Problems in Indian Agriculture and Potential Solutions

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Problems in Indian Agriculture and Potential Solutions


November, 2011


Annemarie Ryu

Harvard College





Table of Contents

Introduction
: Agricultural Problems in the Global Context
………………………………..1
-
2

Problems in Indian Agriculture

The Green Revolution
………………………………………………………………...………...2
-
5

Low Agricultural Productivity
………………………………………………………………..…5
-
7

Impediments to Domestic Sales and Exports
…………………………………………………...7
-
8

The Minimum Support
Price (MSP)

and Exploitation by Market Intermediaries
…………….8
-
10

Unpredictable Weather,
Lack of Access to
Insurance and Finances, and Exploitation by
Moneylenders

………………………………………………………………………………10
-
12

An Assessment of Potential Solutions

A

Sustainable Green R
evolution

in Organic Farming
………………………………………
.
…..
12

Agricultural Technology

and Input

Solutions
and Expansion of Agricultural Research
……
…..
13

Farmer Capacity Building

and Investment in Rural Infrastructure
…………………………
.13
-
14

Development an
d Expansion of Food
Processing Facilities
…………………………………
….
14

Modification of MSP Policy

and Improved Dissemination of Price Information
……………1
4
-
15

Programs to Increase Access to
Insurance
…………………………………………………
..15
-
16

Programs to Increase Financial Access, and
Mobile Technology
Solu
tions
………………...
16
-
17

Strengthened Mental Health Services
……………………………………………………………17

Conclusion

………………………………………………………………………………..17
-
1
9

Works Cited.
……………………………………………………………………………...
....
20
-
23



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Introduction
:

Agricultural Problems in the Global Context

A growing global population is driving demand for food upward at a rapid rate of more
than
2% per year (Webb, 2009).

Enormous amounts of resources will be required to meet this
demand, as

a
griculture requires more water, land, and human labor than any othe
r industry (Food
and Agriculture Organization, 2007)
.
Meanwhile,

925 million people
remain
undernourished

(FAO, 2011)
, as growth in agricultural
productivity has not led to greater food accessibil
ity
where the need is greatest
(Webb, 2009)
. Nearly all of t
he undernourished reside in developing
countries, and many of the undernourished are farmers themselves (
FAO,

2011).

Multiple trends have contributed to the current problems in agriculture.

Agriculture has
been widely
neglected
for decades
:

donor and government attention
to

developing countries’

agricultural sector has decreased since the 1970s, and
the
percentage of total overseas
development assistances allocated to agriculture dropped from 15% in 1980s to less than 3% in
2007 (World Bank,

2007; Global Donor Platform for Development, 2008).

These declines have
been matched by the shrinking and disappearance of agricultural research systems

and other
supports
.

Meanwhile, global trends with energy resources and climate have created new
challe
nges. As

energy prices have risen, prices for fertilizers, irrigation, transportation, and food
processing have increased.

Climate change will likely lead to climatic shocks of greater intensity
and shifts ecosystems geographically,
increasing the frequenc
y of crop failures, especially
among farmers without technology to fa
cilitate adaptation

(Brown & Funk, 2008)
.
The increase
in demand for food combined
with

environmental shocks

and with new demand for biofuels

will
likely result in inc
reased food prices (
Webb, 2009).
However, higher prices for agricultural
products have not in the past led to greater benefits for small farmers, and there is no apparent

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reason
to expect different this time (Global Development and Environment Institute, Tufts
University, 200
9).

In this

context of massive challenges to food security and of

farmers’

continuing struggle
against poverty, I focus my attention on India.

Although agriculture’s contribution to national
GDP dropped from 70% in the 1950s to 17% in 2008, agricultural production in India continues
to increase, and agriculture remains India’s largest source of employment.
India
,

the largest
producer of milk in t
he world, the second largest producer of fruits and vegetables, and the third
largest producer

of food grains, is

second only to China in terms of overall food production
(Singh, 2008).
Not only is India crucial to global food security, but also India is h
ome to
hundreds of thousands of farmer families facing historical and newly emerging challenges in
agriculture
that are impressively diverse and complex.

