Remarks On Rural Credit For Globalising Farmers

I happened to be the chair for the technical session on 'Rural Credit for Globalising Farmers' at the 26th National Conference on Agricultural Marketing, organised by Indian Society of Agricultural Marketing (ISAM), Nagpur and Gokhale Institute of Politics and Economics (GIPE), Pune held at Yashanvantrao Chavan Academy of Development Administration (YASHADA), Pune, during 20-22 December 2012. The following are my remarks for the session.

Credit is an important requirement for the farmers, who are risk-taking entrepreneurs. This will help them take up usage of inputs or a technological innovation that they perceive or are made to perceive is beneficial for them. Of course, as an aside, one can state that many technological innovations (including the green revolution) are taken up because of a subsidy component that distorts the actual prices as well as perceptions. Besides, the mindless transfer of such technology meant for certain agro-climatic conditions or to certain cropping patterns to all scenarios may not be appropriate. 

Taking a clue from the Presidential address by Professor V. M. Rao, one may also add that the reaction to the food non-availability crisis in the mid 1960s was an emergency requirement; the danger was to have converted such an action to be part of the normal design. This manner of functioning was inefficient in the sense that it distorted prices but it was also iniquitous by focusing on some well-endowed regions. Unfortunately, its inappropriate application also had adverse implications for such well-endowed regions down the line.

Another point that I would like to stress to this august house is on some important but distinct connotations that the word 'market' can have. For instance, market is a place where the farmer (as also you and I) have the freedom and right to buy and sell.

We also at times imply by market to a state where the price is efficient. This second usage draws from the classic condition that in a market there are large number of buyers and sellers, and hence, none of them can influence the price to suit their own vested interest. Such a market clearing price at equilibrium is efficient and fair. 

A third and an increasingly important usage of the market in a globalising context is where efficiency is measured through higher margins (note the difference in the meaning of efficiency under an equilibrium price). It is this latter logic that is invoked in many policy debates and decisions including the FDI in retail.

One has no problems with any of the meanings ascribed to the word, but it is problematic if one uses this word interchangeably. In particular, the third usage is argued to give a fair price as also freedom and space to transact. We should be clear about these distinctions and use them appropriately. 

Having said these, one would now get back to the presentations made at Technical session 1 on 'Rural Credit for Globalising Farmers' and some recommendation that emanate out of these deliberations. Nine papers were presented. The presentations are:

• 'Warehousing Receipt Finance of Agriculture Commodities in Andhra Pradesh' by P. Kanaka Durga (Anil Kumar and Aldas Janaiah)
• 'A Comparative Study of Cultivating Rose in Open Field and Greenhouse as Cut Flowers - An Empirical Study' by (Sujata Majumdar and) Debabrata Lahiri
• 'Wheat Growers in Ludhiana District of Punjab - Asset Positions, Credit Requirements and its Sources' by Veena Goel (and Gurpreet Kaur)
• 'Development of Agricultral Marketing in India' by S. K. Dhage
• 'Measuring Inclusiveness of Agriculture Credit Flow in India' by Nirupam Mehrotra
• 'Agricultural Credit System in the Tribal Belt of Odisha: The Case of Maize Production' by Brajaraja Mishra
• 'Emerging Trends and Policy Options in Agriculture - Production, Marketing and Credit' by Samir Samantara
• 'Rural Credit for Globalizing Farmers' by Sangeet Kumar
• 'Weak Penetration of Institutional Credit and Farmers' Suicides in Maharashtra' by Dnyandev Talule

From the above nine presentation, five were based on primary field based work that enriched the deliberations because of the variety of contexts (warehousing receipts, rose cultivation, wheat growers, tribal farmers cultivating maize, and farmers' suicides) as well as their spread across the country (Andhra Pradesh, West Bengal, Punjab, Odisha and Maharashtra), two were based on secondary data on credit raising policy issues with one of them looking into some measurement issues of inequality, and two were written in the style of general essays.

