The Crisis of Smallholder Agriculture

 The biggest concern at present should be about the severe constraints that the small and marginal farmers, who constitute 85% of all farming households and 50% of the total population of India, face. These farmers put in a huge amount of back breaking family labour into their farming. This labour is grossly underpaid at about Rs 100 per day as revealed from surveys that we have conducted in Dewas district of Madhya Pradesh. Whereas the latest statutory minimum daily wage in the state is Rs 335 for unskilled, Rs368 for semiskilled, Rs 421 for skilled and Rs 471 for highly skilled. Farming is a highly skilled operation and so the farmers should be paid Rs 471 in the interests of equity. Especially because the analysis of the consumption expenditure surveys that we simultaneously carry out show that the respondents are suffering from chronic hunger. One can easily imagine what raising the household labour wage to Rs 471 per day will do to the farmgate price of agricultural produce. When we paid a wage of Rs 220 per day (the statutory minimum wage for unskilled labour in MP last year) and also a fifty percent profit over and above their operating costs to the farmers with whom we work in our organic farming project (https://kansariorganics.in/) the farmgate price of our organic wheat shot up to Rs 27 per kg as opposed to the Rs 17 prevailing in the market for chemical wheat and the Rs 20 offered under the MP government's MSP scheme (which is anyway available to a limited number of farmers). After adding on the costs of the subsidy we provided to the farmers for organic composting and bio-enzyme rich liquid making and cleaning and grading the price of our wheat in Indore is Rs 35 per kg whereas the chemical wheat of similar quality sells at Rs 25 per kg. Few people are prepared to buy our wheat at this premium despite its being the cheapest authentic organic wheat available in this country because we are not charging any profits or management costs which are met by grant funding. This in turn means that there is a need for direct transfers to farmers by the government to compensate them properly as the market will not do so. Since the chemical agriculture being practised now is both economically and ecologically unsustainable this cash transfer should be given to farmers to switch the country from chemical monoculture to organic biodiverse agriculture combined with huge investments in communitarian ecosystem conservation and restoration, compost and bio-enzyme rich liquid making on a very large scale to replace chemical fertilisers and decentralized renewable energy production from gasification of agricultural and forest biomass.

But why have we come to this sorry pass? There were four major constraints to agriculture in the British colonial times as follows - high land rents under the zamindari and ryotwari systems, usury, these two in turn prevented investments in soil and water conservation and in situ irrigation development and the low availability of fertilisers. We had innumerable varieties of crops including rice and wheat varieties that were of a high yielding type and therefore there was no constraint as regards to crop varieties. There was no storage problem either as there were traditional methods of decentralised storage of crops that were very effective. With independence the first obstacle was removed to a great extent even though land reforms did not take place as much as they should have and this released the energies of the peasantry in farming leading to a considerable boost in agricultural production. However, usury continued and constrained investments in soil and water conservation and in situ irrigation. Therefore, what was required was greater land reform, control of usury and extension of cheap credit, heavy investments in forest, soil and water conservation and in situ irrigation development and last but not the least heavy investments in composting to increase organic manure availability which is a highly labour intensive process. Animal manure on its own is not enough for the huge agricultural land in this country and so agricultural residue has to be mixed with a little organic manure and composted to greatly multiply the availability of manure. Beginning with Albert Howard there have been many experts in composting in India and so the needs of fertiliser can be easily met through widespread composting and bioenzyme rich organic liquid making. Unfortunately, none of these were done and so agriculture continued to be constrained and combined with the other folly at the time of independence of not implementing compulsory and free school education which would have put boys and girls in school instead of them getting married and producing children which led to a population explosion, we faced a food crisis in the 1960s. There was no nationalism involved in going for the green revolution. It was a neo-colonial collaboration between the American MNCs and the Savarna elite who were ruling this country and still do ( the British too were able to rule over India for such a long time because of the collaboration they received from the Savarna elites. they would have been kicked out in 1857 itself if they had not received extensive support from the Savarnas who had benefited from their rule), to ignore the possibilities of a policy of land reform, control of usury, investment in forest, soil and water conservation and in situ irrigation and widespread composting and instead foist hybrid seeds, big dams, deep tubewells, chemical fertilisers and pesticides and cheap coal fired electricity all heavily subsidised by the Government. This chemical monoculture has devastated both agriculture and food availability, especially in the rural areas where there is chronic hunger.

