Apr 14 2014

Revisiting Agriculture Policy

Your columnist was recently invited to speak to the latest batch of the Indian Administrative Service officers at the LBS national Academy of administration on issues concerning agriculture in the country, and the role of the district administration in making positive interventions on the lives, livelihoods and incomes of farmers, farm workers and other stakeholders engaged in agricultural production.

Having worked in agriculture and related departments for the last several years, I never thought it would be difficult to expound on any matter relatedto agriculture. Usually, the Academy gives a specific theme- say agricultural marketing, or procurement operations or the administration of agricultural development schemes, or there is a panel discussion on issues ranging from farmers suicides to the impact of food security bill on marginal farmers or impact of NREGA on farm wages. However, this time this was a clear field- and I had been asked to paint a new canvas. Introduce the subject, capture their attention and hold on to it, and get them interested in Kisan credit cards, agricultural insurance, rural markets, procurement operations and the pros and cons of contract farming. Most of all, the salience of agriculture in development administration and national economy had to be brought to the fore.

That set me thinking. How does one introduce the subject? How does one ensure that the participants retain their interest, and hopefully get involved with the subject? Therefore yours truly started by placing agriculture in the context of India’s economy, discussing the changing profile of agriculture in recent times, factors of production in agriculture, some basic concepts, the tasks ahead and the role of district administration. And though one is always biased in one’s own favour, I honestly think that the end result was good- and hence I need to share it with the regular readers of my column.

Agriculture continues to have a major, though declining share in India’s overall economy of Rs 95lakh crores. Currently at sixteen lakh crores, it is substantial, but the fact over 52% of our working population are engaged in producing this output casts a shadow on productivity per person, especially when we compare our performance with China and even Indonesia. The comparison becomes even more acute when we realize that within the agriculture GDP, over two thirds of the value comes from high value agriculture – horticulture, dairy, poultry, fisheries and plantation crops – and these also employ just above one third of the total work force in agriculture. However, the bulk of our research, extension, credit and input system are geared to ‘crops’ – that is to wheat, rice and cereals where the growth has touched a plateau. The focus continues to be on core agriculture – whether in policy discussions or in the manuals for drought relief. The rest appears almost as an afterthought.

Therefore the first issue in agriculture is that our policy should be geared to support HVA – or in other words, move from carbohydrates to proteins- which will also address nutrition related issues. This means a shift in the way agriculture has been done traditionally, for HVA requires new and evolving skill sets, besides of course an orientation to produce for the markets, rather than for the state procurement agencies. Now, selling wheat and paddy to FCI or pulses to NAFED or sugarcane to a factory is quite different from selling eggs,milk, apples and mangoes that has to reach fresh to consumers. Visible quality, packaging, grading and branding play a far greater role in HVA, and profits come not from production but integrated value chains. If returns are higher, so are the attendant risks. The role of the state should be to minimize these risks by ensuring information (regarding demand &prices), infrastructure (warehousing, cold chains and markets) and pro- farmer policy (liberal exports, easy credit and improved terms of trade). To illustrate, the great success which the cotton farmers have had is largely driven by the liberal trade policy regime. If the textile lobby had its way, Indian cotton farmers would lose out.Likewise if the export of bovine meat and rice was to be discouraged, domestic prices would dip, and make the farmer producer unviable. But the condition precedent for these is infrastructure, and it would certainly make greater sense for state government and even ZillaPanchayats to invest in infra, rather than in arranging supply of subsidized inputs, the coverage of which will always reek of inefficiency or patronage or rent seeking behavior or all of them combined.

There is also the greater question of whether or not the agriculture department should also plan an exit strategy for workers employed in this sector. The answer is yes! Growth will come not from core agriculture, but agri-related services, and all these will require new skill sets – be these for managing & operating cold chains, or food processing, or addressing credit and insurance needs, farm equipment leasing and maintenance services, etc. This calls for taking a fresh look at the courses which are currently being taught in the Industrial Training Institutes and polytechnics. An attempt to shift eight to ten percent of the existing work force in agriculture to near farm/farm related jobs is neither unrealistic, norundesirable. But this will mean close involvement with the state governments, technical education and labour departments as well as the National Skills Foundation, and the greater the interaction, the better it augurs for all.