The aim of this paper is to create a foundational understanding of these problems with
their historica
l, national, and local contexts and to investigate potential solutions so as to
influence
the development of

programs and policies in Indian agriculture. I argue

throughout

that
a keen understanding of farmers’ situations and local contexts is central to t
he development and
effective implementation of programs
that alleviate

problems in Indian agriculture, even those
most easily analyzed at the macro
-
level.
The first
section

of this paper explores the problems in
Indian a
griculture, and the second section
i
nvestigates potential solutions to these problems. The
paper concludes with policy implications for future programs and policies in Indian agriculture.


Problems in Indian Agriculture

The Green Revolution


Plans for the Green Revolution
in India began

to evolve during the 1940s food crisis in
India that resulted from the worldwide recession and the chaos of the Partition. India’s
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Agriculture Ministry set out to rebuild the ecological base for agricultural productivity with
decentralized and participato
ry programming. Advisers and experts from America had a wholly
different tact in mind, however. During the
1950s and
1960s, private American Foundations, the
American Government, and the World Bank worked to transfer the American model of
agriculture to In
dia.

This approach was characterized by intensive use
of
fertilizers, pesticides,
year
-
round irrigation, and genetically modified seeds. The new agriculture minister in 1964, C
.

Subramanian, strongly supported the Green Revolution strategy, but many others

in India were
wary of the high foreign exchange costs for importing the required inputs and of reduction in the
autonomy of Indian agricultural research. However, the drought in 1966 increased India’s food
dependence on the U.S., which
used restrictions o
n food aid to pressure

the Indian government to
accept the Green Revolution policy package

(Shiva, 1993).


As philosopher and environmental activist Vandana Shiva (1993) states, “The Green
Revolution was based on the assumption that technology is a superio
r substitute for nature, and
hence a means of producing unrestrained growth, unrestrained by nature’s limits” (p. 15).
The
Green Revolution promised food abundance and the resolution of India’s food crisis.
American
agricultural scientists believed that In
dian scientists and farmers were not capable of improving
their own agriculture and thus sought to impose the American model, even
though its core
methods had
contributed
t
o the American Dust Bowl of the 1930s
, turning

many fertile areas into
deserts (Shiv
a, 1993, p. 32
-
33).


Many

leaders and sup
porters of the Green Revolution

touted it as a success. As a result of
the Revolution, the years 1978 and 1979 experienced a record grain output of 131 million tons
and established India as one of the world’s bigges
t agricultural producers. Yield per unit of
farmland increased by over 30% between 1948 and 1979. Although the term “Green Revolution”
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was applied to many of the large
-
scale agricultural experiments that took place in developing
countries, India’s Green Re
volution is considered the most successful (Ganguly
, n. d.
).

However, this perspective fails to account for the Green Revolution’s destruction of the
environment and the lack of sustainability of its practices and
achievements
.
The

cropping
patterns of the Green Revolution, based on repeated planting of soil depleting crops like rice and
wheat, led to erosion and degradation of land.
The influx of genetically modified seeds for
monocultures
made farmers reliant on agrichemical and se
ed corporations and
destroyed genetic
diversity
, making crops much more vulnerable to new pests and diseases

(Shiva, 1993, p. 64).
The supposedly “high yielding varieties”

of seeds

required far more inputs than the traditional
varieties
, and farmers went i
nto debt to buy these seeds and the fertilizers, pesticides, and
irrigation water to support them. However, the seeds

produced a
n
increase in output

that was

insignificant when the huge increase in input was taken into account
(Shiva, 1993, p. 72
).

The
int
ensive application of chemicals resulted in soil toxicity in much of India, threatening the
health of plants, animals, and humans.

Today, there is a crisis in groundwater due to depletion
from heavy irrigation, and farmers are driven further into debt to i
nstall increasingly powerful
and expensive pumps to utilize this water.
Many Indian agricultural experts find agriculture to be
unsustainable and unprofitable, and some predict a rapid decline in agricultural output in the
future (Zwerdling, 2009
a
).

