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.

Planetary Boundaries Have Been Breached

 A team of scientists created the Planetary Boundaries Framework in 2009 for nine ecological areas which ensure the continuance of life on the planet. Since then this framework has been assessed from time to time and currently, six boundaries, climate change, biosphere integrity (genetic diversity and energy available to ecosystems), land system change, freshwater change (changes across the entire water cycle over land), biogeochemical flows (nutrient cycles), and novel entities (microplastics, endocrine disruptors, and organic pollutants) have been severely breached as shown in the graphic. Only stratospheric ozone depletion, atmospheric aerosol loading and ocean acidification are within bounds as described in this article in Down To Earth https://www.downtoearth.org.in/.../six-of-9-planetary...

.

The main problem at the base of all other problems is excessive fossil fuel energy use. This is what has created the present human over consumption and ecological crises. We need to both rein in energy use and also transition to renewable energy immediately if we are to avert climate change, biodiversity loss, ecosystem degradation, pollution and the like.
The linear resource extractive economy is causing this problem. A local circular economy needs to be prioritised and this will be possible only if all governments strictly apply the polluter pays principle to garner the resources for subsidising the mitigation measures. 

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Communitarian Forest Conservation in Alirajpur

 The Khedut Mazdoor Chetna Sangath (KMCS) in Alirajpur district of Madhya Pradesh will be completing four decades this year in its fight for justice for the Bhil Adivasis. Not only has it been one of the most successful mass organisations in the country in the implementation of the Forest Rights Act for its members but it has also organised them into doing communitarian ecosystem restoration by leveraging their traditional labour pooling customs. The biggest achievement of the KMCS has been the conservation of forests, soil and water over 12500 hectares in 62 villages. The forests are either very dense (over 70% canopy cover) or medium dense (between 40% and 70% canopy cover) with one village Bada Amba having as much as 64% of its area under dense forests and overall the proportion of forest area to total land area of these villages is 24%. Analysis of Remote Sensing Data over a period of 33 years between 1990 and 2023 was carried out by the School of Climate Change and Sustainability, Azim Premji University, Bengaluru, for these 62 KMCS villages and compared with 62 control villages in the district which did not have communitarian protection. The results are summarised in the map attached in which the green areas are those in which there has been increase in vegetation and the red areas are those in which there has been decrease in vegetation. The green circles are the KMCS villages where there has been communitarian ecosystem restoration work and the purple circles are the villages in which there has not been any communitarian ecosystem restoration work. Clearly, the vegetation has increased in KMCS villages as compared to the control villages.

A more detailed analysis of LandSat data with higher resolution of 900 square meter pixel size was also carried out and that shows that even in the control villages there has been increase in vegetation over the three decades from the 1990s even though there are no dense forests there as there are in the KMCS villages. So overall there has been an impact of the KMCS in the whole of Alirajpur district as people have been inspired to protect trees. This is an extremely important achievement from the perspective of Climate Change Mitigation.

Incidentally, 13000 hectares of forests were submerged by the Sardar Sarovar dam and as per the detailed project report, the Government should have done compensatory afforestation on four times that area. However, even after spending a few hundred crores, there is nothing to show. whereas the KMCS through communitarian collective action has done almost the same amount of conservation as the forests submerged.

Propagating Heirloom Seeds

 Kansari nu Vadavno, the Bhil Adivasi women's organisation led by Subhadra Khaperde has been reviving the cultivation of the traditional indigenous seeds of Western Madhya Pradesh over the past eight years. These women farmers have not only succeeded in cultivating over thirty varieties of traditional seeds ranging from millets, rice, wheat, pulses, oilseeds and fibre to vegetables, but have also spread them across the country by participating in organic seed festivals. Bicchibai and Gendabai two stalwart farmers of the organisation are participating in the latest Organic Seed Festival in Indore with their cornucopia of seeds and are holding forth before farmers, consumers and the media about the importance of this campaign to save the agro-biodiversity and so the food security of Western Madhya Pradesh.

The Used Water Debacle

 A few years ago I did a study for the National Institute of Urban Affairs (NIUA) on the status of Water management in the city of Jaipur (https://lnkd.in/dqwkV4yM

). On the basis of data collected I had shown that centralised water management in the city was both economically unviable and ecologically unsustainable. I had also said that the beautification project on the Dravyavati River passing through the city was ill conceived and would fail in the long run because the plan for intercepting drains emptying into the river and treating the used water in them through STPs would not work. The main problem was that the Jaipur Municipal Corporation did not have the funds to operate the STPs and the centralised water supply. While water supply being crucial is somehow fulfilled to some extent, used water treatment is given a go by.
I had also said that the only solution was to implement building level rainwater harvesting/recharge and used water treatment and reuse.
I find now on a visit to Jaipur that all my dark predictions have unfortunately come true.
The biggest STP at Delawas of 215 MLD capacity is dysfunctional and is releasing the sewage water untreated into the Dravyavati River. The smaller STPs along the river built to treat the used water from the intercepted drains are also dysfunctional. Consequently, the Dravyavati River is not only stinking to high heaven but is also emitting the green house gas methane in large quantities.

What I found most disconcerting was that a totally irrational method of disposal of used water is being implemented in individual buildings. Small wells called kuis of 1m diamter are dug to about 10m depth and concrete rings with a few small holes are put in them. The untreated used water is emptied into them.

 These wells fill up very soon and then they are emptied by desludging tankers which then empty their tanks in the Dravyavati River or some drain that empties into it.

To add insult to injury, farmers downstream are using this highly polluted water of the Dravyavati River to produce food crops.

There is something seriously wrong with water management in this country, especially in our cities and towns and despite clear guidelines in the rules and laws for implementation of building level water management, the folly of centralised water management is persisted with.

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.

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.

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 🙂.

Carbon Emissions from Agriculture

 An important new painstakingly done research has shown that the emissions from nitrogenous fertilisers is 5% of the total. One third of this is in production and two thirds after application as bacteria act on these fertilisers and release nitrous oxide which has two hundred times more global warming potential than carbon dioxide. These emissions are more than that of shipping and aviation combined.

However, the paper suggests only technical solutions like lesser use of fossil fuels in the production of fertilisers and more efficient use on farms to try and mitigate these emissions which will not achieve much.
The best way to eliminate the use of N fertilisers is to prepare compost and biocultures in situ on farms themselves. However, this is a very labour intensive and time xonsuming process as the equivalent of one bag of N fertilisers is one tractor trolley of compost prepared from mixing and aerating agri and forest biomass with animal dung over four months. Therefore, unless government subsidies are switched from chemical to organic farming to compensate farmers for this extra labour, there is little likelihood of a transition away from N fertilisers.
https://lnkd.in/dgiZenAC

Carbon emissions from fertilisers could be reduced by as much as 80% by 2050