The next big issue in agriculture is about subsidies? What is their impact? Can it be measured? Does it promote equity, ecology and sustainability? Can this ‘allocation’ be spent differently , that is can we use this to fund long term infrastructure, or better still to leverage investments from the private sector. To understand this, it is important to understand that the subsidy on fertilizer is often two to three times the budget of the Ministry of Agriculture (MoA). In a typical year, the budget for the MoA (which includes the Departments of Agriculture and Co-operation, Animal Husbandry, Dairy and Fisheries and that of Agricultural research and education is in the range of twenty five to thirty thousand crores, but the fertilizer ministry’s allocation ranges from sixty to hundred thousand crores. Fertilizer subsidy primarily supports cereal production, and the larger the farm holding, the greater is the access to fertilizer, and hence the intensity of use. In fact, as the co-operative sector is one of the major producers and distributors of fertilizer, its spread is skewed in favour of states where the membership base is stronger. It may also be mentioned that landholding is an essential criterion for membership to an agricultural co-operative. Thus fertilizer subsidy ‘pulls’farmers from the Green revolution states to produce more wheat and rice which plays havoc with groundwater, and virtually drains water from water scarce regions to the most water surplus parts of the country. This behavior is facilitated by two additional subsidies which come from the state government , especially subsidy on power and diesel which again promotes flagrant overuse of water, and there is no incentive for farmers to shift to a more ecologically sound production cycle. If all these subsidies could be used in more productive ways – including the establishment of infrastructure, greateremphasis on research and extension – we can hope to bridge the gap between our productivity with those of other countries. The problem is that while subsidy cuts make a short term impact, the agriculture system is losing out its long term potential by not investing in education and infrastructure – the two main drivers of agricultural transformation. As argued in these columns earlier, most agricultural universities are starved of funds, and are working with one third of their sanctioned staff strength. The impact will not be felt in the next panchayat election, but the competitive edge of Indian agriculture is getting blunted. Likewise, the extension system is overstretched to the point where it has stopped doing anything other than maintaining inventories of subsidized inputs and lists of eligible beneficiaries.

Perhaps the time has come for the Governemtn of India to take a leaf from the state governments of MP and Chhattisgarh which have introduced a separate budget for agriculture. True, it is not a budget in the real sense,because all the action is on the expenditure side alone as governments are reluctant to collect land revenue, and incomes generated on agricultural transaction in markets accrue to the respective APMCs. However even if all the expenditure/public investment in agriculture could be shown together, it would open up the possibilities of looking at alternate ways of achieving the goal of higher production, productivity and farmers incomes. To begin with the expenditure of Agriculture, Fertilizer, Water Resources, Rural Development and Food processing should be tabled together to see how best to utilize this ‘resource pool’ can be optimally utilized. This will also compel departments to ‘think policy ‘ rather than dispense patronage because when the departments are only geared to implementing budget lines – they stop doing the critical thinking on what needs to be done to provide, knowledge, infrastructure and markets for the farmers. This point needs to be reiterated because at a more philosophical level, knowledge, infrastructure and markets are in the nature of ‘public goods’ from which it is difficult to pronounce exclusions ; subsidies , on the other hand, by their very nature are ‘patronage oriented’ and incentivize ‘rent seeking ‘behaviour among those engaged in the task of distribution. This was brought out by your columnist in a White paper on fertilizer subsidy during his tenure as the Agriculture secretary of West Bengal.

Then there are issues connected with the management of land, which do not fall in the domain of the agriculture department but vest in the revenue department. Thus rules regarding tenure, sale, mortgage, transfer, consolidation and settlement of land lie with a department which has minimal interest in the welfare of farmers. Unlike the agriculture department which in any case has to engage with the farmers, the revenue department looks at land from the perspective of a ‘sovereign’. From this perspective, ‘record of rights’ ,’clear titles’, ‘succession ‘ and mutation are far more important than the basic fact that land must be put to plough. As mentioned earlier, if the governemtn adopts a conscious strategy of moving at least ten percent of the work force out of land – leasing arrangements and transparent transactions, including electronic registers will have to be introduced. It would make sense for many farmers to ‘lease-in’ or ‘lease-out’ their lands, even from season to season depending on the alternative options that are likely to become available on account of diversification, post harvest management and agric related services. However our legal system is out of sync with the changes that are taking place in the countryside. Thus informal lease markets are growing, cold storages are doubling up as agribusiness hubs, and many farmers/agribusiness firms are aggregating hundreds of acres of land for seed production and HVA. This is where the district administration can play an important role- first by capturing the information and sharing it with the state governemtn to ensure that a comprehensive policy can be brought about, Second, computerization of land records has to be taken up on a war footing –because this along with the Kisan credit card (KCC) has the potential of transformingthe agrarian economy. In fact the KCC deserves a separate column by itself because this can also ensure the necessary linkage with income insurance for farmers.