies on policymakers to shift gears from “managing shortages” to “handling surpluses”.
The demand for loan waivers, and political pressures to implement these, is only a reflection of this underlying reality vis-à-vis well-intentioned goals.
Let’s view these issues a little differently from the perspective of an industry — dairy — with which I am associated. Agriculture and allied activities, in 2015-16, contributed 17.7 per cent of India’s overall gross value added at current prices. But within this larger agriculture sector, milk’s share in output value was 19.7 per cent, which means one in every five rupees of farm income comes from it: Almost every farmer, irrespective of which main crop he or she grows, also produces some milk whose total value of output in 2015-16 was estimated at Rs 5.61 lakh crore.
Milk’s advantage is that it is sold daily and generates income round the year. This income is, moreover, steady — milk prices are generally not volatile unlike other agri-commodities — and a source of liquidity that can take care of the farmer’s day-to-day household expenses. It, therefore, reduces dependence upon the moneylender, at least to keep the home fires burning.
Unfortunately though, milk, too, in the recent period hasn’t been spared from the crisis facing other crops, arising largely from an inability and the lack of a framework to handle surpluses. Our policymakers are past masters at managing shortages — imposing stockholding limits on trade, banning/restricting exports, allowing duty-free imports, etc. But in the new scenario of surpluses and depressed crop realisations, all they are able to offer is unimplementable minimum support price (MSP) hikes and fiscally unaffordable farm loan waivers.
Take the milk that dairies procure, the excess of which, especially supplied by farmers during the “flush” winter-spring months, they convert into skimmed milk powder (SMP) and white butter/ghee. India produces 5.5-6 lakh tonnes (lt) of SMP annually. Till about four years ago, over one lt of this was getting exported. However, with a crash in global SMP prices, the shipments dwindled to 10-15,000 tonnes, leaving a surplus of roughly one lt every year from 2015-16. As stocks kept piling up and domestic SMP rates collapsed from Rs 200-230 to Rs 130-140 per kg, dairies had to either curtail procurement or pay less to farmers. Most dairies in Maharashtra are currently procuring milk at Rs 18-20 per litre, as against Rs 27-29 earlier. This kind of fall we have never seen in milk.
From a policy angle, the right response would have been to anticipate these surpluses, which was known to every industry person and dairy sector watcher. Had the one lt surplus powder been bought by the government at, say, Rs 180/kg from cooperative dairies and given as commodity aid to milk deficit countries in South and Central Asia or Africa, the total cost even over three years would have been just Rs 5,400 crore. That cost may have been still lower — Rs 500-600 crore annually — if the powder was sold at Rs 120-130 per kg, just below international prices. Either way, we wouldn’t have had the current situation, whose impact extends beyond farmers’ liquidity to also their cows and buffaloes: These underfed animals will produce less in future and their calves, too, are likely to grow into poor milkers.
Something similar seems to have happened in pulses as well, where India’s production in the last two years has more or less equalled its consumption requirement and yet large quantities have continued to be imported. No wonder, farmgate prices have significantly fallen. The cause is again the inability to anticipate surpluses — in this case from excessive imports — and the lack of a framework to handle these, as opposed to shortages.
The poor understanding of agricultural commodity market dynamics is also seen in the response to farmer distress though increases in crop MSPs. Who will buy at these prices, totally out of sync with market supply and demand conditions? How much can even government agencies, if at all, buy? To double farmers’ incomes, what we need is a new market intelligence-based framework for handling surpluses, besides a focus on reducing production costs that I shall illustrate through milk.
An adult cow requires about 750 grams of crude protein (CP) daily for its basic body maintenance and mobility. In addition, 100 grams is needed for every litre of milk produced. So, for 15 litres, the total CP requirement is 2,250 grams/day. One reason why milk production costs are high is that farmers now supply much of this CP requirement through costly compound cattle feed or de-oiled groundnut/mustard cake. So, they end up feeding only the animals already in milk, while giving the ones not producing — including the young calves — ordinary green fodder or straw and some de-oiled cake.
My company has worked with the Tamil Nadu Agricultural University, Coimbatore to take up production of bajra-napier fodder grass hybrids such as Co-4 and Co-5, developed by its scientists, in farmers’ fields. We have shown that farmers can more than meet the 750-gram daily CP requirement for body maintenance-cum-mobility of animals simply by growing these high-yielding protein-rich hybrid grasses. They, then, need to purchase concentrate feeds and oilcakes only to give to cows during the lactation period. The cost savings due to farmers cultivating their own high-quality green fodder (reducing compound feed use) and deploying selective mechanisation (brush-cutters for harvesting and rain guns to lower water consumption) comes to over Rs 5 per litre. For a farmer keeping 30 cows and exclusively growing Co-5 fodder on five acres, the annual savings from sale of 250 litres daily on an average would be Rs 4.6 lakh. These savings are nothing but additional income.
Farmers’ incomes can similarly improve by cutting out the middleman. We were the first dairy to go beyond direct procurement of milk to making payments directly into farmers’ bank accounts — even before demonetisation happened. When farmers have money in their accounts, bankers start viewing them as creditworthy customers. They can now borrow at 10-12 per cent, as against 48-72 per cent charged by loan sharks.
Farmers should be made aware about the limitations of price increases and the potential to raise incomes through lowering production costs and disintermediation. But falling prices is something they cannot deal with; why will anyone invest in cost cutting technology if it does not even preserve, leave along boost, incomes? The onus lies on policymakers to shift gears from “managing shortages” to “handling surpluses”.