Some recommendations coming from the presentations as also the deliberations are as follows:

• The farmers usage of warehouse storage facility is constrained by a legitimate fear that the quality of the stored produce would deteriorate. This calls for improving the quality of management, quality of service, efficiency of handling and safety of the stored goods. 
• Uncertainty in prices and the risks therein brought into discussion a possible reliance on hedging through futures market but it also raised further risks of transactions through this virtual medium that has nothing to do with physical transactions.
• Medium and large farmers appear to be primarily accessing the storage services whereas the need for safe and efficient storing to escape distressed sale of their produce is greater for the small and marginal farmers. Efforts need to be made to make storage viable for the latter.
• Unlike greenhouses farmers, the open field farmers producing cut rose did not have access to formal credit. The banks in this region may come forward to give them loans for setting up greenhouse structures and also for producing under open field conditions.
• The study of wheat growers indicate that small and marginal farmers are constrained in the production process (as they have to rely on the market for renting out farm machinery and equipment increasing the cost of production) and selling of produce (during lean season at a lower price). This reiterates our earlier point of the greater relevance of warehouse facilities for small and marginal farmers. It also points out that they may need greater operational credit because of higher cost of production. Its feasibility will depend on the returns from cultivation for these farmers.
• Interlocking of credit with input and output markets had adverse implications on tribal farmers' income. Alternative forms of agriculture that could reduce dependence on market-based inputs while not compromising on the production (low external input sustainable agriculture - LEISA) and facilitate marketing of the same at a premium price should be explored.
• Farmers' suicides are a failure of hope as also a symptom of the crisis in Indian agriculture. There seems to be a greater debt burden for such households when compared with non-suicide households. The debt burden for such households also seems to be higher from non-institutional sources. This is worrying because the study conducted in early 2012 (which is also a drought year) seems to have negated the benefits from debt-waiver and increased the riskiness with the negative returns. It does raise the question on usage of technology-centric (Bt seeds) and financial-centric (debt waiver) solutions while not giving much focus on the real world problem (livelihood crisis). To ensure success of debt waiver there should have been focus on improving incomes while not increasing the risks, particularly in a bad year. This reiterates the relevance of LEISA indicated above.
• The failure of seeds due to spuriousness or any other reason calls for compensating the farmers' income and not just the seed cost by the supplier.
• Improving institutional access to credit in a timely manner and even clubbing the same with non-credit inputs could be an alternative. Formation of Self-help Groups (SHGs) and linking them to banks could also help. In short, there is a case for promotion of groups of borrowers (produce based, service based, caste based, village based, and cluster based that are either vertically or horizontally integrated).
• There is also a case to take credit beyond production and link it with post-harvest operations like sorting, grading, packaging and marketing and this can be made to groups, as indicated above.
• Some of the eastern states share of agricultural credit is lower than their share of area under cultivation or irrigation. These are also the states where the small and marginal farmers get a lower share of credit compared to their share of area. If focusing on East is a concern for policy planners to increase agricultural production then the credit disbursement in these areas need to change. Some thought also needs to be given on the appropriate technology.

(This is a slightly revised version of the presentation made at the plenary session. While acknowledging that I used my liberty as a chair of the session to represent the views indicated at the session and take responsibility for the same. However, if something has been left out, it was not intentional.  I am thankful to Abhay Tilak, Rapporteur for the session, for sharing his inputs and the paper presenters and all those present there for a lively discussion.)

Options and Priorities for Agriculture in India on the Eve of the Twelfth Five-Year Plan

Introduction

The Indira Gandhi Institute of Development Research (IGIDR), Mumbai and the Institute for Human Development (IHD), New Delhi with the support from the Planning Commission, Food and Agriculture Organization (FAO) and The World Bank conducted a two day workshop on 'Policy Options and Investment Priorities for Accelerating Agricultural Productivity and Development in India' at the India International Centre, New Delhi during 10-11 November 2011. Besides the inaugural session (where Dr Abhijit Sen, Member, Planning Commission delivered the keynote address), there were six technical sessions, viz., agriculture in the global perspective, agricultural growth, agricultural investments, technology, marketing and structural transformations, and three panel discussions on perspectives from the states, government perspectives and the way forward. Based on these deliberations, some policy aspects are raised on the eve of the twelfth five-year plan.

