From Farm To Market: A Crisis Looms In Modi’s Home State

Farm crisis in Gujarat far from over.

A farmer in Amreli district, Saurashtra, Gujarat (Photo Courtesy: BloombergQuint)
A farmer in Amreli district, Saurashtra, Gujarat (Photo Courtesy: BloombergQuint)

A swathe of green sways in the breeze in Hitesh Patel’s four-acre farm at Khokhaddad in Rajkot, Gujarat. Around this time of the year, the area roughly the size of four soccer fields used to be snowy cotton white or muddy groundnut brown. He switched to wheat and garlic this season.

“I wasn’t getting good prices, so I changed the crop,” Patel, 32, said. “In the last two years, I couldn’t break even.”

For peanut and cotton farmers in Gujarat, the largest producer of the two crops in the country, it’s even worse this time.

A bumper harvest for groundnut means prices have plunged. The crop in bulk markets is getting around Rs 600-650 for 20 kilograms. That’s lower than the Rs 890 minimum support price. Farmers BloombergQuint spoke to in the Saurashtra region of Prime Minister Narendra Modi’s home state say they won’t even recover costs.

Photo Courtesy: <b>BloombergQuint</b>
Hitesh Patel looking over his wheat farm near Rajkot, Gujarat

Heaps of groundnut lie at the Gondal Agricultural Produce and Market Committee, the largest in the region. Peanut grower Mansukh Patel, 50, said there is a wide gap between the quality of crop from different parts of Saurashtra. That’s because of the uneven distribution of monsoon. “It rained well at the onset of the season but didn’t towards the end. That impacted quality.”

India’s agriculture sector, which contributes about 17 percent to the $2.3-trillion gross domestic product, is dependent on multiple variables, the biggest being monsoon. Summer rains, which water about half the cultivated land in the nation, have been close to the long-period average in the last two years. Yet, that doesn’t guarantee returns for farmers as rising costs, lower subsidies and imports by the government to pre-empt inflation end up distorting prices.

Contrasting Output, Same Result

The area under peanut cultivation in Gujarat is 1.6 million hectares, about 15 percent more than usual. The production is higher than last year at about 35 lakh tonnes, said Gopal Singhala, vice-chairman at Gondal APMC.

The peanut glut contrasts with cotton grower Bipinbhai Phokia’s worries. The output at his one-hectare farm in Amreli, which usually yields 600 kg, has fallen by half this year after the floods and the pink bollworm attack.

To save the crop, Phokia bought insecticide at Rs 3,000 a litre, three times the price about two years ago. “While the subsidy has been going down, labour costs have gone up. My profit margins have fallen drastically.”

Photo Courtesy: <b>BloombergQuint</b>
Labourers work in a cotton field in Amreli, Gujarat

Phokia’s unsure of recovering costs. That’s despite cotton prices of around Rs 1,000 per 20 kg, close to the MSP.

Any low price suggests a mismatch of demand and supply and that tells you that the demand in the economy in general, and the rural areas in particular, is rather low, Abhijit Sen, former member of Planning Commission, said. “Also, global prices are low. Anything which needs to be done is either on the trade side—that is import tariffs—or it has to be in terms of injecting demand in the economy.”

In the 12 months to March, India expects to grow at its slowest pace since 2014, the year the Modi government came to power. Twin shocks of a cash purge and the new nationwide sales tax rollout in less than a year hurt rural consumption and manufacturing.

Rising Costs

India plans to double farmers’ income by 2022, and Finance Minister Arun Jaitely has dropped enough hints to suggest that the Union Budget 2018 will focus on the rural economy. The nation’s farm growth has been erratic in the last five years. That means farmers don’t earn enough to cover costs and are invariably buried under debt. Suicides and growing distress have already prompted states like Uttar Pradesh, Maharashtra, Punjab, Karnataka and Rajasthan to pardon their debt.

From Farm To Market: A Crisis Looms In Modi’s Home State

To increase farmers’ earnings, their real income should grow at an annualised rate of 10.4 percent, said Ashok Gulati, former chairman of the Commission for Agricultural Costs and Prices, an advisory body to the government. Real incomes rose 3.6 percent in the decade to 2013, he said.

The distress in Gujarat underscores how farmers’ income hasn’t kept pace with rising costs.

“I have had to increase labour wages. Input costs like fertilisers and pesticides have also gone up as the government has reduced the subsidy,” peanut farmer Mansukh Patel said. “On the contrary, the price of groundnut declined. I don’t know what I will do next year.”

Abhijit Sen, former member of Planning Commission, said the government should think out of the box, instead of just in terms of increasing MSP, to tackle farmers problems. A kneejerk increase in MSP can have consequences later, he said. “Instead, it can think about income support where there isn’t a lot of government intervention.”

Impact Of Global Markets

Imports of palm oil, a substitute added to all edible oils, has only compounded Gujarat farmers’ troubles. Prices declined 30-35 percent this season making palm oil attractive as a substitute, according to Gulati. That depressed demand for groundnut.

In November, the government hiked the import duty on edible oils, including palm oil, to 15 percent to support farmers. That, according to the Solvent Extractors’ Association of India, has changed the sentiment a bit. Yet, it’s unlikely to benefit farmers immediately.

“So now the government has to procure the crop and hoard it, but it hardly does that,” Gulati said. Gujarat bought some produce but ran out of storage and doesn’t know what to do with the surplus, he said. “It’s the middlemen and private traders who hoard. But if exports are banned, surplus only brings down prices.”

Waiting For The Government To Buy

About 500 groundnut growers visit Gondal APMC to auction about 50,000 bags weighing 36-kg each, every day. Till about three years ago, the government bought the crop through an auction, Kishorebhai Viradia, president of the Saurashtra Oil Millers Association, told BloombergQuint. It now buys directly from farmers. And since the MSP is higher than the market price, groundnut growers prefer to wait till the state picks up the stock.

That’s why the good quality product is not coming to the auction market, said Singhala of the Gonal APMC. “Since only the second-grade quality is available at the market, rates have dropped more.”

Photo Courtesy: <b>BloombergQuint</b>
The groundnut crop at the auction market in Gondal APMC.

Lack Of Technical Help

Saurashtra peanut and cotton growers said they don’t get assistance on inputs and management practices for quality produce.

There’s lack of knowledge about seeds and fertilisers, said Brijender Mohan Vithal, former executive director of National Seeds Corporation, Ministry of Agriculture. Farmers are misguided by commission agents and use wrong or poor-quality pesticides, he said. “Pests have developed resistance to chemicals.”

Cotton grower Phokia agrees. “We buy whatever is suggested. Most farmers are not educated enough to understand the difference.”

There’s also a lack of knowledge and non-availability of good quality seeds, Vithal said. Farmers use even spurious Bt-cotton seeds sold in the market, he said.

And these farm-to-market woes are not limited to cotton and groundnut growers. Switching to garlic hasn’t helped Hitesh Patel much. It isn’t going to fetch any profit since there is no market for garlic as well, he said.

“Farmers are very distressed.”