Farming made unprofitable

Published: Wednesday 15 October 2008

Farming made unprofitable

Down to Earth Poor support prices and costly agri inputs make a bad equation for farmers, Savvy Soumya Misra finds out

What Mahendra Singh Tikait knows as a farmers' leader, academics know from their research. The cost of producing crops has increased much faster than incomes, said Pravin Jha of Jawaharlal Nehru University's Centre for Economic Studies and Planning. "The actual increase in the cost of inputs does not get transferred to the end users. It is the farmers who eventually get squeezed, since the actual rise in prices is never known."

Indian farmers, four in five of whom are categorized as small and marginal, face losses at a time when their families need more money, because inflation is driving up living costs Among all factors squeezing the life out of India's agricultural economy, the one that is least discussed is the cost of cultivation--a legacy of the Green Revolution, which showed how farmers to increase productivity and incomes with more farm inputs, like high-yield seeds and chemical fertilizers.

The cost of inputs--labour, seeds, pesticides, fodder for livestock, land (for tenant farmers), and credit to buy all these--is rising faster than the minimum support prices, set for 25 commodities by the Commission of Agricultural Costs and Prices (cacp). These cost increases may not figure in the commission's calculations because it declares the support price on the basis of the cost estimates two years ago, explained commission chairperson S Mahendra Dev. The collection and analysis of countrywide data takes time. To compensate for this lag, the commission increases the cost figures by 10 per cent. Dev said this is to account for costs that could have increased between the collection of data and declaration of the support price. The National Farmers Commission had suggested an increase of 50 per cent to compensate for the gaps.

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The other approach is to narrow down the gap between data collection and declaration of price, said Krishan Pal Tomar, agriculture scientist and general secretary of All India Farmers Welfare Association. He gave an example of unfair prices the input price of sugarcane in western Uttar Pradesh increased 20 per cent between 2005 and 2007, but the minimum price remained static at Rs 80 per quintal.

Every economist familiar with the way the cacp calculates the cost of cultivation to set the prices of 25 agricultural commodities knows how flawed it is. Dev acknowleged the gaps in the data the commission relies upon for its decisions. Data collection is entrusted to state agriculture universities, which face severe manpower and fund shortages. This gets complicated because several reasons affect the market of each input. Labour availability, for example, can change due to external factors. The National Rural Employment Guarantee Scheme (nregs) has hiked labour rates in India's poorest districts.

The government's loan waver scheme could fall flat if certificates are not issued before the sowing season begins in end September. Without certificates farmers will not be able to approach banks and they will have to approach moneylenders who charge interests that go up to 30 per cent. Besides the banks have also increased lending rates from 7 to 10 per cent.

Down to Earth Labour and land
The scheme has provided badly needed relief to the poor; daily wages of at least Rs 60. "nregs has ensured that labourers get the same rate in their own villages. This has been the reason for fewer migrant labourers coming in from Bihar and Uttar Pradesh. By staying in their villages, they can ensure better education for their children," said Dev.

Labour rates in Punjab, Haryana and western Uttar Pradesh have increased 20-50 per cent in the past one year, confirm various sources. While the government has set the minimum rate for agricultural labour at Rs 66 per day, daily wages go anywhere up to Rs 200 or beyond.

This has hit another group small and marginal farmers, who are unable to pay such wages, said economist N R Bhanumurthy of the Institute of Economic Growth in Delhi.

Money is not the only factor, said Arun Chandrakar, a farmer in Khamaria village of Chhattisgarh's Mahasamund district. "On the farm, they have to work the whole day; under the scheme, they get their wages even if they work for only half the day. Some people pay a part of their wages to the contractors to keep them on the rolls. This is not possible on a farm." For his five acres of mentha crop (which makes menthol), he needs up to 30 labourers--difficult to find these days, as people who used to work for him build roads under the scheme.