Issues and concerns

While agricultural productivity and development is an important question, there could be different perspectives such as increasing foodgrains production, providing livelihood security for more than half the population dependent on agriculture or efficiency in resource use of not only land but also water and other inputs. All these have their own rationale, but they can conflict with each other and that is the challenge for planning. In addition, questions of food inflation in recent times and the ongoing debate on food and nutrition security as also crop diversification, efficiency of small holdings and soil fatigue are also relevant concerns.

Learning from others

Drawing on the comparative study with a focus on Brazil, China and Indonesia, the lessons for India is to focus on research in facilitating appropriate technology, sprucing up the research and extension systems, emphasis on diversification and investment in infrastructure. At a global level, increasing hunger, adverse impacts on production on account of climate change and shift in acreage to biofuels among others are matters that are also pertinent for India.

Growth in agriculture: variation across states

After a period of deceleration from mid-90s, there has been a revival in agricultural growth in the eleventh plan, but this revival is being backed by a technology that is increasing the cost rather than reducing it, which jeopardises the livelihood sustainability of the mass of people dependent on agriculture. There are differences in priorities and policies across states and agro-climatic regions and the planning at the centre should take this into note. In particular, the rainfed regions and districts with lower productivity need special attention. The Rashtriya Krishi Vikas Yojana (RKVY) should be bottom-up in spirit and not just in letter, that is, start planning from the village level by involving the local communities based on their requirements.

Investments in agriculture: public and private

Public investments should sustain the momentum on irrigation, research & development, and rural roads; focus on rainfed and eastern region; and find ways to make fixed capital efficient among others. The policy environment to facilitate private corporate investment should also look into appropriate regulatory and institutional issues. Farmer household level private investment is complementary to public investment, but for this to happen, appropriate credit facilitation should be provided by the formal banking institutions keeping the marginal and small farmer in mind. Further, research should be encouraged with farm level data. The unit level data maintained by the Department of Economics and Statistics (DES) and used by Commission for Agricultural Costs and Prices (CACP) should be made available to researchers so as to help in the policy deliberations and planning process.

Technology: a critical link

New technological developments are required to improve production and this necessitates change in agricultural education, facilitating research that has to be integrated with on-field training and extension education, draws on farmers' innovations and incorporates the ecological concerns among others. For all these, appropriate additional investment is required in research and development. There should be ample scope to integrate Agriculture Technology Management Agency (ATMA) to the needs of the states with a focus on providing appropriate services, as required by the farmers. Efforts should be made to reduce yield gaps from research station potential to on-farm demonstration to actual farm outputs. Independent of the input-intensive cultivation, the alternative paradigm of rainfed cultivation with a focus on soil organic matter, supplementary irrigation, seed bank, millet production along with small ruminants and fisheries among others may be promoted on a pilot basis under the twelfth five-year plan in some selected blocks of backward rainfed districts. This also requires building up of farmer-friendly institutions to facilitate their livelihood security.

Market: beyond efficiencies

In recent years, Agriculture Produce Market Committee (APMC) laws have been enacted or are in the process of being enacted in most states, but some of the variation across states need to be bridged with subsequent amendments and the enacted laws need to be properly implemented and where there are no laws, appropriate regulatory structures need to be put in place. There is a case to empower marginal and small farmers by expanding their choice set so that they benefit from market transactions and this may be possible through pro-poor value chains, and appropriate contracts that are situation-specific to guard them against price and income shocks. Risk mitigation at the household level has to be based on diversification and low external input technologies. There is a need for appropriate insurance instruments – crop insurance at the farm level and weather-based insurance to factor in different stages of crops life cycle and input requirements.

Village studies: multiple perspectives required

The changing technological and market scenario as also socio-economic intervention is also bringing about a lot of changes in rural India. Revival of village studies from multiple perspectives would help complement our understanding from large scale surveys and macro data. Such studies need to be encouraged.

The way forward

On the eve of the twelfth five-year plan, the challenges for agriculture are multiple – climate change, foodgrains production, technology fatigue, resource use efficiency, food inflation, and livelihood security for those dependent on agriculture among others. It requires coming together of many domains and perspectives, as has been shown in this workshop wherein one received support from the government and multilateral organizations involving researchers from Indian as well as International institutes with an attempt to initiate a conversation between agricultural scientists and economists.