There is only one solution to the crisis of agriculture, water scarcity. rural unemployment and chronic hunger - gradually switching the whole country to organic biodiverse agriculture over a period of five years by providing heavy subsidies to farmers to make the switch by investing in forest, soil and water conservation, in situ irrigation and composting and generation of decentralised renewable energy from gasification of agricultural and forest biomass. Especially composting because it is a labour intensive process and absolutely essential to replace chemical fertilisers. This is difficult though because after 50 years of chemical agriculture most farmers have lost the belief that it is possible to do agriculture in any other way and it is extremely hard to convince them to make this switch as we have found out when we have tried to fund farmers to make this switch.

A Fair Income

 The FAO has estimated that a healthy diet costs about US$4 per person per day, which applying the purchasing power parity conversion rate of ₹23 to the dollar works out to ₹92. So given an average household size of 4.4 currently this works out to a food expenditure of roughly ₹400 per household per day. The latest consumption expenditure survey conducted in 2022-23 by the National Statistical Organisation says that food expenditure constitutes about 43% of the total household consumption expenditure. So for a healthy diet combined with other associated requirements for a good life the annual household consumption expenditure should be at least (400/0.43)*365= ₹340000.

Ideally a household should have a savings of 20% and so a decent annual household income is ₹425000.
Therefore, when we as development workers talk of improving the incomes of the people at the bottom of the pyramid and say we have impacted their lives positively we have to benchmark our impact against this desired basic income. To what extent have we been able to ensure this level of income for the beneficiaries on a sustainable basis. So far I have not seen such an analysis anywhere. Instead organisations proudly say that they have increased the incomes by a few thousand rupees or so.
In fact given the kind of low prices that farmers and craftspersons get for their produce and the low wages workers get for their labour, it is doubtful that such a high income as estimated here can be ensured by NGOs through development interventions. Therefore, there is a strong case for the provision by the government of a lifelong universal basic income equal to the statutory minimum wage to all adults funded by a tax on bank deposits and other financial assets. This can be tied to various projects of ecosystem restoration, sustainable farming and craft and renewable energy generation to ensure sustainability in the long run. This will not only solve the problem of low incomes resulting from low productivity and lack of well paying employment opportunities but will also push up both demand and supply in the economy.

Revisiting Machla

 Three decades ago Subhadra Khaperde and I came to Indore from Alirajpur to start rights based work in a new area so as to expand the mass base of the organisation. We stayed on the campus of the Gramodyog Vidyalaya of the Sarvodaya Shikshan Samiti in the village Machla situated about 13 kilometres from the city for about two years. At that time we had very little money so we used to live at subsistence levels initially. We used to go around on a bicycle trying to sell copies of a monthly magazine that we used to publish at the time to eke out some funds. Slowly, we started doing consultancies and then landed a project for organising Bhil Adivasi women to fight for their reproductive health and rights and work got under way in the nearby districts of Dewas and Khargone and today the organisation (https://lnkd.in/dV-nhpBz) has a vast spread across the whole of Western Madhya Pradesh working to make the independence gained 77 years ago more meaningful for the masses who still lead a precarious subsistence existence at the margins. So this campus in Machla has a special place in our hearts.

Some of the shootings for the film on our love story, Rah Sangharsh Ki, episode four in the series Lovestoriyaan on Amazon Prime Video (https://lnkd.in/dKbUsT6C), were shot in Machla and so we had an opportunity to visit it again last year and revive those sweet memories. Ravi Uchhe, one of the cinematographers of the film, has shared a lovely photo of us that he took at that time.

The Adverse Agricultural Terms of Trade

 Globally and in India the big problem is that market prices for farm produce do not cover the costs. Consequently, governments have to subsidise farm production either by direct transfers to farmers or farm input producers or by providing support prices and insurance covers. However, these subsidies are not enough and so farmers are perpetually in the red and have to sell their produce immediately after harvest to pay off debts. This problem is more acute in India as the average landholding and the subsidy given is very low as compared to the high income countries, which are members of the Organisation for Economic Cooperation and Development.