Those willing to labour get even better wages at brick kilns, since they get more money there. "It becomes especially difficult for farmers after the monsoon, the time the labourers go to brick kilns," said Tomar. In southern India, it is as difficult for cultivators to get farm labour, and it isn't just Kerala, which has perhaps the highest labour wages in India--labour accounted for more than 55 per cent of the total cost of paddy cultivation in the state in 2005. K Lakshminarayana, Andhra Pradesh's commissioner of sugar and cane, said "Harvesting sugarcane is labour intensive. This year, it has been very difficult to find labourers."

The agriculture labour market is changing rapidly. In western Uttar Pradesh and Haryana, farmers have begun hiring labourers on a monthly basis, said Tomar; for about Rs 3,000, they are assured labour for a month.

Dev at the cacp talked of other changes "The demand for labour has increased since the younger generation has started getting educated and moving towards the cities for a better future. They do not want to work in the farms anymore and do not consider it lucrative."

While labour is mobile, land is not. What is making it expensive is its changing use diversion for non-agricultural purposes, like real estate and industry. "It is difficult to get the exact shift since the available land use data is in bad shape. Though there is some reduction in the use of land for agriculture, there is no data," said Jha. Dev mentioned the fertile land around metros going into urbanization.

High land prices hit tenant farmers, the most vulnerable of cultivators in India. In western Uttar Pradesh, land rate increased 20 per cent over the past year to Rs 12,000 per acre, said Tomar. Because tenant farmers are forced to invest more up front, they are under greater pressure to increase productivity. Desperation drives them to make greater investments during the crop cycle to make a profit.

Extension officers know all too well how this impairs the farmer's ability to take sound business decisions. Numerous studies show how this is pushing the Indian farmer into a cycle of indebtedness, because credit is not easy to come by.

Fertilizer under control, but critical
The government has not hiked the price of fertilizer since 2002. So, how does this input play out for the farmer? "There are gaps in distribution. Artificial scarcity is created in the market by diverting the stock to the black market rather than the open market," said Dev. "It finally reaches the farmers' at a higher price than that set by the government."

While the Centre has set the rate of urea at Rs 4,830 per tonne, it is available in Karnataka's black market at Rs 6,000 per tonne, according to farmers in the state. Diammonium phosphate, fixed at Rs 9,350 per tonne, sells for Rs 12,000 per tonne. The government rate for muriate of potash is Rs 4,455 per tonne; the black market rate is Rs 6,000 per tonne. Farmers in the state protested fertilizer scarcity recently. The protests turned violent and one person died in police firing.

It's not just the farmer at the receiving end. The fertilizer industry, too, is reeling, because of the fertilizer subsidy. This raises questions about the economic viability of the industry that supported the Green Revolution.

The fertilizer subsidy increased by Rs 1,03,993 crore from 2004-05 to 2008-09. In the current financial year, it is estimated at Rs 1,19,772 crore; only about 26 per cent of this is provided for in the budget. The government offered the fertilizer sector an additional Rs 22,000 crore as a loan, which it promised to liquidate subseqently. However, the Fertilizer Association of India (fai) said this amount was sufficient for their operations only till September 2008, after which it would have to seek credit from the market.

Each year, the remaining amount is carried forward to be included in the budgeted subsidy. The companies have to wait for their payments, or they are issued government bonds in the interim.

It is such delays in payments that cause discrepancies in fertilizer distribution, Bhanumurthy said. "The rationing by the companies or the dealers is to make up for the huge differences in the cost of production and the prices fixed by the government." For instance, cost of producing each tonne of urea increased by Rs 12,220 crore between 1995-96 and 2005-06. While Rs 10,590 crore came from sales and subsidies, the manufacturers lost Rs 1,630 crores; companies like Hindustan Fertilizer Ltd and Fertilizer Corporation of India, ended up closing their urea units.

An fai official explained the math making each tonne of diammonium phosphate cost Rs 15,000 two years ago; today, it costs Rs 60,000. Farmers get the same at Rs 9,350. The proportion of the companies's returns from subsidies is large, and increasing, because the price is not passed on to the farmer. About a decade ago, the companies recovered 70 per cent of the cost of certain fertilizers from sales in the market; this is now down to 20 per cent. Delays in payment cripple them, especially given the increasing cost of the raw material, the association source said.