Thus,
the Green Revolution is a startling example of the way in which science and
technology can be applied as a solution to significant problems
but result in many negative
consequences.
One major reason many have overlooked these consequences is that indicator
s of
success for the Green Revolution failed to account for individual farmers’ circumstances and the
long
-
term sustainability of the practices, instead focusing predominantly on macro
-
level changes
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in agricultural output. Closer attention to farmers’ situ
ations and local contexts could have
reduced these negative consequences.
Farmers’ illiteracy, poverty, lack of access to finances, and
lack of instruction in the new farming practices they were expected to implement magnified the
negative effects of the G
reen Revolution. Public radio trumpeted the benefits of the inputs and
practices of the Green Revolution, but illiterate farmers could not understand the usage
instructions and warnings on fertilizer and pesticide packages and the vast majority of farmers
received no personal instruction in proper use of these inputs

(Shiva, 1993)
. Huge overuse of
these chemicals heavily polluted land and led to extremely high rates of cancer among Indian
farming families, creating additional health problems for farmers to
deal

with in their poverty

(
Zwerdling
, 2009
b
)
. Poor farmers have long had difficulty gaining access to finance, and when
money was needed to purchase inputs, many turned to unofficial moneylenders who charged
high interest rates. Many of these farmers
today are extremely deep in debt and sinking deeper,
unable to pay off the high
-
interest loans.

While political motives made the Green Revolution
about more than simply helping farmers and increasing agricultural production, the failings of
the Green Revol
ution are a testament to the need to take

into consideration

f
armers’ lack of
education, of adequate information and training, and of access to finances
when developing
programs and policies to benefit farmers.
I now explore other

agricultural

problems tha
t existed

before
the Green Revolution
and

have

continue
d to exist afterward
.

Low
Agricultural Productivity


Low agricultural
productivity

is a problem at two levels in India

at the national level,
and at the level of individual farmers and their families. At the national level, India has a
population that needs 210 million tons of grain, but India produces only 200
m
illion tons
(Agoramoorth
y, 2008).
India has recently put bans on exports of rice, wheat, and corn to help
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ensure domestic food security and stable prices, but this strategy does not resolve the issue that
population growth is continuing to outpace growth in agricultural productiv
ity

(USDA, 2011;
Agoramoorthy, 2008)
.

In the past, India has
ensured growth by

increasing agricultural area and
yield
,

but future growth will need t
o increase yield with

sustainable and
improved management
of

shrinking land and freshwater resources
(Kumar,

Mittal, and Hossain, 2008).
Meanwhile, the

lack of investment

in agricultural research and technology development in India
over

the last two
decades

has slowed the rate at which new ways to increase yield are discovered

(Kumar, Mittal,
and Hossain, 2008).


While e
xtended
application of fertilizers and pesticides with the blanket approach of the
Green Revolution is not the

key to increasing agricultural productivity, output can be increased
sustainably through informed and locally adapted use of high
-
yield
variety seeds and pest,
disease, and nutrient management technologies (Murthy, Sudha, Hegde, and Dakshinamoorthy,
2009).

However, studies show that usage is scattered and confused.
A study of efficiency of rice
farmers in Eastern India found a low rate of
adoption for modern variety (MV) seeds that
sustainably increase output and also low usage of labor
-
reducing agricultural machinery such as
tractors and power tillers (Fuwa, Edmonds, and Bankik, 2007).
Research on tomato production
in Karnataka found
small, medium, and large farmers using less than the recommended amounts
of inputs (Murthy,

Sudha, Hegde, and Dakshinamoorthy, 2009
), and a broad assessment of
agriculture in India found that c
hemical fertilizer recommendation
s

for planting are based on
ou
tdated soil surveys (Agoramoorthy, 2008).


At the individual level,
the extremely small size of Indian landholdings restricts

total
output (Murthy, Sudha, Hegde, and Dakshinamoorthy, 2009; Fuwa, Edmonds, and Banik, 2007).
The small size of Indian farm plot
s may also be a
cause
for inefficiency: research at Yale
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7


University’s Economic Growth Center found
that
small farms, 80% of which have less than two
acres of land,
were s
ignificantly less efficient than larger farms (Foster an
d Rosenzweig, 2010).
The main
reason

for the division of India’s land into very small plots
is

historical: land reforms
following India’s independence

imposed a ceiling on landholdings
. Research at that

time showed
small farms to be more productive than large farms (Ghatak and Roy, 200
7)
.
Subsequent
analyses have convincingly reversed this conclusion, however, and shown there to be a surplus
of labor in agriculture (Foster and Rosenzweig, 2010).
Another problem is that

farmers are often
not well informed of which crops would accrue the
most profits, which would grow best on their
land, or which specific farming techniques should be applied to maximize the growth of these
crops

(Deshpande and Naika, 2002;
Fuwa, Edmons, and Bankik, 2007
)
. Thus, a
collection of
diverse and com
plex issues contribute to suboptimal output of farms in rural India.