Some amount of relief can be had if farmers can hold their produce for some time to get better prices rather than selling at the time of harvest but this requires both storage space and money which are not available to most farmers. Therefore, theoretically, if a company steps in and provides warehousing facilities to store the produce of farmers and provides cheap credit to them against this collateral, then the farmers can earn more at a later date by selling their produce when prices firm up and still carry on their operations in the interim. However, this is fraught with problems for the intermediary company as there is no guarantee that the prices will firm up enough later to cover the costs of warehousing, weight and pest attack loss and operational expenses. The traders who work in this space generally cheat the farmers by giving them even lower prices than the low ones which prevail in the market and they also provide the inputs to them at higher prices and usurious interest rates and so are able to make profits at the expense of the farmers. Therefore, it is unlikely that any intermediary company can make profits by giving farmers a fair deal.

There are a few agri startups in India which are trying to do this work. However, none of them are making any money because of the inherent constraints detailed above. One such company started off on a small scale by hiring warehouses and providing loans to farmers cheaply against the grains they stored in these warehouses. This boot strapped company worked at a small scale with a small turnover making small losses for a few years before it was funded by venture capital of a small amount of Rs 2 crores and then with a large amount of Rs 40 crores to scale up operations. The turnover shot up tremendously as a result but so did the losses as is evident from the graphics below!!

So, much higher government subsidies and investment are needed not only to shore up the economics of farming currently but also to gradually transition it away from chemical inputs towards natural farming. Unfortunately, the outlay in this year's budget, where it has been claimed that 1 crore farmers are to be transitioned to natural farming is only a paltry Rs 365.64 crores amounting to Rs 365 per farmer, which is less than the daily statutory minimum wage for skilled labour.

Economics of Food Delivery Personnel

 Ishaan Khaperde has studied the economics of food delivery by Zomato India and here are the results from the point of view of the delivery person. The data has been culled from videos shared by delivery boys like the one linked here. The delivery frequency is the least on Mondays and reaches a peak with dinner time on Sundays when it is three times that of Mondays. The base delivery payment for up to five kilometers distance combined for pickup from the restaurant and delivery to the customer is Rs 22 on an average while above five kilometers the delivery person gets Rs 11 per kilometer on an average in addition to the base delivery payment. The pickup plus delivery time is about 30 minutes on an average for short orders of less than 5 kilometers while it is 50 minutes on an average for long orders above 5 kilometers. The daily mix is about 30% short orders and 70 percent long orders with the short orders on an average being 2 kms or so and the long orders being on an average being 9 kms or so. The delivery persons on an average operate for 12 hours. Thus, by solving for these parameters and rounding off [30 x number of short orders + 50 x number of long orders = 12 x 60, number of short orders/(number of short orders+number of long orders)=0.3], assuming that they are continually delivering orders, delivery persons can at the most squeeze in 4 short orders and 12 long orders per each 12 hour day. The payment for this is [4 x 22 + 12 x (22 + 4 x 11)] Rs 880.

The total distance covered on an average is 120 kilometers per day. Assuming a coverage of 40 kms per litre in stop and start city traffic at higher driving speeds this means a petrol consumption of 3 litres at a cost of Rs 330. Add another Rs 50 per day towards two wheeler depreciation, insurance and maintenance cost and the total cost comes to Rs 380. Thus, the net earnings are Rs 500 for a 12 hour day which comes to Rs 333 per eight hour day. Whereas the statutory minimum wage in Madhya Pradesh in urban areas for semi-skilled labour like driving a motor cycle is currently Rs 411 per day. Conversely, assuming double wages for the extra four hours of work done, statutorily the wages for 12 hours of work should be Rs 822 and not Rs 500.
Moreover, the delivery persons face many challenges like having no place to sit in the shade in restaurants, having to climb up the stairs of buildings where there are no lifts or where use of lifts are prohibited to service persons and also face jams and diversions enroute to delivery which further adds to their troubles.
An analysis of the prices charged by Zomato for the food ordered as compared to the prices that the restaurants charge for in dining, shows that there is a mark up of about 10%. So Zomato is not only grossly underpaying its delivery persons but also overcharging its customers 😜.

https://www.youtube.com/watch?v=Q-NDWpzCF1Y

Rationale for Taxation

 A recent paper published by a team of economists led by Thomas Piketty (https://wid.world/.../WorldInequalityLab_WP2024_09_Income...) on the huge rise in inequality in India and their suggestion of taxing the rich to reduce this has led to a huge push back with people saying that it is the rich who create wealth and they should not be penalised through taxation. These people forget that redistribution of incomes through taxation has been a settled principle of all major economies since the 1930s because of very sound reasons. It would be helpful to go through these reasons which are as follows -

1. A modern economy has many enterprises which compete with each other to sell their products in the market and this leads to cutting of costs to stay competitive. Consequently, all enterprises tend to cut both material and labour costs. Cutting of material costs devastates the environment and labour costs are cut by paying low wages. Cutting of labour costs is also achieved by mechanisation which reduces the demand for labour while at the same time increasing the demand for materials, thus further devastating the environment.

