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Farm fires, onion prices expose fault lines in agriculture

Roshan Kishore

On Wednesday, retail onion prices crossed Rs 100 per kg in Delhi. The central government has announced that it will import onions to control prices. On the same day, the Supreme Court came down heavily on the Haryana, Punjab and Uttar Pradesh governments for their failure to prevent stubble burning by the states’ farmers. The smoke from such activities is a major factor in exacerbating pollution levels in north India including the national capital. Though they seem to be disparate, these two developments are actually proof of deepening fault lines in India’s agrarian economy. These fault lines are rooted in the contradiction between the state trying to keep food prices low (at the behest of consumers) and farmers doing all they can to improve their incomes.

Let us take stubble burning first. Why are there are no farm fires in states such as Bihar and Odisha? If crops are harvested by human labour, which is what is still widely prevalent in poorer states such as these, there is no crop residue left to be disposed of. Why do farmers in Punjab and Haryana not employ labour to harvest their paddy crops? Labour is far more costly in these states than their poorer counterparts. Data from the Centre for Monitoring Indian Economy (CMIE) website shows that average agricultural wage in 2018-19 was just Rs 212 and 260 per day in Odisha and Bihar against Rs 343 and Rs 393 in Punjab and Haryana.

Human labour had a share of more than 36% in total operational and fixed cost of producing paddy in India in 2015-16, the latest period for which data is available on the CMIE website. This share has been going up for paddy and wheat, the two most important food crops in India.

To be sure, cost saving need not be the only reason for rise in stubble burning by Punjab farmers. In 2009, the Punjab government enacted a law asking farmers to delay paddy sowing in order to meet water requirements for urban areas as well as other crops. This delay has meant that there is very little gap between paddy harvesting and sowing for the next cropping season, which forces farmers to use methods such as stubble burning to clear their fields. A longer gap between harvesting paddy and sowing rice led to the residue decomposing itself naturally.

Clearly, a farmer would want to save every rupee on a cost-head which accounts for more than one-third of the production cost. In case of farm fires, the situation is more complicated, because the gains from not burning fields accrue to everybody in north India, while the cost is only borne by the farmer owning the fields. On the other hand, if the farmer indulges in stubble burning, private gains from reduced costs perhaps outweigh the costs of increased pollution.

This mismatch between private costs and social benefits is termed externality in economics. The widely accepted way to deal with this is something called a Pigovian Tax, which penalises the producer of such negative externalities (pollution from stubble burning in this case) by imposing an additional cost.

What the courts and governments are demanding from farmers by them not resorting to stubble burning to prepare their fields from the next crop is that they internalise this Pigovian tax themselves. Are the farmers being unjust in not doing this?

It is tempting to jump to this conclusion. But what if they cannot afford the cost associated with shifting to more eco-friendly ways to clear their fields? Unfortunately, we do not have high-frequency and regionally disaggregated farmer income statistics in our country to know whether Punjab and Haryana farmers can afford to do without stubble burning or not.

However, it is also true that deteriorating viability of farmers has almost become synonymous with India’s agrarian economy in the post-reform period. Farmers not being able to recover their costs, especially in cultivation of perishables, such as vegetables, is a regular story in India. Even if returns are good in one season, the farmers have to keep in mind the risk of losing most of their investments due to weather-induced shocks in another season.

On Wednesday, the Supreme Court directed the Punjab and Haryana governments to pay Rs 100 per quintal to farmers to compensate for the cost of clearing their fields without resorting to stubble burning. This order does externalize the Pigovian tax in a way, but there’s still a lacuna here. It is unlikely that Punjab and Haryana consume their entire paddy crop. Therefore it is a bit unfair to expect Punjab and Haryana governments to bear the entire fiscal burden of the compensation to be paid to farmers.