Impediments to Domestic Sales and Exports

T
wo major impediments to domestic sales and exports

are

food safety risks and lack of
infrastructure for processing.
India’s
farmers will need
to overcome significant regulatory,
infrastructural, and institutional challenges to meet domestic
, as well as international,

requirements.
India’s national market is giving increasing value to the quality and safety of
foods, and
despite India’s tremendou
s sha
re of global food production, India

contributes only
1.5% of exports of processed food

(Singh, 2008; Kumar, 2008).

Meanwhile, and post
-
harvest
losses are 25 to 30% (Kumar, 2008).

Several state policies currently impede production and processing of saf
e and high quality
agricultural products. First, t
he state’s requirement that all agricultural commodities flow through
regulated markets impedes quality preservation and traceability
.
Poor infrastructure, waste
management, and pest control at wholesale ma
rkets and limited access to warehouses also reduce
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food quality and safety and lead to food wastage.
Second, the Small Scale Industry Reservation
permits processing of certain commodities only in the small
-
scale sector, restraining enterprises’
capacity to

make the needed investments to meet domestic and international food safety
standards. Finally, the laws governing the processed food sector are extremely confusing, as they
are enforced by eight different ministries that sometimes prescribe differing or e
ven
contradictory standards.
Small farm size, lack of education, and credit c
onstraints among farmers
impede

them fro
m

undertaking the needed investments in process improvements, storage, and
certifications to meet quality and safety requirements

(Umali
-
Deininger and Sur, 2006)
.
Meanwhile, the government has not been proactive in working to meet international food safety
standards, instead viewing them as unfair trade barriers

not based in science

(World Bank, 2006).

The Minimum Support Price
(MS
P)

and Exploitation by Market Intermediaries


M
inimum support prices

(MSPs)
, buffer stocks, and the public distribution system

(PDS)

are the basis of India’s food security and pricing system
. In this sys
tem, the
MSPs

are announced
as the floor for market
prices and are m
eant to ensu
re farmers remunerative prices

for twenty
-
five selected crops
, as

farmers

have the option to either

sell
these crops

in the open market or
sell
them
to the Food Corporation of India at the MSP (Gaiha and Kulkarni, 2005).
In rece
nt years,
t
he Indian government ha
s

steadily and significantly increased MSPs
for certain crops

to counter
claims of MSPs too low to support farmers, as well as to satisfy the demands of more powerful
farmers and regions.

The World Bank reported in 2005 th
at benefits accrued to large farmers as a
result of the MSPs were 13 times larger than those to a marginal farmer in the same state and
95% of procurement of wheat, for which there was a high MSP, occurred in only three states
(World Bank, 2005).
Worse tha
n these inequities is that the

government has sometimes been
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unwilling to support its announced MSP
, failing to purchase at this price from farmers seeking to
sell to them for lack of a better price elsewhere

(Meenakshi and Banerji, 2004).

Part of the rea
son the government has sometimes failed to purchase crops as promised is
that t
he government’s food stocks have grown signific
antly above the target
level. Meanwhile,
there is not an effective system for distributing these reserves, as the public distribut
ion system
reaches only a small percentage of the poor who could benefit from it, and the higher MSPs
result in higher food prices even within the PDS (Ghosh, 2000).
Thus, for some crops, the MSP
has become unsustainably high.

An inappropriately high MSP i
s problematic also because it
creates incentives to keep more people involved in agricultural activity than should be and leads
to high prices for food sold by the government to the poor in t
he public distribution system,
thereby

hurting the impoverished f
armers who rely on this system for their food (Basu, 2010;
Ghosh, 2000).