2. The low wages of most employees in the economy, with some being unemployed or under employed, results in low effective demand for goods and services. This leads to recession in the economy and markets are flooded with goods and services that do not find buyers resulting in an over production crisis. Simultaneously, the devastation of the ecosystem results in the production of goods and services itself being jeopardised which can be termed as a production crisis. Thus, an unregulated competitive economy will eventually collapse due to an over production crisis combined with a production crisis.

3. This is what happened in 1929 across the USA and Europe and so the modern states thereafter stepped in to regulate the economy. An elaborate system of regulation was put in place to ensure that there is fair competition, wages are just and the ecosystem is not devastated indiscriminately. Moreover, the State in any economy is the biggest spender, not only in buying goods and services and developing infrastructure but also in providing subsidies of various kinds, especially in education, health and welfare, which ensures that the effective demand is kept at a level that counters recession. Apart from this the State maintains law and order and provides external security so that the economy can function smoothly. The state also protects the right to property without which the market cannot function and wealth cannot be accumulated by the rich.

The State has to garner the resources for this necessary regulation of and investment in the economy from taxes. The proportion of taxation in all developed economies currently is 40% of the GDP or more whereas in India it is only 12%. Therefore, the rich need to be taxed much more than they are being at present in India!!

Universal Basic Income

May Day is celebrated in the memory of those valiant workers who gave up their lives fighting for better working conditions and remuneration. Many legal rights were won by workers organised in trade unions in factories. However, from the 1980s developments in computer technology not only made workers redundant in factories but the work could also be outsourced to distant locations. Even in factories apart from a few skilled workers to run the automated machines the rest could be employed through labour contractors. Consequently, the power of trade unions began to decline and both working conditons and wages grew much less than the productivity as most of the surplus was appropriated by the corporations.
Thus, there is very little to celebrate currently on May Day as there aren't permanent factory workers in enough numbers who can agitate for labour rights. The vast numbers of casual workers, a considerable proportion of whom are migrants, are in such a precarious condition that they cannot think of organising for better terms of work.
I am associated with the Khedut Mazdoor Chetna Sangath and the Centre for Labour Research and Action which are fighting for the rights of Adivasi migrant workers in Western India and we are unable to get even the Minimum Wages Act implemented let alone secure other benefits.
The problem is compounded by the fact that outsourcing and underpaying of labour is a global phenomenon and so if one factory or industry pays more to workers then it will become uncompetitive and go out of business. Therefore, it is an economic compulsion for corporations to under pay labour as much as they can. The Governments go along with this so as to prevent the companies from fleeing elsewhere in search of low cost labour. That is why currently all over the world and especially in India there is a lack of decent paid work and it especially affects the youth who are without livelihood options.
So, while it is all very well to come out with demands for the statutory right to work and implementation of protective labour legislation it is unlikely that they are going to be met given this sordid economic reality. Consequently, what is necessary is to launch a campaign for the Government to provide a lifelong universal basic income to all adults. This will considerably ease the distress being suffered not only by casual workers but also farmers and self employed small traders and artisans who together constitute 98% of the workforce. Moreover, by providing money at the bottom of the pyramid this will create huge demand that will revitalise the whole economy. Another benefit will be women's empowerment as paid labour participation of women is abysmally low in this country. This needs to be augmented with investment for ecosytem restoration, sustainable agriculture and distributed generation of electricity so as to counter the threat of climate change which is now the most serious challenge to human civilisation.

Are FPOs viable?

 Can Farmer Producer Organisations ((FPO) increase the incomes of small farmers as policy thinktanks and the government are suggesting?

