Thursday, May 23, 2019

How can farm incomes be increased?

In the context of the government's professed objective to double farm incomes in five years, it is worth examining what could be potential pathways to realising it. 

The conventional wisdom on the pathway to increasing farm incomes is two-fold. One, squeeze more out of the farm plot, either by increasing productivity or by crop-diversification. Two, disintermediate the value chain from the farm-gate to the buyers to eliminate the brokers, thereby increasing the value captured by the farmers. 

The first one has been the objective since independence and realisation of significant gains is easier said than done. The challenges to be surmounted are too many to realise significant gains in this regard in the foreseeable future. Interestingly with the second, as the coffee example illustrates, the gains to be had by elimination of brokers may not be as high as being imagined. There are compelling reasons to believe that the narrative of brokers fleecing farmers and capturing a major share of their income as rents is dated. In fact, the average gain to the farmers from such disintermediation is likely to be no more than in single digits. In fact, in terms of value capture, if there are any significant gains, it is likely to come only from the upstream disintermediation (from the wholesale buyers to retailers or processors). But this is much harder and even unrealistic to be thinking of capturing. 

There is another less discussed pathway to increase farm incomes. Consider the current scenario. A large share of the farm produce is wasted in various forms including rotting and rejections due to not meeting the relevant standards. Further, in the absence of adequate storage as well as poorly informed harvesting and post-harvest practices, farmers cannot hold back their produce and are forced into selling it in immediately on harvest when prices are likely at their lowest. 

While I have not come across any study that quantify the aggregate loss to the farmers from this, I am inclined to believe that this is likely to be very significant. In the circumstances, measures that can minimise wastage and increase the local holding capacity of farmers so as to stagger supply release can be an area of engagement to increase farm incomes. In many respects, this may perhaps be the most promising medium-term intervention to increase farm incomes.

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