The

MSP values

may still
be
inadequate

for some crops
,
but the overriding

problem wi
th
the

MSP is in implementation
.

Even when the government does support the MSP,
a problem is
that the
m
arket density is too thin to eliminate the middlemen who buy crops from farmers below
the MSP (Deshpande and Naika, 2002). A

2010 Oxfam report stated that a mere 19% of farmers
knew about
the
MSP, and 10% who knew about it did not kn
ow where to sell their produce to
utilize the MSP (Oxfam, 2010).

Meanwhile, d
eclaration of the MSP for each crop comes after
sowing and is thus too late to help t
he farmer decide what to plant. Additionally,

the time gap
between the government’s declaratio
n of intent to procure crops under MSP and actual
procurement gives traders time to intervene, buy crops from farmers, and sell to the state
government at the MSP. In these cases, the higher MSP entirely fails the farmers (Deshpande
and Naika, 2002).

Even
in local
mandis
, the government regulated wholesale agricultural
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markets, farmers may receive less than the MSP if the quality of the product is determined to be
below the MSP quality threshold for the product (Goyal, 2008). Furthermore, the few buyers at
the markets regularly collude to obtain farmers’ products at well below the market price;

farmers’ poverty also contributes to their exploitation because they cannot afford to search for
other buyers (Jain, Trehan, & Trehan, 2010).

M
eanwhile,
many
farmers
are not aware of market
prices, and fa
rmers of crops for which no MSP exists are left out of any existing price benefits
altogether
(Madaan, 2011).

Unpredictable Weather,
Lack of Access to
Insurance and Finances, and Exploitation by
Moneylenders


Farmers
face many stressfu
l uncertainties by the nature of their work and their lack of
access to insurance and to finances at reasonable interest rates.
The Indian monsoon is often
unpredictable, and u
nexpected weather

such as long periods of drought

can
cause cr
op
failures, drastically reducing the farmers’ income.
Environmental experts

expect climate shocks
to become more frequent in the future as a result of global warming and shifts in climatic zones

(SOURCE)
. Although technology will likely
enable the adaptat
ion needed to
maintain
agricultural output during changing climatic conditions,
farmers
who cannot afford
the
equipment will not have this security

(Brown, 2008)
.

The security of insurance is also very rare among farmers. In a 2007 survey of the
extremely

poor
, 4% in Udaipur and 10% in Hyderabad had life insurance while less than 6% of
the extremely poor throughout the country had health insurance of any form
. The same study

found that 24% of households in Hyderabad had to borrow money to cover health expe
nses
within the last year (Banerjee & Duflo, 2007). Meanwhile, the care that the farmers receive may
well be insufficient to restore their health, for w
hile India has endeavored to ensure that all poor
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households have access to basic health facilities, th
e quality of the facilities and the skill of the
providers in the poorest areas may be so low as to deliver little aid (Banerjee & Duflo, 2007).

Unresolved health problems result in lost productivity and lost income, driving farmers into
indebtedness (Jain
, Trehan, & Trehan, 2010)

While one might think that informal networks with relatives, friends, and neighbors could
effectively substitute for formal insurance systems, Banerjee and Duflo

(2007)

found that the
informal

networks

actually

provide little prot
ection against risks
. Even the Self
-
Help Groups
(SHGs) popular in India, which involve members accumulating savings together and giving
loans from these savings, involve less than 10% of the poor (Banerjee & Duflo, 2007, p. 12).
Meanwhile, government schem
es for income insurance may have “food for work” public
employment programs, but the limited number of jobs may be distributed in a manner that
discriminates against the poor (Banerjee & Duflo, 2007)

Indian f
armers

also

lack acce
ss to reliable savings
accounts
.
Banerjee and Duflo found
that t
wo
-
thirds of the poor

interviewed

in Udaipur, India, had loans

at the time of the interview
(2007)
. Farmers borrow from friends, neighbors, family members, and, most often,
moneylenders
: because it
is difficult and
expensive to monitor the p
oor to get regular payments,
many banks and formal lenders

choose not to lend to farmers. Without money savings, farmers
struggle to invest in infrastructure improvements that could have significant long
-
term benefit.

