Is agriculture
becoming unviable?
An article by A.J.Rao
Going by the increasing number of suicides by
farmers being reported in the press
it would appear that agriculture is slowly becoming a n unviable proposition.
In Andhra Pradesh the lush paddy fields that one sees on the roadside would
seem to belie the impression that it is indeed so. On the face of it the farmer
seems to be prospering. If one probes deeper one would come to the inescapable
conclusion that agriculture as an economic activity has ceased to be a paying
proposition . Two very important developments have taken place in the last
decade or so. The first one relates to the market. The market has graduated
from a purely local one to a more ‘macro’ one -.a State-level or national
market .With improved communications a tremendous enlargement of the market has
taken place which has virtually taken the wind out of the
farmers sail or if
you prefer, out of his plough .One would ask why this has not benefited him .
In the normal course it should have certainly helped him in getting a better
price realization .This has not happened .This is because the macro market
pricing does not take into account the differences in input costs which differ
from region to region. The most important cost is the capital cost , that is ,
the cost that is paid by the farmer for the use of the land. This cost varies
from place to place depending upon the fertility rates of land and the relative
costs of making the land suitable for the particular crop .In a topography as
varied as in Andhra Pradesh it is well neigh impossible to manage a uniform
costing of the agricultural
produce .We may recall Ricardo’s definition of rent
as a differential surplus arising out of the differing fertilities of land
.While Ricardo does not look at rent as a cost but rather chooses to treat it
as a surplus paid to the landlord from out of the produce, in a purely competitive
economy rent also becomes a cost which goes into the pricing of the produce at
a macro-level.
The second most important development is the arrival of the traders .The
traders come with big money and mop up the entire produce from the market in
one clean swipe. Their strength is their enormous inventory-carrying capacity
.They have endless financial muscle and can brave through extremely low price
realization periods through sheer grit. The enormous carrying costs are
adequately compensated for by higher price realizations of the post-season
market. The farmer who takes a crop loan has necessarily to repay it by sale of
the produce during harvest season .He also does not have storing capacity even
if he wants to wait for a better price. The result is he sells his produce at a
time when there is over-supply and suffers an extremely poor realization in the
process.
As a way out of this complex situation, we may perhaps examine if we could in
some way empower the farmers to hold on to stocks for longer periods. One way
could be for banks to sanction produce loans to farmers enabling them to hold
on to stocks for 3 to 6 months. The downside is that the farmer , with his
limited stocks and resources may not be in a position to hold on as long as a
trader who has enormous financial capability and being a bulk dealer , enjoys
economies of scale. Well , whatever may be the pitfalls it is a solution worth
trying . The only hitch is whether the bankers , already best by mounting
N.P.A.s will cooperate .