The COVID-19 pandemic was highly disruptive for almost every sector in India. However, agriculture was one of the worst hit sectors, with long standing systemic issues exacerbated by the disruption in supply chains.
Besides being the backbone of the Indian economy, the agricultural sector is also one of the prime employers in rural areas. It is therefore important for to understand the what led to the problems faced by the farmers and the steps that could be taken to prevent something like this from happening again.
The farming sector was already facing the following systemic issues:
Small farmers and problems with borrowing:
- Most farmers in India are small farmers, with small landholding. These farmers are left with very little surplus, and have to borrow money to sustain their activities. Both the accruing interest and the principle becomes a problem.
- These farmers often have to wait before selling their produce in traditional, creating a lag between when they get the cash in hand with which they could repay their debt. The lenders however do not like waiting and often end up controlling the produce. The farmers therefore end up not getting fair prices for their produce.
- Farming is still not treaded as an industry. In industries, interest is usually applicable on the working capital and not the principle. In case of farming, since interest accrues on the principle, it becomes exorbidantly high for the farmers to repay.
MSP is not enough: Farmers are not getting a proper return on their crop, despite MSP. MSP does not cover the full price and does not cover all crops. This means that even after selling at the MSP farmers are not left with any surplus. MSP should therefore include the full costing.
MSP not extended to other crops: MSP is only ensured for paddy and wheat. But is not ensured for other crops, because of which farmers are focussed on the above crops, even though the environment may not support the crops. MSP takes the profitability up for those crops, resulting in huge stockpiling of certain crops. Prices of food would go up, and farmers income would go up, end result would be that government subsidies would go down and farmers become self sustained.
Providing living wage to workers: Workers in rural areas do not earn even the living wages. This causes problems like lack of education and nutrition. This affects their quality of life and makes them over-dependent on small scale agricultural operations which are not profitable
Traders market: There are many farmers that have absolutely no control over the pricing. Farmers are dependent on the market and other traders for prices. This gives the trader a hold over how much he can depress prices under the prevailing wholesale prices. This hits the farmers and makes farming unprofitable.
Issues due to the pandemic and the role of the government:
Transport wasn’t available during the lockdown to the producing areas. Because of this produce could not come out. Fruits and fresh produce are perishable items. All these items became half because of transport issues and the remaining half rotted away. There was a complete breakdown in the chain of supply.
Prices rose in the urban markets and collapsed in the rural markets. Prices stabilised after the lockdown, but the farmers suffered. Consumption across the economy came down. There was culling of chicken. GDP of agriculture came down. The supply chains were disturbed for quite some time. During the lockdown, this was a big problem. People were taking advantage of the shortages, raising prices.
The government should have extended the public system for procurement. Utilize unutilized transport machinery for procurement. This could have allayed many problems in the supply chain. A lot of resources were lying idle. These resources should have been mobilized and distributed better. The lockdown would have been more successful.
*IIM Ahmedabad | Post Graduate Programme in Management | Class of 2022. The article was written in consultation with Prof. Arun Kumar, who is the Malcolm Adiseshiah Chair Professor at the Institute of Social Sciences