Farmers also

lack the money to irrigate their lands to optimize the period of their usability during
the course of the year. The

large

proportion of farmers who resort to loans from moneylenders
are subject to absurdly high interest rates that often cause the farmers
to fall into deep debt

(Jain,
Trehan, & Trehan, 2010)
.

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The many challenges, uncertainties, and problems
that

I have explored
help us to
understand the extraordinarily high suicide rates among Indian farmers, an indicator for the
tremendous stresses they f
ace.
Having provided
explanations

of the
se

major problems, I now
assess
potential solutions
, investigating past failed
p
rograms as well as more recently

proposed
solutions
.

An Assessment of Potential Solutions

A

Sustainable Green Revolution

in Organic Farming


The environmental damage resulting from the Green Revolution has led many to call for
a second, sustainable revolution. To some this simply means using new techniques in a way the
strengthens ecological systems and preserves natural re
sources; for others, this is a call for a
return to traditional, organic farming.
Purely organic farming utilizes no off
-
farm inputs and
synthetic materials. Agricultural experts are in disagreement about the potential for organic
farming, but areas of agr
eement are summarized as follows: organic farming offers an alternative
that is eco
-
friendly and protects human health, but principal challenges include financial
viability, availability of organic inputs, and teaching of skills required for productive org
anic
farming. Organic farming is particularly promising in dryland regions, where climatic variability
makes it advantage to grow a diversity of crops. However, there is currently no government
support for conversion to organic farming, and the conversion
period will r
esult in yield loss.
O
rganic farming has received little attention in research and policy

thus far

(Reddy, 2010)
, so a
s
conversion to organic farming occurs at a slow rate, benefits and negative consequences should
be carefully measured and as
sessed
. Such evaluation will enable optimal use of organic farming
in agriculture in the future
. Large
-
scale conversion to organic farming is
impractical in the short
-
term, however.

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Agricultural Technology

and Input

Solutions
,

and Expansion of
Agricultural Research

Solutions proposed to bring farmers out of poverty
have
usuall
y aim
ed

to increase output,
and these

solutions
have
very often recommend
ed

adoption of
“modern”
input
s and technologies,
as in the Green Revolution
.

The Green Revolution showed that a blanket solution applied
without sufficient prior understanding of long
-
term effects and without farmer training can b
e
extremely detrimental. There still

remains great potential for innovative agricultural technologies
and inputs to improve farmers’ yield sustainably
, but

solutions will need to be specific to local
conditions. Studies ha
ve shown that Indian farmers ar
e far more technically efficient than they
appear at the aggregate farm level:
r
ather than uniformly inef
ficient,
farmers are efficient

in
cultivation of some plots and inefficient in others due to local environments and distinct
cultivation practices for different crops and land types (Fuwa, Edmonds, & Banik, 2007).


T
h
us, th
ere is

currently
a strong need
for research to generate location
-
specific farming
technologies

and
to assess their effectiveness
.

On
c
e these technologies are identified, their
deployment should be accompanied by skill development training programs and efforts to ensure
that all needed i
nputs are available to farmers (Huelgas et al., 2011).

Since the technologies will
need to be adopted widely to have their full impact, research on
adoption of these
technologies is
also crucial
. Investments in research,
beside
investments in
rural infrast
ructure and
education,
ha
ve

been shown to promote agricultural growth more effectively than subsidies to inputs such
as fertilizer and irrigation (Fan
, Gulati,
and

Thorat,

2008)
. I
nvestment in agricultural research
and development has

also

been one of the
most successful ways to alleviate hunger and poverty
(
Alston, 2002
).

Farmer Capacity Building

and Investment in Rural Infrastructure

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Higher literacy levels among the rural poor with the improvement of primary education
will be crucial to raising farmers’ living standards. In the absence of widespread literacy, training
programs should be instituted to make farmers less susceptible to ex
ploitation and give them the
information they need to make more advantageous choices in crop selection, use of agricultural
inputs and technologies, and distribution and sale of their produce.
Investments in rural
infrastructure will
also
be crucial to sol
ving problems for farmers and for ensuring food security
for India. Agricultural markets need to be expanded, and storage conditions must be improved.
Investments in infrastructure to facilitate transportation of agricultural products will help farmers
get

fair prices and will help preserve food safety and quality (Agoramoorthy, 2008).

