Agriculture and income management

I have long thought that since farm incomes come as one time inflows after crop harvest, there are likely to be inherent problems associated with managing rural livelihood incomes. In the absence of effective mechanisms to manage these one time inflows, the farmers tend to squander away such these revenues in unproductive activities and are often left without adequate incomes for the remaining periods. This is surely an example of economically inefficient management of income flows.

Governments have sought to address this problem by focusing on generating multiple income streams through animal husbandry activities like cattle rearing and poultry, multi-cropping etc. However, there have been limited specific attempts at managing the one-time harvest revenue streams.

Recent happenings in the global financial markets are only the latest manifestation of the reality that human beings are not the "rational economic agents" that classical theories make out them to be. It is therefore natural that human beings find it much difficult to effectively manage a one-time income. One-time windfall incomes are therefore much more likely to be inefficiently utilized and even wasted (splurged), than a continuous stream of the same amount over a few months.

Now consider the context. Farmers (or anybody else) prefer a continuous and regular income stream, whereas they have a one-time actual cash inflow. Financial institutions have an expertise in taking in one-time deposits and repaying them in regular or periodic cashflow streams. Despite the fact that the recent record of the financial markets do not inspire much confidence, we clearly have an excellent fit in cashflow streams between farmers and banks.

Should local banks not be capitalizing on this potentially huge commercial opportunity? Self Help Groups and Farmers Groups can be excellent entry point agencies for service banks to leverage these one-time incomes. Instead of grandiose but wasteful and inefficient subsidies, shouldn't governments be tailoring financial instruments with adequate safeguards to manage this challenge?