Small Farmer Economics in India

We have been told that small farms are non-viable. For example, the Commission for Agricultural Costs and Prices in India has estimated that during 1997-98, returns from a hectare of land for paddy and wheat crop in Punjab was only Rs. 7,300/-. Given that the average size of small farms is 1.61 hectares, the total net returns for the two crops in a year works out a mere Rs. 12,000/-. Other expert studies have also concluded that the average income earned by a small farmer may be well below Rs. 2,000 p.m and thus below the minimum wages prescribed for a living.

What has and is being done to address the situation?

Government and non governmental organisations (NGOs) have promoted various institutions to support small farmers. In the sixties, the Co-operative movement was ushered in, basically to take care of commonly required activities like seed and inputs procurement, and sales and processing of produce.

Another austensible mechamisn to support the small farmer was farm subsidies. The fertilizer subsidy has been escalating: from Rs. 5 billion in 1980-81 it went to Rs. 162.5 billion in 2005-06. As a proportion of the GDP, this was 0.41% in 1980-81, reached up to 1.11% in 1989-90 and has been almost constant since then.

Harish Damodaran points out that for every Rs 100 of sales that domestic fertiliser companies clocked in 2008-09, no less than Rs 60 came from taxpayers’ money. Since March 12, 2003, farm-gate prices of urea and di-ammonium phosphate have been maintained at Rs 4,830 and Rs 9,350 a tonne, respectively. Thus in 2008-09, the total payout to fertiliser companies from the exchequer hit a record Rs 99,494.71 crore.

Despite this huge subsidy, small farms seem to be in more trouble than ever before. It was only this year 2009 that the finance minister has announced that the subsidy will be given to the farmer rather than the industry. Hopefully the subsidy will be limited to a certain absolute quantity, and small farmers on becoming aware of the real price of fertiliser will be want to shift, at least particially to more organic, local or alternative means of providing soil nutrition.

The Centre for Sustainable Agriculture, the Green Foundation, AME and several NGOs throughout the country have been promoting organic, and low external input agriculture. Some NGOs also developed the concept and practice of collective farming or at least sharing natural resources. Pani Panchayat in Pune District did fairly by promoting equal allocation of water irrespective of the amount of land owned, thus allowing small farmers better use or barter of their water resources.

Despite these and other efforts, mainstream economics seem to promote the view that because of their non-viability, small farms need to be dismantled, either through consolidation, or changing the land use for non-agricultural purposes.

Their involvement either in the form of contract farming, or corporate farming is being touted as efficient or more correctly profitable answer to poverty. Some have suggested corporatisation as a means of adding value. Today many small farms are delivering products like cotton, tobacco, oilseed under contract farming to corporates. The same argument is used to legitimise the change of land use particularly for development projects like large dams providing water and electricity for cities, and more recently Special Economic Zones (see The Impact of Special Economic Zones on Small Farmers in India).

If Small Farms are so non-viable how is it that the overwhelming majority of India farmers, that is about 80% of them, who have land holdings below 2 hectares, manage to live, along with feeding a substantial portion of the population? To understand this, we examine the economy in a semi-arid, poor soil region.

Small farming in Rayalseema

Rayalseema is a low rainfall area, in the Deccan plateau. The CED met Dr Sheshagiri Rao who is an Agricultural Scientist and also a farmer in Pavagoda, a remote area of Karnataka. He has a unique view as he has been active in farming, as well as using his farm as a research station for the University. Thus he has scientific records of rainfall, production.

Dr. Rao explains:

“Big farms, especially big farmers in dry or semi-arid regions, mostly mean big losses. This is more so now because the big rain-fed farmer is not able to undertake cultivation through serfs. The margins are so thin in rain fed farming that you have to be a careful manager to make it. By definition, a big farmer is never a careful manager. If at all a big farmer gains, it will be after he invests in bore wells.

“In the 80s & 90s, the ground water was plenty, mainly because very few people could afford bore wells. The other big farmers, who made it, were those who got into tree crops, and orchards. At that time labour was cheap and they made their money.

“Now in late 90s and 2000 however, the small farmers are better off. This is mainly because the water table has gone down, and the big farmer has had to dig more and more bore wells. Also labour costs have gone up four times. Thus the big farms really have lost the advantage. If at all you see a prosperous big farmer it is because of income outside agriculture which is mostly trade or government contracts or politics.

“There is another important factor, which is not taken into account in our economics: the economics of small farming, particularly in rain fed agricultural areas, cannot be considered on the same plain as farming economics. For example, the local farmer appreciates that the groundnut crop is a gamble which depends on rains. In the groundnut growing region of Rayalseema bio-region, small farmers have one profitable crop in every 5 years, and for three years at least they don’t even recover the cost of cultivation. And therefore they never relied completely on groundnut for their family income.”

