By Sarah Watson —
Recent farmer unrest has put agrarian distress back at the forefront of Indian politics. The challenges facing Indian farmers have changed little since Indian independence, but today a new universe of tools and technologies offers powerful solutions. India’s agricultural research and education programs, however, are largely stuck in the past, treating the farmer simply as a producer of crops and not as a businessman, a consumer of financial products, and a potential global trader. A modernized research and education program would not just help farmers increase productivity, it would give them the tools to master today’s markets, helping to free them from intense financial pressures.
Indian farming faces a ‘problem of plenty’: bad harvests are catastrophic for farmers, but good harvests can be almost as bad because the unit price of a crop hits rock bottom. Farming markets in the central Indian state of Madhya Pradesh provide a clear example of this problem. Madhya Pradesh has seen some of the fastest agricultural growth of any state in India over the past 10 years, yet in June farmers there engaged in largescale protests demanding loan relief and higher minimum sale prices for their crops. The source of their distress is obvious in prices for onions in the market in Mandsaur district, where the protests took place. Between mid-February and mid-April 2017 onion prices hovered between $2.45 and $3.19 per 100 pounds, as they had in 2016. But beginning in early May, as the harvest peaked, prices dropped to $1.40, far lower than during the 2016 harvest.
This price fluctuation makes it difficult for farmers to make smart decisions about how to allocate their land among crops. And it frequently means that bumper harvests benefit only middlemen, not farmers, as prices drop precipitously. But the Mandsaur farmers and others selling their winter crops in April or May cannot wait until prices improve because crops are perishable and sales proceeds are needed to repay debt and to purchase materials for the next sowing period. Efforts to reduce price volatility and increase farmers’ access to cheap credit are crucial to breaking this cycle. But these initiatives require financially savvy farmers.
India has a large and venerable agricultural research and education system, but it suffers from a low rate of public investment. In the 2016-17 fiscal year India’s government budgeted only $970 million for the Department of Agricultural Research and Education, or less than .25 percent of agricultural GDP. This puts India well below spending by fellow BRICS nations Brazil (1.82 percent of agricultural GDP) and China (.62 percent), as well as every OECD country except Turkey.
India’s system of agricultural research and education, while extensive, is also poorly tailored to the needs of today’s Indian farmers. Publications released by the department and by the Indian Council of Agricultural Research show that agricultural extension efforts are almost entirely devoted towards increasing crop yields. But India has not carried out any sustained efforts to teach farmers about managing their finances. This is despite the fact that 76 percent of Indians struggle to grasp basic financial concepts, and more than half of Indian farmers carry debt. And there’s proof that financial education does in fact help farmers make smarter decisions: in one study, it doubled the percentage of farmers who decided to purchase rainfall insurance. Farmers in Latin America who had received financial literacy training borrowed 3.5 times as much as those who had not.
The absence of financial literacy programs aimed at farmers exists as the financial options available to them are expanding. The government’s efforts to ensure that every Indian has a bank account, to link crop insurance to bank accounts, and to give every citizen a unique ID number are opening up the formal financial system. Internet access is rural areas is limited, but still expanding daily. This development, along with the rise in bargain-basement internet-capable feature phones, could free Indian farmers from reliance on cash and on local money-lenders. But they will probably need guidance to get the full benefit of the existing financial products available to them.
More complex products are also becoming available. In June 2017 the Securities and Exchange Board of India (SEBI) announced that it would allow trading of options on commodities futures exchanges. Options, which do not lock traders into rigid obligations, are a more accessible system than the previous regime. And new technologies provide the tools to make wide-scale participation in such markets more realistic than ever before. For instance, a 2015 report on India’s agricultural futures market suggested that price tickers be installed across India to allow farmers to check crop prices on the futures market before making planting decisions. Only two years later, tickers are clearly not necessary; SEBI could introduce a simple SMS-based program that will let farmers with feature phones check prices. But futures markets are complex, and ensuring that farmers are able to benefit from them will require education.
Higher productivity, and a shift to diversified production, could certainly help revolutionize Indian agriculture. But no matter how good their crop, Indian farmers will continue to be at a disadvantage until they take control of their financial lives. Loan varieties, not just seed varieties, should be a key plank in India’s agricultural education efforts.
Sarah Watson is an associate fellow with the Wadhwani Chair in U.S.-India Policy Studies at CSIS.