Why India's farmers are struggling despite the growth of agriculture

Last week, farmers in India took to the streets in a sign of protest and a government minister quit as two agriculture bills were passed in the country's lower house of parliament.

The protestors argue the planned laws –allowing farmers to sell their produce directly to big buyers such as large retailers – will lead to a decline in their crop prices. The minister for food processing, Harsimrat Kaur Badal, who resigned from his post, agrees with their point of view.

Indian prime minister Narendra Modi on Friday stepped in to defend the planned legislation, arguing that opponents were spreading “lies”, and that the “reforms will bring more options and opportunities for farmers to sell their produce” and protect them from the middlemen who currently eat into farmers' profitability.

This latest uproar and controversy reflects deep-rooted problems in the country's agriculture industry, which is populated with small farmers who have struggled to make ends meet in the last few years.

The financial state of the farming community, however, belies the strength of the Indian agriculture sector. The latest gross domestic product data indicates the sector bucked the trend amid the pandemic, expanding while most others contracted. While official figures reveal that India's GDP plummeted by 23.9 per cent in the April to June quarter due to Covid-19, the agriculture sector managed to clock up growth of 3.4 per cent over the same period, as production continued with far less disruption than many other sectors.

But experts and farmers say that on the ground the situation is not so rosy.

“Of course the data is there and production is increasing year-on-year,” says Vijay Pratap Singh Aditya, chief executive of Ekgaon, a Delhi-based enterprise that provides agriculture-related services for farmers and rural businesses. “That number is based on the last crop season, which was a good harvest. But this isn't the same as farmers' income.”

Good monsoon rainfall, which helps to generate better crop production, is fuelling optimism within the farming sector. However, this could be short-lived.

India, where daily infection toll is now about 90,000 cases, has registered a sharp uptick in coronavirus infections within rural areas. For Thakur Prasad, a farmer who grows rice and maize in eight acres of land in the central state of Madhya Pradesh, the pandemic is a real worry.

“I'm worried about the coronavirus,” says Mr Prasad. “It's spread to a town near me.”

For farmers, the Covid-19 pandemic could weaken a sector that is already facing myriad of challenges.

Agriculture accounts for 15 per cent of India's GDP and it supports the livelihoods of half of the working population, according to government figures.

“It is also a critical supplier of much-needed nutrition during the pandemic,” says Dharmakirti Joshi, chief economist of Crisil, a ratings and research agency that is part of S&P. “Plus, reverse migration trends this year suggest a much larger population would be dependent on farm sector jobs.”

This is adding to the pressure on the agriculture sector to perform well as the Indian economy heads towards a recession.

But Mr Joshi points out that “agriculture does not have the heft to offset the sharp contraction in the non-agricultural sector”.

Although agricultural output growth is expected to be healthy this year as retail food inflation is rising, the farmers are not benefitting proportionately. Wholesale inflation – a better indicator of farmers’ incomes – remains soft, he warns.

And “if the pandemic’s spread to rural areas is not contained, any disruption during the harvesting and the marketing period could take away some gains”.

On its part, the Indian government has announced several measures during the pandemic to support the farming sector, including additional spending on infrastructure for the industry.

But effects of such spending will not be evident immediately.

Farmer Pushpendra Singh, based in Uttar Pradesh in North India, says that despite the government's efforts and the headline figures, the situation has been tough for many farmers.

“Perishable commodities were impacted because transportation was disrupted early on in the lockdown, and demand also decreased,” he says.

“It carries huge value, and some farmers completely destroyed whole fields of spinach and cauliflower because there was no market. It would have cost them money to pick the crop and transport it to the nearest market, and they wouldn't have been able to cover those costs.”

Prices of vegetables shot up in urban areas – because the produce could not be transported due to the closure of markets during the first months of the lockdown, he adds

Mr Singh explains that demand is still subdued since many restaurants and hotels in India remain closed, and events such as weddings remain on hold amid the pandemic, further reducing food orders and prices.

The farmer’s income will only rise when the government will loosen restrictions on these events, which will positively impact demand for food, he explains.

There are also concerns about the impact of a bumper crop on prices of agriculture produce. It is, however, positive in terms of food security, which is not expected to be a challenge in India amid government’s efforts to amass buffer stocks of food grains.

“Millions of migrant labourers who had no employment in the cities during the lockdown went back to their villages and have chosen to engage in agriculture again, which would mean production will further grow,” says Ekgaon’s Mr Aditya.

That would mean supply could exceed demand, putting pressure on prices.

“If there is a bumper production of anything, then it is obvious that the market prices of the produce will fall. If it is going to fall, who is going to lose? Of course, it is the farmer. The farmer knows this and that is why they are protesting on the streets.”

Farmers worry that the proposed laws will exacerbate their price problems. They fear big buyers will offer less than the minimum guaranteed prices that are offered by the state Agricultural Produce Market, which currently buys from them, he explains.

Farmers' woes have gained a lot of attention in India, as challenges around profitability and high debt levels have pushed a large number of farmers to commit suicide over the years.

Indian farmers, historically, have struggled and are still dealing with low income, poor access to reliable and timely market information, weak supply chains, inadequate storage facilities and lack of credit facilities, making them easy prey to middlemen, says Pankajj Ghode, chief executive of Pune-based Agri10x, a global e-marketplace connecting farmers with traders.

Mr Ghode, though, is among a handful of people who believe the proposed laws could ultimately ease some of Indian farmers' financial troubles.

“I feel that the farm bills will have a positive impact on the farming community and will create a level-playing field for them,” he says. “This will help eliminate intermediaries, reduce their exploitation and give them a chance to explore other lucrative markets and get fair deal for their produce, which currently isn’t the case.”

However, in the long term, industry insiders say that the sector remains in need of a major overhaul to ensure profitability for all its stakeholders.

“Everything comes with a challenge, and despite the progress this sector is witnessing, there is still a lot of room for improvement,” says Atul Mehra, chairman of dairy firm Tasty Dairy Specialities. “There is a need of investment in cold chain infrastructure, … and more technological intervention … to bring our products to international standards. Good funding options too are required for people venturing into this business.”