Alternative technologies emphasizing on sustainable and conservation practices with a focus on rainfed regions need to be explored. This has to be complemented with appropriate institutions: (1) those that organize farmers from the village level to aggregate their input and market requirements, (2) those that help to leverage scientific developments and the claimed potential with on-field outcomes at the farmer level through appropriate research and extension structure that are bi-directional in nature and also take into consideration the local situation – both agro-climatic as also socio-economic, and (3) those that facilitate collection and analysis of quality data at the micro (farm or household level including village studies), meso (regional or state-specific studies) and macro (aggregate economy level studies) level. There is also a case to bring together the concerns of agricultural development with that of rural development.

The task ahead is daunting. To quote Robert Frost, “…And miles to go before (we) sleep, And miles to go before (we) sleep.”

(This has been prepared by Srijit Mishra in consultation with S Mahendra Dev and with inputs from Ritika Palit, Sanjay Prasad, Upasana Sharma and D Suganthi.)

Some of my other recent related posts are:

Size-class and returns to cultivation in India

Food, hunger and ethics

Report on strengthening the role of agriculture for nutrition secure India

Poverty estimates in India

Visit to Amana Colonies

Today it was a nice surprise as one of my friends from University of Hyderabad student days, Lakshmi who was doing her linuistics there, came over from Nebraska with her husband, Madhusudhan (Masa) and son, Miti who has entered his teen. It was nice because we did not interact much during our student days; of course, we have been in touch virtually in recent years. The hightlight was the gift with the tag 'good teachers think out of the box.' They came down with us to Amana colonies and it was a nice time spent.

Amana colonies, like the Amish villages we went yesterday, have a German origin. The Amaa colonies have a lot of handicrats - furniture, wollen, restaurant, brewery and other shops. It is a nice outing for a Sunday.

At the brewery we chatted up with people about American history, culture and politics. How it is perfectly right for an Iowan to talk about weather and pets but it is more about politics and who you claim to know at Washington DC and people will hardly have any time in New York leading to the saying that if you stop moving then you will be run over. Coming from a fast-paced Mumbai, one can empathise with this, as one has also heard umpteen times that the only place faster than  Mumbai is New York.

There was a discussion on taxation and how the rich can always get away by paying less. The emphasis on private property means that many people argue against taxes being used for distribution purposes. Instead, low taxes and investments are argues as alternatives for gererating employment and in that sense spreading out the reach of wealth through some trickle down.

On government expenditure, it is the defense that takes a larger pie and the rest are all from a small proportion. This limits the distributional outreach of the government. This means that we need to tax more, but we have been reducing taxes.

Another justification that one hears is the role of the market in fostering growth. One does not deny this, but observes that the relevance of the market as conveived by the founding fathers (to provide freedom in selling and buying goods and services) is missing. And in that sense, fostering freedom and an enhancement of capabilities of more and more individuals to participate in the market is also missing. The relevance and role of the market has been turned on its head. Market, instead of a being a means has become an end. The growth of the market (owned by a few) is given precendence over the freedom of the market.

In the economics sense, the relevance of the market and its justification as an efficient outcome comes from perfect competition. In this kind of a market the efficiency argument follows from an assumption that there are many buyers and sellers. If this is missing then the argument in favour of efficiency also falls. Does, this mean that we do away with the market. No, we do not. But we should be careful of the possible pitfalls. In particular,  the vested interests need to be kept out. This requires some structural differences in organising the market and regulating it witout stifling innovation. There is an increasing need to think out of the box.

People, Markets and Democracy

Being pro-people is not the same as being anti-market, but, it is definitely not being 'pro-market'. It is, rather, for markets where people matter. Thus, like a democratic government, markets should be by the people, for the people and of the people.
The irony is that peoples representatives in a democratic set-up are being 'market-friendly' so that they can buy people, be far from them and off their radder. Be forewarned, that if people become irrelevant then it is neither good for democracy nor for markets.