The Indian farmer today faces a variety of issues ill-timed rains, the labour necessary for the harvest migrating back, supply chain shocks leading to low realized prices and more. In today's post, we look at the impact of these on the financial position of the Indian farmer, the differential impact on various sectors, and the potential solutions that could alleviate a bit of the pain.
The problems that the Indian farmer currently faces
Unseasonal Rains - While droughts were the major bane for the Indian farmer for the longest time, this time around the problem has been unseasonal rains and hail. While rain disrupted as much as 20% of the harvest in certain areas in North India, hail storms in eight districts in Maharashtra hurt their fruit produce. Vegetables like potato which grow beneath the soil are impacted negatively by such an unseasonal rain, with agro-scientists believing that wheat, another major rabi crop will be relatively less affected.
Labour shortages - With a 21-day lockdown in India a lot of the folks that used to employed on farms during the harvest season are migrating back. This has led to an acute shortage in labour when it is needed most, with spikes in rates of up to 30%-50% when it is available. In areas around Punjab for example, the rates per acre have gone up from 1000 to 1300-1500, which while positive for the labourer hurt the farmer significantly, especially in times where there is increased uncertainty over the price their crop can fetch.
Supply chain instability- With a combination of labour shortfall in the mandis, and trucks not being given free passage, the price that farmers could get for their produce has come under pressure. A lot of the vegetables etc that are being harvested, face the dual problem of being hard to harvest, being hit first by the labour shortage, and then by the perishability of the produce, requiring these farmers to invest significant energy into harvesting this produce and then giving it away for a pittance. In certain areas things have becomes so grim, that they've had to use tomatoes as cattle fodder due to the lack of accessibility to the market. In a situation where the people in the country would be in need of good produce, this stands as a negative for both the farmer and the consumer.
The impact on their financials
This was supposed to be one of the good years for the Indian farmer until this began. The harvest was expected to be a bumper one, with a spike in production of as much as 45% in certain parts of the country. Unfortunately, the turn of events has ensured that the farmer might not be able to reap the benefit of the same.
Given that the Indian farmer lives cycle to cycle, depending on the income from one harvest cycle to either pay back the loan he had taken to buy the seed, fertilizer etc, or buy it directly for the Kharif season, and shocks to the farmer's cash flow adversely impact their ability to harvest in the next cycle.
The unseasonable rain/hail have destroyed a certain volume of their produce, the labour shortages has either stressed the farmer with more of their family members having to pitch in, or spike outflow to get the labour in high demand, and the supply chain instability has hurt the price they fetch. The three-pronged attack on their cash flows is a serious one and something that is likely to require external help to mitigate.
Mitigating factors
A few state governments have shown the path of reducing the pain in the system. Telangana, for example, agreed to buy the entire harvest of paddy and pulses at MSP (a total of 35000cr, with 25000cr for paddy). Chief Ministers and local governments can also give out explicit orders for uninterrupted power supply to ensure crops are watered in the last leg, and allow free passage of food trucks, to ensure that the farmers have a better shot at getting a fair price for their work. State governments are also providing Agri equipment in certain areas to help mitigate the impact of a labour shortage.
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About the Author: The post is written by Ganesh Nagarsekar. Ganesh is a graduate from IIM Calcutta and has worked with J.P. Morgan and Goldman Sachs, before founding GSN Invest.