Sulphur is used in complex fertilizers. Its cost had increased from Rs 90 per tonne in 2004-05 to Rs 855 per tonne by July 2008, an increase of 850 per cent. Prices of other raw materials are also headed north rock phosphate (548 per cent increase), phosphoric acid (446 per cent), and ammonia (123 per cent) are cases in point.

Feedstock for fertilizer factories is also more expensive. In the past 10 years, naptha prices increased 473 per cent, natural gas 295 per cent, and furnace oil 403 per cent. While gas is cheaper at the administered prices, it is unavailable to fertilizer companies at that rate; spot prices are eight times the administered price, said a fertilizer industry source. The association estimated that feedstock prices were responsible for 81 per cent of the hike in fertilizer prices.

Production has remained stagnant since 2001. "The demand has increased due to a boost in agriculture. To meet the demand we have to import since we haven't built our capacity," the official said. In 2008, India imported six million tonnes of urea at about Rs 40,000 per tonne; produced at home, it costs Rs 14,000 per tonne.The Centre has a fertilizer ministry, though that doesn't show in the performace.

Down to Earth Seeds unregulated
For all its woes, the fertilizer sector looks well managed compared to the seeds sector. An elaborate, publicly-funded seed research and production system under the Indian Council of Agriculture Research (icar), which supplied the farmer cheap high-yielding seeds through the Green Revolution, is now largely defunct.

Professors in state agriculture universities talk unceasingly of scientists leaving the public sector for the lucrative jobs in private seed companies. Off the record, they also mention how many scientists take with them research material developed with public money for the public good. This results in certain private seed companies getting research and genetic material on which they have invested little, although they claim their products are products of their research and development.

Not all seed companies are this unscrupulous. But there is no way to tell them apart. Parliament sent the Seeds Bill 2004, meant to replace the outdated Seeds Act of 1966, back to the agriculture ministry for redrafting, as parliamentarians thought it did not defend the farmers' interests.

There are major differences in the seeds provided by the public sector and the private seed companies. For one, the public sector provides stable varieties that the farmer can save from the produce and reuse; private companies prefer to sell hybrids, which do not yield as much in the next generation.

The replacement rate of hybrid seeds is almost 90 per cent. The farmers are caught in this cycle year after year. "Farmers have been trapped by the seed companies and they have to depend on them every season for new seeds. They do not germinate the next year," complained Tikait. He said Indian scientists had sold out to foreign companies and stopped producing low-input seeds. The practice of saving and preserving seeds is also eroding among farmers. "The younger generation is not interested in preserving traditional seeds and using them for the next season," said cane commissioner Lakshminarayana.

"Extension services of private companies are so strong that they manage to create a market. Agriculture universities, despite extensive research, are unable to take their seeds to the farmers due to weak extension," said an icar official.

In cash crops like cotton and maize, an overwhelming majority of seeds sold in the market are private companies hybrids. There is little information put out about the ancestry of the hybrids, which leads to suspicion that they are created from public sector varieties. In cotton, an estimated 90 per cent of seeds sold are private hybrids, which sometimes sell at prices 20 times the public sector varieties.

In Punjab, paddy hybrid seeds sell for Rs 200 per kg; varieties recommended by the Punjab Agriculture University sell for Rs 16 per kg. The seed industry defends its pricing and business practices. "When compared to the open pollinated varieties, the yield per hectare is very high [in hybrids]. The prices are high, but they include the cost of research and development," said Seema Sehgal, assistant director of the National Seed Association of India, which represents 201 seed companies. She added that private seed companies get no subsidies.

Not every seed that is costly yields highly. "20-30 per cent of the seeds in the market are spurious," said Dev, adding that farmers lose money and crops due to such seeds. In the absence of any Central law to prosecute unscrupulous seed suppliers, state governments resort to the Consumer Protection Act.

