Diversification in North-Indian Agriculture: How Public and Private Sector Markets Need to Change
Diversification has been rightly hailed as the panacea for North India’s agricultural woes – economic and environmental. Before the advent of the Green Revolution, Punjab and Haryana’s agriculture produced a variety of indigenous crops, all of which had local demand and catered to a self-sustaining localized market. The policies under the GR were first mainly focused on wheat, and eventually, paddy. The advances in agricultural inputs were also mainly focused on these two crops. The support pricing regime for rice and wheat, along with increased availability of cereal-specific fertilizers and irrigation facilities resulted in the mainstreaming of the paddy-wheat system ‘as the major and undoubtedly the most profitable cropping system of the area.’[i]
Apart from the technological advances which incentivized monoculture, the central government’s procurement policies were also skewed in favor of encouraging wheat-paddy cultivation. India’s priorities, at the time, were to ensure a robust supply of staple food grains which could then be injected into the Public Distribution System (PDS) to feed our masses. Encouraging wheat-paddy monoculture in Punjab offered the prospect of such a makeshift solution for the country’s food-related needs. Statistical analysis by Vandana Shiva, renowned agroecologist, indicates how the share of other traditionally-grown crops in Punjab’s agriculture changed subsequent to the introduction of HYV wheat and paddy seeds.[ii]
Overhauling the Public Sector Demand for Agricultural Goods – PDS and MSP
A major driver of the perpetuation of wheat-paddy monoculture in Punjab is the Centre government’s procurement policies. The Minimum Support Price (MSP hereinafter) regime theoretically extends to 23 crops and four kinds of produce – Oilseeds, Pulses, Cereals, and other crops. The Commission for Agricultural Costs and Prices declares an MSP for all of the 23 crops annually. However, the reality, as has been noted by the OECD[iii] as well as NITI Aayog[iv], is that procurement is done only for wheat and paddy. This effectively means that the MSP, which constitutes the only viable source of income for the majority of Punjab’s farmers, is operational only for these two cereal crops.
One of the first changes that are required in the way that the Central Government affects the MSP Scheme is that procurement must be guaranteed for crops other than just wheat and rice. The Food Corporation of India (FCI), therefore, must be mandated to prepare logistically to procure a variety of crops. The Commission for Agricultural Costs and Prices (CACP) declares an MSP for 23 crops. Ideally, procurement capabilities for more and more of these 23 crops must be established, at least for enough crops that farmers have a real choice when deciding what to cultivate, if not paddy.
It has long been argued, and is also the researcher’s argument that the MSPs for each state must be separately determined. For example, within Punjab, MSP must be offered on crops that are most well-suited for Punjab, and the prices so determined must factor in the cost of production of that crop specifically in Punjab. The MSP for paddy must be gradually decreased, and MSP for other crops simultaneously increased so as to incentivize diversification.
Reforming the PDS for Diversification
One of the oft-advanced arguments against such a reform is that the central government cannot be expected to procure such a wide variety of produce, since the PDS system only requires staple crops. However, this constraining design of the PDS system is also coming under increasing criticism. Many have suggested that the PDS be expanded to include more than just staple food grains and offer a larger and nutrient-diverse variety of foods.[v] This would not only address the common criticism that PDS focuses more on providing calories than quality nutrition, but also create the demand for crops other than wheat and paddy, thereby incentivizing a shift away from monoculture. However, current political alignments preclude any possibilities of expanding the role of the public sector.
This problem can be adequately tackled by reforming the PDS system itself, so that it offers a variety of foods, instead of just rice and wheat flour. Such a reform could also address the criticism that India’s PDS only offers calories, not quality nutrition.[vi]
Thus, expanding the public sector’s demand for domestic production is a sound option, and can lead to improvements not only in the agricultural sector but also in the PDS. The crops procured through an expanded MSP regime can be injected into a reformed PDS. Many may frown at the idea of expanding the PDS, because of the aura of sophistication that our ‘neoliberal’ economists have ascribed to Direct Benefit Transfer (DBT) systems, and their visceral disdain for subsidies. However, the performance of attempts at shifting from PDS to DBT has been anything but reassuring.[vii] That India’s performance on nutrition indices has been abysmal,[viii] strengthens the case for continuing, expanding, and reinvigorating the PDS. This expansion will necessarily rely on government procurement of diverse produce from farmers. Therefore, the link between the PDS and diversification must be appreciated, and synergies must be identified.
Private Markets and Diversification: Enabling the Smallholder
At the Punjab government’s level, the consensus of policymakers had been that contract farming is the main driver of crop diversification.[ix] The state government’s endeavors to encourage crop diversification has been mainly through its contract farming program. Consequently, the government established the Punjab Agro Food-Grain Corporation (PAFC) in 2003 and initiated its efforts of establishing a tripartite model of contract farming, with the overarching objective of encouraging diversification towards higher-value crops.[x] Although the program started with the ambitious target of shifting 1.1 million hectares under the wheat-paddy system to other crops, the on-ground performance of the initiative has been dismal, if anything.[xi] The experience has left a bitter taste of commercial agriculture amongst smallholders, one of the underlying reasons why the new Farm Bills have been fiercely resisted.
