The Farmer Income Conundrum

Recently there has been a lot of hype about a few agritech companies having made impressive growth in revenues. Especially, the performance of DeHaat Kisan: Agriculture and Farming is in the news for having used "AI enabled technologies to revolutionise supply chain and production efficiency in the farming sector through an extensive network of15000+ centres and 503 FPOs serving12.8 million+ farmers."

I have always argued that the sordid reality is that farmers in this country do not get a fair price for their products which can even cover their household expenditure let alone allow them to earn a profit. As is borne out from the two graphics below that I have compiled from the results of the farmer situation survey and household consumption expenditure survey conducted by the National Sample Survey Organisation 77th Round in 2019.

Therefore, while agtech and FPOs can improve matters marginally it cannot substantially increase farmer incomes. Moreover, since there are huge costs for any aggregator of agricultural produce in transportation and storage, the only way such an aggregator can make money is by cheating farmers both in weight and price. This is what most agri traders do. Thus, if an aggregator is not cheating the farmers, then given the huge costs of transportation and storage it must be making losses.

I did some research on Dehaat's finances to test out this hypothesis of mine. It is registered as Green Agrevolution Pvt. Limited with the Registrar of Companies (RoC). The latest financials of the company as per the reports submitted to RoC are as follows -

TOTAL REVENUE: - ₹Crores 2,647.6 which is a 36.12% increase year on year.

EBITDA ₹ Crores -1,118.2

NET LOSS ₹ Crores -1,123.9

NET WORTH ₹ Crores -4,178.2

BORROWINGS ₹ Crores 5,119.6 which is a 24.73% increase year on year

ASSETS ₹ Crores 1,370.9

ROCE -41.72 %

Clearly, the company is making huge losses from its operations confirming my hypothesis that given the low prices of agri produce in wholesale markets it is not possible for an aggregator to make profits without cheating farmers. It is not known what prices it is offering for procurement from farmers but it looks as if it is offering more than the market prices so as to attract them to sell to it. This is not a financially sustainable business model and is not only running but also growing its revenues only because it is heavily funded by big investors. We run an organic store https://kansariorganics.in/

which too runs in losses as we offer the farmers a fair price. The losses are subsidised by our NGO https://mahilajagatlihazsamiti.in/

from grant funds. Therefore, instead of falsely stating that agtech and FPOs can solve the serious problem of lack of income of farmers, what needs to be done is to increase substantially the government support to farmers to pursue ecological restoration, ecological farming, distributed renewable energy generation and local processing and consumption of agri produce.

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.

The Myth of Affluence in India

 The GDP of India at current prices in the year 2012-13 was Rs 101.13 lakh crores while the per capita GDP was Rs 70,983. The growth in the past decade resulted in the GDP at current prices, without factoring in inflation, rising to Rs 272.41 lakh crores in the year 2022-23 and the per capita GDP rising to Rs 1.72 lakhs. This means a compound annual growth rate over the past decade of 5.5% for the overall GDP. Since the average annual consumer price inflation was also about the same it means that at constant prices there has not been any growth in GDP despite the claim of average annual 6% GDP growth being made by various agencies.

What is of greater concern is that the compound annual growth rate over the past decade of per capita GDP at current prices is only 3.5% which means that the growth in overall GDP is accompanied by a substantial rise in inequality. Moreover, if the average annual CPI inflation is taken into account it means that at constant prices the per capita GDP has declined by 2% annually.
Thus, instead of chest thumping about India soon becoming the third largest economy in overall GDP terms, which will mainly be due to its high population and not because of actual increase in per capita incomes which are abysmally low for most people in this country, we have to buckle down and provide socio-economically equitable and ecologically sustainable livelihoods to the vast majority of the poor.
To add insult to injury today Goldman Sachs has released a report saying that there are 60 million affluent people in India with an annual income of US$10000 or roughly Rs 8 lakhs or more and that it is they who will drive the economy and the rest of the population can lump it. Even this is a gross over estimate which has been reached by them based on the data that there are 114 million demat accounts as if having a demat account automatically means that there are a high amount of stocks in them!! On the other hand according to data released by the Income Tax Department for the year 2021-22, the number of tax filers with income over Rs 5 lakhs who actually paid income tax was only 22 million even though the total number of return filers was 74 million. Poverty and Hunger beset the vast majority of people in this country and it is towards improving their livelihoods that we should be looking instead of relying on the conspicuous consumption of the miniscule few rich people.

5 charts from Goldman Sachs that capture rapid rise of 'Affluent India'

moneycontrol.com • 2 min read

Fertiliser Subsidy Analysis

 Clifton D' Rozario has published in a post an analysis of the budget for 2024-25 done by the CPIML (Liberation). I have prepared a graphic based on the data from that post on the trend in fertiliser subsidies being provided by the Union Government. It clearly shows that there is a 28% decline in the Urea subsidy from actual expenditure in 2022-23 to the proposed expenditure this year and the decline in Non-urea subsidy is even higher at a whopping 48%.

Cumulatively this decline of Rs 62,445 crores in fertiliser subsidy is more than the support of Rs 60000 crores budgeted for the Kisan Samman Nidhi. Thus, despite all the rhetoric, effectively the Government is short changing the farmers big time.

Universal Basic Income

 I came across a chart that compares the rise in productivity with the rise in workers' wages and overall compensation from 1949 to 2009 in the USA. The graphic clearly shows that while the former and latter were more or less the same till the late 1970s, thereafter from the 1980s there is a rising hiatus between the much higher rise in productivity and the minimal rise in worker's wages and overall compensation. This hiatus must have increased further in the decade and a half since.

This is primarily because technological advancement has made it possible since the 1980s for corporations to outsource manufacturing and service work and so avoid the employment of workers in permanent jobs where they can unionise to increase their wages and benefits. Karl Marx showed that the exchange value of goods and services produced, depended on the socially necessary labour time required to produce them. This social determination of labour time is not simply a function of supply and demand and technological productivity but is also dependent on negotiation between the working class and the capitalists. Thus, over time the proportion of the value created that would be given to the workers in the form of better wages and working conditions, was decided by contestation through trade unions between the workers and capitalists and increasing workers’ power resulted in the State also legislating to provide for regulation of the capitalists. Consequently, the absence of unionisation in the large informal sector and the roll-back of unionisation from the formal sector as has happened since the 1980s all over the world, mean that there is extra-economic extraction of surplus value from workers within the capitalist system. Matters have been compounded by the fact that on the one hand consumerism is being aggressively promoted among the workers also and so they are more interested in working long hours to earn more money to satisfy their consumerist desires rather than organise to improve their wages and limit their exploitation and on the other welfare measures are being curtailed and so the lives of the workers is being made precarious.
This precarity of the working class can be countered only by ensuring that they have a universal basic income from the state. Given the increasing tendency of exploitation by corporations, which is difficult to roll back, the state has to step in and provide a universal basic income to all adults so as to both provide a dignified life to workers and shore up the demand in the economy. The eternal problem for capitalism is that it will face the crisis of over production from time to time as there is not enough demand for the goods and services that are produced due to the poverty of the vast exploited majority and so the only way to counter this is for the state to guarantee a life long universal basic income for all adults.

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