A lose-lose situation

The Financial Express, July 20, 2008

By Siddhartha Mitra

Agriculture is often characterised by poverty in plenty. The reason is that people have largely fixed levels of intake of staples such as rice and wheat; thus, abundance is often counterproductive for suppliers, leading to such a steep market clearing fall in prices that farm revenues often decline. Interestingly, climate change and the grim predictions of associated scarcity should analogously imply prosperity for farmers as consumers bid up prices to maintain their daily intake. The stickiness in consumption of staples might imply a really substantial increase in prices — so significant that revenues of farmers and, therefore, their net incomes might go up despite a yield decline.

Predictions of yield decline due to climate change suggest a figure of 6% of present levels for temperate developed countries and as much as 20% for tropical developed countries. For developed countries like the UK and US, the associated price increase might be a mixed blessing with grumpy consumers and buoyant farmers. But we cannot jump to such predictionsfor India.

Given that our agricultural marketing system is still driven by a long chain of intermediaries, who monopolise positions in the marketing chain to siphon off a large amount of the consumer expenditure on farm products, any large increase in retail prices would be dampened by the time they reach the farm gate. Thus, for example, consider a Rs 10 per kg increase in the retail price of rice. In a developed country almost this entire price increase would benefit the farmer. However, in an intermediary ridden farm economy like India only a moth-eaten price increase, of say Rs1, results at the farm gate. This really would not compensate the farmer adequately for the yield decline; while farmers from the developed world benefit those from developing countries like India might be in a sorrier state.

Thus, in countries like India there is no silver lining to the clouds of ‘climate change’ — its leaky agricultural economy would ensure that both farmers and consumers might be worse off. The only people to gain might be the intermediaries — the most undeserving lobby group as their revenues are born out of fortunate circumstances: favourable monopolistic positions in the market chain. With no such bonanzas flowing to productive actors such as farmers and accompanying yield losses, entrepreneurial activity among them would take a back seat; their lower incomes would prevent them from undertaking any productivity enhancing investment which would neutralise the yield reducing effect of climate change. Thus, we are looking at a scenario in the long run where differential rates of farm improvement and technological change in developed and developing countries (such as India) might make the distribution of agricultural incomes even more skewed in the future. This article is, however, not meant to be a prediction of doom. Rather, the idea is to highlight the trends in the Indian economy which might help us to overcome the mentioned difficulties.

Contract farming and direct farming — peasants entering into contracts with large retailers such as supermarkets or even selling produce on their own — have made a beginning in India and signify hope for the future. But these only account for a miniscule proportion of total agricultural transactions taking place in the Indian economy. Unless these reforms gather speed they will be soon swallowed and neutralised by the demons of climate change, paving the way for pauperisation of peasants and further agricultural decline. Time is certainly of the essence.

Pro-active government intervention might be a way out. For instance, in Jaipur, the government has made efforts to nurse back farmers to the pink of financial health by reserving a certain number of shops for them in the subzi mandi for direct sale of farm produce. Here they can make their own fortune instead of being short changed by hawk-like commission agents; the seeds for productivity increase have been sown.

Another way out is to encourage the formation of cooperatives, where farmers can pool their wealth together to arrange for means to transport produce to distant remunerative markets. The idea is to break down the narrow walls within which producers are hemmed in by the lack of infrastructure facilities and within which intermediaries thrive.

However, transport facilities on their own would not be adequate to galvanise peasants into action. Information, through computer kiosks, television and radio bulletins, as well as the print media might be the grease that might lead to greater mobility in agricultural produce and farmers across markets. This should ultimately culminate in the integration of agricultural markets in India with greater participation by farmers and the marginalisation of intermediaries whose interests have been served so well by our fractured agricultural markets.

With sufficient market integration and empowerment of the Indian farmer to realise the full value of produce, reluctance in undertaking entrepreneurial or investment activity in agriculture should soon become a thing of the past. That is, our farmers will become as responsive to price and market incentives as the farmer in the West. But the demons of climate change threaten to turn a bad dream into reality — things can only change if farmers and policy makers wake up and take quick action.

The author is Director (Research), CUTS International, a leading research, advocacy and networking group and can be reached at

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