For answering this we have to first study the economics of the farm sector in the USA. The farm gate prices offered to farmers by the market in the USA do not cover their costs of production. Therefore, the government there gives a subsidy of $20 billion to farmers. Now there are only 250000 actual farm owners left in the USA as small farmers have gradually exited due to the unviability of farming and of these 25000 are big corporations and tycoons like Cargill and Bill Gates who own hundreds of thousands of hectares of farmland. However, even after practising industrialised agriculture with high levels of mechanisation, they are all running in losses as far as farming is concerned, and are compensated to the tune of $20 billion annually by the government through various subsidies.
Not only in the USA but markets worldwide do not remunerate enough to cover the costs of production of farmers and so governments provide hefty subsidies to keep farming afloat. When the likes of Bill Gates and agri-businesses like Cargill can't make profits out of farming it is farcical to expect FPOs to do so without substantial government subsidies. I have tried to get a few FPOs to reveal their audited financials so as to analyse their economic performance but have not succeeded so far 🙂.

Is Land Reform Possible

 What are the possibilities of the landless in rural areas getting land for cultivation at present? Those farmers having landholdings that are more than 5 hectares in size constitute only 5% of the total landed farmers and they own 31.8% of the total cultivable area. The average landholding size for this category being about 10 hectares of land which is less than the ceiling. The rest 95% of landed farmers have landholdings of less than 5 hectares and the average size is only 2 hectares. Thus, this latter cultivable area which constitutes 68.2% of the total is not available for redistribution. Totally 26 lakh hectares were identified as ceiling surplus land of which 24 lakh hectares were possessed and 20 lakh hectares redistributed. Some 1 lakh hectares are under legal dispute. Therefore, currently only about 5 lakh hectares of ceiling surplus land is available for distribution to 10 crore landless households. Which means that each landless household can at the most get 0.05 hectares of land. The overall average landholding size is also 0.8 hectares which is less than the limiting size for marginal landholdings - 1 hectare. Under the circumstances it is unlikely that landless people will get economically viable plots of agricultural land. Increasing the sustainability of agriculture and natural resource management combined with in situ localised production of energy through gasification of biomass and post harvest processing in cooperatives will be better options than distributing miniscule plots of land among 10 crore landless households.

Estimation of Poverty

 Today is the International Day for the Eradication of Poverty. It would be helpful to discuss the extent of poverty in India. The World Bank has determined three poverty lines as follows - The extreme poverty line at PPP US$ 2.19 per capita per day, The middle poverty line at PPP US$ 3.65 and the higher poverty line at PPP US $ 6.85 (https://lnkd.in/d5yhDcyT.).

PPP stands for purchasing power parities which are the rates of currency conversion that try to equalise the purchasing power of different currencies, by eliminating the differences in price levels between countries. The basket of goods and services priced is a sample of all those that are part of final expenditures: final consumption of households and government, fixed capital formation, and net exports. This indicator is measured in terms of national currency per US dollar. This is less than the market exchange rate in India's case and the latest available conversion rate (2022) is US $ 1 = INR 24.06 (https://lnkd.in/dJt98Tf9).
Thus the three poverty lines in India's case are equivalent to INR 52.7 for extreme poverty line, INR 87.8 for middle level poverty line and INR 164.8 per capita per day for higher poverty line.
Assuming that on an average the household size in India is 5 we have an extreme poverty line annual household income equal to - 52.7 x 5 x 365 = INR 96178, a middle poverty line annual household income equal to - 87.8 x5 x 365 = INR 160235 and a higher poverty line annual household income equal to - 164.8 x 5 x 365 = INR 300780. This can be assumed to the desired level of income for a household to live with dignity.
Now as per the Income Tax Department data the number of individual return filers having an annual taxable income greater than Rs 3 lakhs, in the financial year 2022-23 was 4.89 crores. Let us assume that this is also the number of households with income above INR 3 lakhs which is the higher poverty line determined by the World Bank.
Then once again assuming the average household size of 5 and a current population of 143 crores we get the total number of households in India currently as 143/5= 28.6 crores.
Thus, the proportion of households living below the higher poverty line of INR 3 lakhs annual income is a whopping 83 percent.
The Periodic Labour Force Survey Report for 2021-22 (https://lnkd.in/d8CpTpva) on analysis shows that the average monthly income for the 70.3 crores workers in the country is INR 11444 or an average annual income of INR 137326 which is much less than the middle poverty line of INR 160235. Thus, a substantial proportion of households, definitely more than 50 percent, are living below the middle level poverty line in India.