Although convenient access to private markets will play a major part in effecting a break-away from wheat and paddy, this can only be accomplished if the government(s) frames laws after stakeholder consultation and with special regard for the smallholder. To fillip diversification by encouraging private markets, a number of intertwined measures need to be undertaken, along with extensive deliberation and analysis. Taking a consultative approach is advisable, instead of letting loose a rabid ‘corporatization’ agenda with unrealistic hopes that free-market dynamics will somehow benefit smallholders.
Since private markets demand diverse produce, farmers with access to such markets are likely to shift away from wheat and paddy. This shift, however, requires that farmers be safeguarded against the disproportionately high bargaining power of companies that procure their produce. Diversification, therefore, depends on how viable the private market is for farmers, especially smallholders.
New Generation Cooperatives: Farmers’ Collectives and Producer Companies
The advent of farmer co-operatives was a seminal development in Indian agriculture. These co-operatives, for quite some time, were successful in providing easy capital to farmers and protecting them from the vagaries of informal credit systems. However, after their initial years, numerous deficiencies cropped up, eventually leading up to their failure in northern India.[xii]
However, the underlying rationale behind cooperative farming stands strong even today. In fact, at no time in history was it as necessary as it presently is in Punjab. New Generation Cooperatives (NGCs) have been posited as the remedy for smallholders’ woes. Corporatization within agriculture, which the recent Farm Bills portend, is likely to enure to the benefit of firms rather than producers,[xiii] in the absence of robust NGCs.
Logic dictates that firms are unlikely to contract with 200 individual smallholders if one large farmer can provide the same amount of produce. Therefore, smallholder inclusion in a privatized agricultural market can occur safely only if smallholders constitute themselves into Farmer Producer Organizations (FPOs). Given the onerous requirements for exporting agricultural products in India, smallholders can only access international markets if economies of scale are ensured and if enough capital is available to undertake exports. This can happen only through collectivization and, therefore, FPOs are necessary for smallholders to effectively access both domestic and international markets, which is a necessary impetus for diversification.
These FPOs can assume various legal forms. The most popular form, however, is Producer Companies. In Punjab’s context, where a majority of the farmers are smallholders, FPOs are likely to play an indispensable role as agricultural markets open up to corporates. Numerous writings discuss the benefits which can accrue from FPOs as compared to individual producer-firm dealings.[xiv]
Primary amongst them are increased bargaining power for producers, capital availability for value addition ventures or direct retailing, viability for contracting with mass consumers, exploiting economies of scale when purchasing inputs, etc. Moreover, in today’s digital age, FPOs can take to e-commerce platforms and access expanded markets, thereby cutting out middlemen and directing profits straight towards the producers. Within the EU, FPOs have produced impressive results.[xv]
Although the Punjab government has notified a sound policy for encouraging FPOs,[xvi] they are far from becoming the norm in Punjab’s agriculture, with only a handful showing commercial success. Under the policy, FPOs are treated at par with traditional cooperatives as far as eligibility for benefits, subsidies and incentives are concerned. Numerous other benefits have also been extended to FPOs. NABARD, and other nodal agencies, are set to play a facilitative role in the establishment of FPOs. The policy, in itself, figures perfectly.
The next step is to popularize and mainstream FPOs. To set an example, the state government can consider a guided FPO establishment pilot project within specific villages that have a track record of adopting progressive farming practices. In this voluntary opt-out scheme, all land owned by the village residents who choose to participate would collectively cultivate crops with prior contracts for guaranteed procurement. Such pilots, if supervised carefully by state agencies, and then advertised effectively within other regions, could serve as examples and encourage more and more of such arrangements.
The state government can further incentivize the option of value-addition or export by FPOs through additional benefits and subsidies. Ideally, if FPOs are able to become a popular phenomenon, the next stage would be the constitution of FPO Federations at the state level, a trend which is likely to be witnessed in various states soon.[xvii]
The importance of collectivization of agricultural resources cannot be overemphasized in North India’s scenario. As farmers are weaned off of wheat-paddy cycles, and if private markets become the norm, the only way for North India’s smallholders to survive is by organizing themselves as FPOs. This is where the governments must laser-focus their efforts for the next 5 years. Agricultural markets require reforms. However, bashing open the gates for corporates is not likely to be a sound approach and is less likely to double farmers’ income, as is claimed. The government would do well to focus on encouraging and strengthening FPOs so that private markets are less exacting for smallholders.
[i] G.K. Chadha, “Farm Size and Productivity Revisited – Some Notes from Recent Experience of Punjab”, Economic and Political Weekly, Review of Agriculture, Vol.13, No.39, September 30, 1996, pp. 87-96.