Down to Earth Pesticides
"The input costs are so high, the farmer is paranoid about saving his crop. There have been instances where the farmer has given 40 sprays [of pesticides] to a rainfed crop, instead of just 6-7 sprays," said Rajen Sundaresan of the Agrochemicals Policy Group, an association of pesticide companies.

The expenditure on pesticides has only increased. Prices of pesticides in Punjab increased 40 per cent within the past year, said Surender Rajput, a agri-inputs dealer in Ferozepur. For instance, the weedicide glyphosate's price increased from Rs 290 per litre to Rs 410 per litre within the last one year.

Andhra Pradesh witnessed a 100 per cent rise in the price of pesticides in the past two years, said cane commissioner Lakshminarayana. "Now more and more people are slowly realising the drawbacks of pesticides, especially the expenses, and are shifting towards organic farming and non-pesticidal management in the state." He talked of persuading more people to move away from synthetic pesticides.

From 1994 to 2004, the pesticide amount used in India decreased by 33.6 per cent, showed data of the Directorate of Plant Protection and Quarantine. But this does not mean the farmer is spending less on pesticides. This has to do with many new pesticides, with complex and stronger formulations, which have to be used in smaller quantities, said Sundaresan.

The pesticide industry there, though, is persuading the government to encourage the use of pesticides. "At present only 20 per cent of the cultivable land is under pesticide use. That land should be increased by at least 10 per cent. This will help prevent crop losses. India is losing nearly Rs 1,40,000 crore worth of crops every year at present," said Sundaresan.

Down to Earth Livestock, electricity, water
Moving to lower costs of cultivation has other obstacles. "Organic farming will require a lot of labour and livestock, both of which are scarce," said Dev. The decline of livestock has less to do with their demand and more with rising costs of feed and fodder; there are no subsidies on fodder, and pastures are severely degraded and encroached.

Scientists have long said mechanization would replace labour and livestock in Indian agriculture. Here's a sobering fact farmers who own tractors in Punjab were more heavily indebted than those who did not, a 2007 study by the Punjab Agricultural Univerity and the Punjab State Framers Commission showed. Tractor-owning farmers had an average debt of Rs 2,64,320; those who did not had an average debt of Rs 99,589.

"Where mechanisation is not possible and labour is scarce, farmers could shift crops. But that again depends largely on the pricing and glut in a particular crop," Dev said.

Government policies push farmers in ways that are not always acknowledged. Take the case of the supply of free electricity. Several major states like Punjab, Andhra Pradesh, Karanataka and Tamil Nadu give farmers free electricity. Bhanumurthy said this move helps farmers in the short term, but has long-term consequences, like groundwater depletion and and increased soil salinity.

Charging farmers by the power of the pumpsets has not helped introduce efficiency. In such places, like Uttar Pradesh, farmers tend to use low-power pumpsets for longer durations.

"In Uttar Pradesh, the horsepower units for the fields have been changed between 2003 and 2008 four times and the rate of electricity has gone up from Rs 70 per horsepower per month to Rs 100 per horsepower per month," said Tomar. "The farmers have to change the pumping unit [when rates change], which costs a lot." The supply of electricity is better in rainy season, when there is already enough rain to irrigate the fields, he said.

That India's food security has come at a great cost for groundwater reserves continues to get discounted in government policy. " is vital to ensure both that adequate credit is available for pump sets and electricity rates are not reduced to unsustainable levels," according to the Eleventh Five Year Plan. "...growth in agriculture can be achieved only by increasing productivity...through effective use of improved technology".

The cost of this blind pursuit of technology may not be obvious, but it is real. "While water is for free now, in future it will come for a very heavy price," Bhanumurthy said.

Government support is shaping up oddly for farmers. Where it is there, it harms their long-term intersts. Where it is not there, it has abandoned them to a market that is hostile to their interests. The gap between the diagnosis and the treatment is all too well known.

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