Tuesday, December 27, 2016

Distress among Paddy Farmers in a Village of Azamgarh (Uttar Pradesh): Pre & Post Demonetisation

Santosh Verma

The paddy cropping and harvesting season has been concluded and the Rabi crops (mainly wheat) is seeded into the vast agricultural plains of Eastern Uttar Pradesh. The region is known to be highly dependent upon agriculture for livelihood and food security, but it is also known as one of the economically backward-regions of the country. The persistent negligence by the government to develop a mechanised crop procurement system (through Food Corporation of India or State Government Authorized Agencies (SGAs)) and the recent demonetization of high-value currency notes have put the struggling agricultural communities of this region into a deep crisis. In the absence of procurement agencies, the farmers are forced to sell their surplus paddy to the local traders or in the open markets (nearby shops) at lower prices than the Minimum Support Price (MSP) and the demonetization has led to further suppress the open market prices of the paddy. This article deliberates upon cause and relations of this growing crisis among the paddy farmers due to the near absence of Government procurement agencies (both FCI and SGAs) at a time when ill-effects of demonetizations have led to a severe cash crunch leading to disruption in economic activities in the last few weeks.


Current Procurement Mechanism in Eastern Uttar Pradesh
Since 2015, the Department of Food & Public Distribution of the Government of India has started to short-list private parties based on e-tenders to purchase paddy from the farmers where FCI and other government procurement agencies have less reach. These private parties are given the task of purchase, storing, packaging and transportation of paddy from these regions including Eastern Uttar Pradesh. These parties are getting the Minimum Support Price (MSP) fixed by the Government in addition to the statutory charges and incidentals quoted in the tender document upon production of proof of payment.

The procurement of paddy used to take place in two ways. First, is by way of  custom milling under which the FCI, the SGAs and the cooperative societies directly purchase paddy from the Mandis. The second is the process of levy rice where private parties procure paddy from the farmers and process it to supply certain minimum fixed quantity to the government agencies (FCI) under the Essential Commodity Act of 1955. But from October 2015, the levy rice system has been abolished by the Government which meant that there would not be any compulsory selling of paddy to the Central/State procurement agencies under the Act.

Policy Obstacle and Farmers' Distress
What has gone wrong with the above-mentioned policy approach in the areas where FCI and SGAs were already absent from the crop procurements, now, is that the existing private parties with the help of middlemen and local traders are purchasing paddy from the farmers without the mandatory minimum sale to the Government agencies. This has led to suppression of the farmers in various ways. First, they are not getting MSP directly from the Government; second, to get greater margins in the profit, the private parties ask middlemen and traders to purchase paddy at the lowest possible prices; third, the local traders and middlemen themselves, to strengthen their profit margins, are trying  to manipulate the prices even at greater scale; and fourth, in the absence of Government agencies and regulations, the bargaining power of the farmers has eroded, and they are forced into distress sale of paddy.

To find out exact causes and relations of government's negligence towards purchase and procurement of paddy and the effects of demonetization, a focused group discussion of 15 paddy farmers (with a surplus to sell) was organised in a village called Lasara Kalan in the Azamgarh district of Uttar Pradesh. As per the Census[1] of India 2011, the total population of the village was 2359 with a literacy rate of around 67 percent. The total workers in the village were 28.8 percent (of which 10.8 percent were main workers and 89.2 percent were marginal workers). The main occupation of the inhabitants of the village is agriculture. A set of questions (e.g., total production of paddy with each of the farmer; how much of the total produce was stored in the family itself for self-consumption; what is the capacity of the storage in the house; what is the cost of storage of the paddy in one year; how much was sold, where it was sold (FCI, SGAs, middlemen, local traders, etc.); at which price the paddy was sold (whether different varieties of paddy having different selling prices); whether farmers were forced to sell their paddy below the MSP and if yes, whether they consider it desperate or distress sale; why did they chose to sell paddy and not rice after husking it) were asked to them during the FGD.