It is here that the onion story comes into play. Untimely rains have reduced onion supplies from Maharashtra, a key onion producing state in India. Prices have spiked across the country because of a squeeze on supply. When this visited major onion markets such as Lasalgaon and Pimpalgaon in Maharashtra during the assembly elections, farmers were not ecstatic about the high onion prices. Their overall returns had been dampened by low production, as large parts of the crop were destroyed. The government’s efforts to control prices by imports will further hurt the incomes of onion farmers.

To be sure, the government does have a point in trying to control onion prices. They are the second most important vegetable in the average Indian household’s food basket, as was shown in an HT analysis of National Sample Survey Office data by Ishan Anand and this author.

What about the farmer though? Textbook economics tells us that producers who are not efficient have no business being in business. So, if the paddy farmer in Punjab and Haryana or the onion farmer in Maharashtra cannot afford to pay for eco-friendly methods to clear fields or make enough returns from onions while ensuring that the consumer does not have to pay too much, they should just quit farming.

Is that a viable solution though? Where will these farmers go if they cannot work in their fields? Do we have enough jobs for them outside agriculture? Even after almost three decades of economic reforms, India suffers from an acute asymmetry in the share of agriculture in GDP and employment, which reflects more on the failure of the non-farm sector to create better jobs. Not many people want to be farmers in this country by choice today.

An equally, if not more, important question is what happens to agricultural production if farmers were to quit producing en masse? Can we take our food security granted then? Punjab and Haryana are still critical to India’s food security. They have a share of 18.8% in India’s cereal output, even though they account for less than 3% of the country’s geographical area. Maharashtra has a share of almost 30% in total onion output. By forcing the farmers in these regions to bear the cost for the larger public good, be it clean air or having to pay less for onions, India is literally biting the hand which feeds it. This is not sustainable.

So, what is to be done? The answer is not an easy one. Three possible fault lines which will have to be negotiated.

India’s green revolution phase in agriculture, which helped move the country from a “ship-to-mouth” existence to self-sufficiency, was based on overcoming a technological constraint, as inputs such as better seeds and fertilizers provided the boost. Today, the biggest challenge is not production, but viability. A solution where farmers quit farming because of viability can take the country back in time to the self-sufficiency question.

Even though agriculture lived up to its standard mandate of providing surplus food for the non-farm workforce, the non-farm sector has not been able to generate enough jobs for the average farmer, who can hardly be described as gainfully employed. There is a big geographical mismatch on this count, as the richer states have been able to achieve a better farm to non-farm transformation in employment. Employment data from National Sample Survey Office (NSSO) makes this clear. Between 1993 and 1994, the first NSSO Employment Unemployment Survey after economic reforms, and 2017-18 Periodic Labour Force Participation Survey (PLFS), the latest available data, share of rural male (female) workers engaged in agriculture in India declined from 74 (86.2) per hundred to 55 (73.2). This is a reduction of 26% and 15% for male and female workers. In Punjab, these shares went down from 67.9 (64.5) per hundred to 40.7 (40.5), which is a reduction of 40% and 37% for male and female workers.

The shift towards capital in agricultural production, especially in the richer states, has created its own problems such as pollution from stubble burning. This ought to be controlled, but it runs the risk of adversely affecting production in some of India’s most important agricultural states. Any such effort will also invite a huge political backlash.

As incomes rise and importance of manual labour reduces due to mechanisation of the economy, Indians will shift from a cereal-heavy to more diversified diet. According to the 2017-18 National Account Statistics data released recently, bread, cereals and pulses have a share of less than 25% in total expenditure on food in India. This will influence production patterns too. Horticultural production has already crossed foodgrain production in the country. But horticultural products face greater volatility than cereals, both in terms of output and prices. They are also perishables unlike rice and wheat, which can be stored for very long periods with basic warehousing infrastructure. India’s two-pronged food security system of procuring from farmers and distributing to consumers through the Public Distribution System was meant to cater to a cereal-heavy dietary preference. Given the fact that an overwhelming majority of both farmers and consumers cannot afford large shocks in prices, the food security regime will have to transform itself to cater to a more diversified dietary preference society now. Money will only be one of the challenges in achieving this transformation.

Source: HindustanTimes