Development an
d Expansion of Food Processing Facilities


With post
-
harvest losses, especially of fruits, vegetables, and other perishables,
amounting to over Rs 1,00,000 cror
e annually (Goswami, 2010), there is great need for increased
investment in food processing infrastructure. In order to leverage export opportunities and meet
the demands of a growing population increasingly concerned with food quality and safety, food
pro
cessing facilities should be build in compliance with national and international food safety
standards. The much needed expansion of India’s food processing industry would help diversify
and commercialize agriculture by extending product shelf
-
life, adding

value to produce, and
increasing farmers’ income, and would also generate employment and foreign exchange earnings
for India

(Singh, 2008, p. 26)
.

Modification of MSP Policy

and Improved Dissemination of Price Information


The methodology for arriving at
the MSP should undergo periodic, transparent, and
thorough review by both academicians and farm leaders to eliminate large differences across
crops for the value of the MSP in comparison to the market price. The MSP must also be
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15


announced earlier, before f
armers have sowed their seeds, so that it can effectively influence
supply and thus price. Institution of state and local level monitoring of prices and markets would
help ensure that farmers receive benefits from the MSP

(Deshpande and Naika, 2002)
. Polic
y
must give added focus to dissemination of pricing information and markets for sale at the MSP.

Programs to Increase Access to
Insurance


Launched in 2003, the Yeshasvini Health Insurance Scheme serving peasants and rural
farmers in Karnataka, India, is o
ne of the world’s largest health insurance systems for the rural
poor. The system’s initial profits and coverage of a significant proportion of the target population
at the minimal of Rs. 60 per subscriber per year are promising, while a weakness of the pr
ogram
is that is does not cover expenses that are not accrued in outpatient care or in relation to surgery.
The uncovered expenses continue to place heavy financial burdens on poor families.
It
is

important to recognize that Karnataka’s

fairly extensive ne
twork of hospitals and the willingness
of the government to adopt this program were critical to its launch
, but will not be reproduced in
many states

(Kuruvilla & Liu, 2007)
.

If systematic evaluation of the Yeshasvini Scheme finds
results good enough to me
rit wide program expansion, attention must be paid to implementing in
a region with adequate healthcare delivery infrastructure and creating a way to mobilize the
dispersed poor populations the program aims to serve and a system for registering subscribers
,
issuing identity cards, and collecting premiums.

No other form of insurance has been widely adopted by farmers, although many systems
are being developed and assessed. One particularly promising form of insurance for farmers in
index insurance, insurance

that is linked to an index such as crop yields, rainfall, or temperature,
rather than actual loss (International Research Institute for Climate and Society, 2009). Reliance
upon an index rather than on assessment of losses at individuals’ farmers
reduces
moral hazard
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16


and adverse selection,
enables rapid payouts
,

and reduces transaction costs, making the insurance
financially viable as well as affordable for small farmers.

A consistent problem in implementing
these sorts of insurance schemes, however, is lo
w adoption by farmers. Participation strongly
tied to familiarity with the vendor and inversely correlated with risk aversion show that farmers
are uncertain about the consequences of signing up for insurance (Gine, Townsend, and Vickery,
2008).

Programs to Increase Financial Access, and
Mobile Technology Solutions

Many past programs to increase access to finances have failed because they were not
designed or implemented with a keen understanding of farmers’ circumstances, although
corruption was
certainly another pervasive problem impeding farmers’ benefit.
In
1904,
the
Indian government started thousands of Primary Agricultural Credit Societies

in
order to reduce
dependence on moneylenders
in rural areas
. Many PACSs have declined, and those that
are
operating tend to serve only the farmers who have legal titles for their land, thereby excluding
the poorer tenant farmers. Meanwhile, microfinance loans tend to be too small and with too high
of interest rates to be suitable for financing crops