[ii] Vandana Shiva, The Violence of the Green Revolution: Third World Agriculture, Ecology, and Politics. University Press of Kentucky, 2016, p. 83.
[iii] OECD, ‘Agricultural Policies in India (2018)’.
[iv] NITI Aayog, ‘Evaluation Report on Efficacy of MSP on Farmers (2016)’, p.16.
[v] Mitul Thapliyal, Puneet Khanduja, Neha Parakh, ‘Full, Yet Undernourished? How India Can Move from Food Security to Nutrition Security’, at https://nextbillion.net/full-yet-undernourished-india-nutrition-security/ (last accessed 11th January 2021); Dr. Yogesh Suri and Ankush Das, ‘Promoting Diversity of Food Basket: Welcome to the World of Nutri-Cereals’, Niti Aayog, at https://www.niti.gov.in/niti/content/promoting-diversity-food-basket-welcome-world-nutri-cereals (last accessed 11 January 2021).
[vi] A. Shrinivas, et al., ‘Do staple food subsidies improve nutrition?’ (2018), Semantic Scholar, at http://barrett.dyson.cornell.edu/NEUDC/paper_520.pdf (last accessed 10 November 2020); NITI Aayog, ‘Evaluation Study on Role of Public Distribution System in Shaping Household and Nutritional Security India (2016).
[vii] Jahnavi Sen, ‘New Study Backs Reports That Aadhaar-PDS Link in Jharkhand Led to Exclusions’(2020), The Wire, available at https://thewire.in/rights/aadhaar-pds-ration-cards-jharkhand-jpal (last accessed 11th January); Jean Dréze, ‘Following the grain trail: on India’s public distribution system’, The Hindu, available at https://www.thehindu.com/opinion/lead/following-the-grain-trail/article22451645.ece (last accessed 11th January); Srinivas Kodali, ‘COVID-19, Aadhaar-DBT and a Reminder of the Issues With Transaction Failure Data’, The Wire, available at https://thewire.in/government/covid-19-aadhaar-dbt-and-a-reminder-of-the-issues-with-transaction-failure-data (last accessed 11th January).
[viii] Udit Misra,’ Explain Speaking: Economics behind India’s rising child malnutrition’(2020), available at https://indianexpress.com/article/explained/explainspeaking-economics-behind-indias-rising-child-malnutrition-7112946/ (last accessed 11th January); Neetu Chandra Sharma, ‘Pandemic will increase India’s malnutrition burden, says Unicef’(2020), at https://www.livemint.com/news/india/pandemic-will-increase-india-s-malnutrition-burden-says-unicef-11594081620815.html (last accessed 11th January); Seraj Ali, ‘What the NFHS-5 Report Says About Malnutrition in India’(2021), The Wire, https://thewire.in/health/watch-what-the-nfhs-5-report-says-about-malnutrition-in-india (last accessed 11th January).
[ix] P. Kumar, ‘Contract farming through agribusiness and state corporation: A case study in Punjab’, Economic and Political Weekly, Vol. 41(52), pp. 5367–5375; A. Gill & L. Singh, ‘Farmers’ suicides and the response of public policy: Evidence, diagnosis, and alternatives from Punjab’, Economic and Political Weekly, Vol. 41(26), pp. 2762–2768.
[x] S. P. Singh, ‘Agricultural Diversification in Indian Punjab: An Assessment of Government Intervention Through Contract Farming’, Journal of Agricultural & Food Information, Vol. 15(3), 2014, pp. 191-213.
[xii] Millennium Study, Ministry of Agriculture, ‘Co-operatives in agriculture: philosophical and theoretical foundations of co-operatives (2001)’, p. 38.
[xiii] United Nations Industrial Development Organization, ‘Global Value Chains in the Agrifood Sector (2006)’.
[xiv] Sukhpal Singh, ‘Producer Companies as New Generation Cooperatives’, Economic and Political Weekly, May 17 – 23, 2008, Vol. 43, No. 20, pp. 22-24; Vivian Fernandes, ‘Agriculture’s big hope: Farmer producer companies learn to tame middlemen’ (2015), First Post, https://www.firstpost.com/business/agricultures-big-hope-farmerproducer-companies-learn-to-tame-middlemen-2417802.html.
[xv] Joint Research Centre, European Commission, ‘Factors supporting the development of producer organizations and their impacts in the light of ongoing changes in food supply chains (2020)’.
[xvii] Small Farmers’ Agri-Business Consortium, ‘State Level Consortium of Farmer Producer Organizations’, at sfacindia.com/State-Level-Producer-Companies.aspx; Rahul Wadke, ‘How lockdown helped FPOs innovate and earn’ (2020), The Hindu, https://www.thehindubusinessline.com/economy/agri-business/how-lockdown-helped-fpos-innovate-andearn/article31907413.ece.