During the discussion, it emerged that normally the farmers store paddy for their consumption, at least, for the continuing year, and sometimes they store for the upcoming year to cover for any natural constraint or price fluctuation in the market. The farmers responded that they cannot store the paddy, more than their own needs, for longer periods because they lack infrastructure (like, a place to store in the house, they cannot bear the cost of extra labour for a longer period to take care of the stored paddy). The climatic conditions can be harsh, and paddy is prone to be affected by insects, if not taken care of properly, which again inflicts heavy costs on the farmers. The uncertain market conditions (especially, the price of the paddy) can further harm their income prospects. In response to the question as to whom the farmers are selling the surplus paddy, first, they prudently narrated the nexus between the FCI/SGA authorities and the cartel of local traders due to which in the immediate post-harvest season, the FCI and SGAs knowingly show their reluctance to purchase the paddy from the farmers. Due to this informal understanding and reluctance, most of the farmers are forced to sell their surplus paddy to the local traders or in the open market below the MSP. For the year 2016-17, the MSP of paddy, as declared by the Central Government, is Rs. 1470 per quintal which is Rs. 60 higher than the previous year. But, the local traders (or the actors in the open market) are purchasing paddy at the rate of Rs. 900 to Rs. 1000 per quintal in the case of low quality of paddy (around 30 to 40 percent below the MSP) and Rs. 1200 to Rs. 1300 per quintal in the case of a fine variety of paddy (around 10 to 20 percent below the MSP) for this year. The farmers in the FGD said that they need early income after paddy harvest to carry on the next cropping (Rabi crops) which starts immediately after this, but due to the FCI and SGAs' negligence, they were forced to sell it to local traders on the prices below the MSP.

On the question as to why do they sell paddy and not rice, the farmers, showing their behavioural mathematics, described that husking of one quintal of paddy (on an average) fetches them 65-70 kilograms of rice (based on the quality of paddy), but the costs involved with it are labour cost, husking machines' cost, packaging cost, transportation cost and some other unaccounted costs like waiting costs (number of days). Even if, they manage to do it, there is a dearth of proper mechanism to sell the rice. Assume that farmers manage to sell the rice in the open market or in the Mandi. The price of rice, they get, would hardly pay for their cost of cultivation; for example, if one quintal of paddy (MSP=1470) is husked to rice, the farmers would get a maximum of 70 kilogrammes of rice (it includes whole rice, broken rice and bran rice). Let's assume that all the 70 kilogrammes of rice are sold at the prices Rs.18 or Rs.20 per kilogram in the open market; the farmers would get i.e. 70*18(20) = Rs.1260 (1400). It does mean that selling of rice is not a profitable business for the paddy farmers as one quintal of paddy, which may provide them Rs. 1470, if husked to rice and then sold, they would get Rs. 1400 (for 70 kilogrammes) and that may cause them a loss of, at least, Rs. 70. Also, one must not forget, farmers have to bear some husking costs, which they fail to get while selling rice instead of paddy. So, the farmers prefer to sell paddy in most of the cases than selling rice, but in the absence of procurement mechanism, farmers are forced into distress sale to the local traders.

Effects of Demonetization on Distress Prone Farmers
During the FGD, the farmers, on the one hand, were critical of the policy fatigue and unavailability of procurement system for paddy and other crops, and on the other, they described their apathy which the demonetization of high-value currency notes and inevitable cash crunch was bringing to them. The cash crunch has led the farmers to sell paddy at some promised future date of payment when the traders would have sufficient cash to pay back to these farmers. In such a situation, only the large farmers can take risks of selling their surplus paddy without being paid as they have certain other means of income, but relatively smaller farmers, who have lesser surplus to sell in the market and need instant payments to get into next cropping, are worst hit due to the demonetization scheme. These farmers with small surplus are selling their produce to those traders who can pay them on the spot, but the local traders taking benefit of that can press the existing lower selling prices of paddy to further lows because the bargaining power of the farmers (as they need money for day to day expenses and to cater to the next cropping) has been reduced due to cash crunch i.e. demonetization.

Final Remarks
So, the farmers at large are suffering in distress as their surplus paddy is not fetching the income that is expected (at least the MSP), due to the absence of procurement mechanisms from the Government agencies. The private parties, middlemen and local traders are eating up the hard labour of farmers by creating cartels, and further to that, the demonetization scheme has severely hit the income prospects of farmers. Demonetization has led to an unwanted delay in selling and no spot payment of the sold paddy. The price of paddy the farmers are getting is 30 to 40 percent below the MSP, which certainly is a distress sale.



[1] Census of India (2011). Available at www.census2011.co.in/data/village/195166-lasara-kalan-uttar-pradesh.htm.


The Author is Post-doctoral fellow at the International Centre for Development and Decent Work (ICDD), University of Kassel, Germany)


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