(Dongr
e & Deshmukh, 2010). Worse are the
central and state governments’
ex gratia

payments to families who have lost members in well
-
publicized disasters. Although intended to alleviate loss and deflect criticism for families, these
payments have almost certainl
y playing a role in many poor farmers’ final decisions to commit
suicide. Another intended solution that backfired was the government’s waiving of all
outstanding farm loans meeting certain criteria in 1989. Ever since then, bankers have been far
less will
ing to make new loans to farmers (Harper, 2011, p. 14). A massive loan waiver issued by
the Indian government in 2008 at a cost of $15 billion has already backfired, leading to a large
increase in farmers defaulting on debt. The waiver also has failed to r
each the poorest farmers
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17


because it does not encompass debts with moneylenders (Harper, 2011, p. 15). Thus, it is clear
that programs created to resolve problems can instead magnify existing problems and generate
new ones if not implemented with a very tho
rough understanding of the context (Harper, 2011).

The rural banking network should be expanded

to facilitate financial inclusion of rural
poor farmers, who are often left without service as a result of poor bank accessibility
, high
transaction costs for formal banking operations, complexities in account opening and loan
approval, and inflexibility of financial products (Bhattacharyay, 2010).
There is great
potential
for mobile phones to address these issues

as well, as mobile
phones are widely available to
India’s rural poor. If banks incorporate mobile phone technology into their interactions with
customers, they will acquire a new way to monitor rural clients. Mobile banking will enable
banks to reach many more customers, hug
ely reduces transaction costs, and can provide services
to customers at any time and place through mobile messaging and other related interfaces
(Infogile, 2007).

Strengthen
ed
Mental Health Services


Finally, mental health services need to be strengthened at the primary health care level to
provide support for farmers. Facing the many diverse, complex, and severe problems described
in this paper, farmers often resort to suicide: over 150,000 farmer sui
cides occurred in India
between 1996 and 2006 (Harper, 2011, p. 11).
Solutions to the problems

farmers face

will
require much time, effort, and resources to come to fruition on a
wide scale
, and vulnerable
farmers need support immediately to prevent
loss o
f life.

Conclusion


In this paper, I have given an overview of the diverse and complex problems Indian
farmers face and investigated potential solutions to these problems in order to c
reate a
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18


foundational
understanding of the challenges and opportunities
in Indian agriculture today.
I see
a surplus of opportunities for individuals and organizations, for
-
profit and not
-
for
-
profit, public
and private, to become involved in addressing problems Indian farmers face. Change in MSP
policy is a task of the governm
ent, and development of food processing infrastructure for exports
will likely be the task of individual entrepreneurs. The issues in between, however, will probably
be addressed by social entrepreneurs, NGOs, and the government alike, sometimes separately

and sometimes together. Many
innovative programs are currently being field
-
tested, and
systematic evaluation of their effectiveness should guide further action to close, modify, or
expand the programs. When programs initiated by private organizations are
found to be
effective, a collaboration with the government going forward will help the program to achieve
large
-
scale positive change.


Investments in farmer capacity building, rural infrastructure, and research have been
crucial to past advances in agri
culture
, and the problems described in this paper underline
continued investments in these three areas as priorities. Capacity building and rural infrastructure
will enable farmers to avoid exploitation by giving them new knowledge, skills, and
opportuniti
es so that they can optimize their crop yields and maximize their profits and will
reduce wastage of agricultural products, which is currently enormous. Research, perhaps an even
broader target for investment, encompasses research to find technologies and
agricultural
strategies suited to maximize yield in India’s unique landscapes and to increase food quality and
safety, research to assess the effectiveness of these technologies, and research to discern the best
ways to promote adoption of the technologies

and practices that would benefit farmers if
properly used.
Finally, I add to the priority list the strengthening of mental health services. The
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19


economic costs of suicides may be less obvious than the costs of crop failures and soils
overloaded with chemic
als, but the needless loss of thousands of lives demands redress now.

To close
, the
analysis

in this paper

has been grounded in Indian farmers’ real
circumstances and local contexts, as I have shown is crucial for any analysis that aims to
influence programs and policies for farmers’ benefit.
It is important to remember that m
ost of the
programs that evolve to

transform societies began at small scale
,

effecting small changes.
My
hope is that this paper, the product of a thoughtful and extensive review of available literature,
will be a resource
and a motivator
for individuals see
k
ing
to bring positive change to

India.



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20


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