The mixed economy of a rural household

He goes on: “Only 20 to 30% of the small farmer’s income actually comes from farming. A very large portion comes from wage labour. This is particularly true after the implementation of the NREGA – the National Rural Employment Guarantee Act, which guarantees any rural household hundred days of labour in public works. Another important finance source is remittances from relatives working in the city, or even abroad.

“Traditionally a lot of the other income came from livestock like goats and sheep rearing, milch animals, poultry etc. Before the eighties, this region was not connected as it is today. So, animals & agriculture were not always connected to the outside market. So craft was a very important income earning option here. The small farmers were part time craftsmen.”

Modern economics fails to take into account that farming is a way of life linked with a host of other survival activities. The majority of people live at the margins, and survive through a large range of informal activity. These informal activities are generally never taken into account, and therefore not even valued.

The view from the ivory tower

It is the diverse survival economy that is under attack by modern reductionist economic models. Their view is 60 % of India’s working population is engaged in agriculture but its share of the GDP is less than 30 percent. This statistic has been used to talk about low productivity of agriculture. Is this a problem of productivity in farming? Or is it a problem of giving proper value to agricultural activities? Or is it economics inability to handle complex multi-layered activities?

Despite the modernisation of agriculture, and increased external inputs in money, chemicals, and technology, why and how have the prices of agricultural commodities have been kept low?

Economics tells about demand and supply. Every one eats, so demand is always there. And supply, is it too much? If so, why spend so much more money and technology on improving productivity?

We are told that it all depends on the amount that consumers are willing to pay. The truth is that a large part of the consumption does go to those who can theoretically afford higher prices, but are not disposed to paying more, as they have been used to lower prices. The same customer does pay much higher prices for premium qualities of rice. For example some brands of Basmati rice sell in the Indian markets at five times the price of average quality rice. But the price of these average qualities of rice are kept low, as there is the threat that the market would get flooded with imported rice, which is subsidised by all kinds of mechanisms.

Given the skewed effect of subsidies, small farmers are looking to move away from subsistence farming, to cash crops. Growing one’s own food has been dis-incentivised. The growing of traditional crops, like minor millets, which is more suited to the environment, has lower carbon footprint, and more nutritious, has similarly been dis-incentivised. The economics of such activities has been totally rendered non-viable by supplying rice at Rupees two or three per kilo.

The small farmer as beautiful farmer

Our economics insists of looking at people in an uni-dimensional manner. Whereas the so-called small farmer is a many splendoured thing. He/She is also the symbol of an interconnected style of living, where the line between work and lifestyle/environment is thin. Further, small farmers have a comparative advantage in the production of certain high-value crops. Smallholder advantage derives from:

• Proximity: smallholders are more familiar with local preferences and can provide fresher supplies with lower transport costs to local markets;

• Price: lower opportunity costs for land, lower remuneration for labour, and the use of family labour with little or no supervision costs, enable many smallholders to produce at lower cost than large-scale commercial growers;

• Quality: smallholders, as resident owner-managers, are in close contact with their production environment and have greater motivation than hired labour to provide the extra care needed to cultivate high-quality produce.

How can these advantages be secured in the face of the onslaught of modern systems which tend to strike of the root of their sustainability? The small holders need to become more effective market participants—both as consumers of agricultural goods and services and as producers of saleable crops—with the end result being increased incomes and improved livelihoods. One of the organisations attempting this is Just Change India.

Many Solutions is the only Solution

Any rational approach towards reducing poverty by developing programmes or ensuring sustainability of the country side is to encourage the diversification of livelihoods.

Dr. G.N.S. Reddy of BAIF Institute of Rural Development, Karnataka (BIRD-K) uses a model called “Kite Analysis” to differentiate a multi-output, sustainable dry land farming model, from a production agriculture based on monoculture and markets. He uses this to point at what causes farmer suicides.

Another solution is shown by some farmers in Kundurpee, in the most remote part of a drought affected Anantapur district in South India. When CED visited there, we were well into the rabi season, when all around farms are generally barren, brown, full of weeds, dried leaves, cracked soils. Not in these fields. The crops were all chest high, and it was not possible to walk across the field. The whole circumference of the plots was lined with a natural fence of different vegetable and pulses. Inside were high plants of Chilly, Brinjal (egg plant), tomato, pigeon pea etc. Basically in just one tenth of a hectare, each of the families of the Mottam clan were able to sustain their families.

How do they do it? They have planned a multiple crop. Every week, a day before the local market day, they would harvest that part of the crop which is ready. The farms bring in a steady income, as well as food. An NGO in Anantapur called Accion Fraterna, has decided to call it the “Mottam model” and popularize it.

Elsewhere in India too, we have had several examples of such creative agriculture. The Palekar model of Natural farming also works on similar principle (See Subhash Palekar and Natural farming).