If Not The Farmers, Who Is Benefiting From The Increase In Food Prices In India?

Posted on October 16, 2015 in Society

By Vikramaditya Jhunjhunwala

In 1958, economist A.W. Phillips reported a relationship between inflation and unemployment by explaining that in industries where employment rates were high, workers had a greater leverage in the industry, and would, therefore, push for higher wages. To maintain the same profit margin the product prices would rise as well, which constitutes the phenomenon of inflation.

farmer-suicides in india

India, a predominantly agrarian country, has around 48.9% of its people dependent directly or indirectly upon agriculture, and the inflation in food prices is reported almost daily. In fact, historically speaking: from 1969 until 2013, the inflation rate in India has averaged a startling 7.7%. Given the high employment in the industry and the product price inflation, it would be safe to assume that in accordance with the theory presented by Phillips, the workers (in this case, the farmers) would be pocketing a larger income, and that recent food price rises would be rather beneficial to them. And yet, the condition of the average farmer remains alarming and shows little signs of improvement – a fact that is exemplified by the astonishing farmer suicide rates. According to the National Crime Records Bureau, a total of 31,176 cases of farmer suicides has taken place in the years of 2012, 2013, 2014. These numbers show that a farmer commits suicide every 50 minutes.

The reason for farmer suicides is usually financial trouble. Since the majority of farmers hail from extremely poor backgrounds, they are almost always landless and live on the small profit margins that they earn. Due to the pressure to pay the rent at times of low harvest, farmers often turn to local moneylenders who in turn charge interest rates that farmers are rarely able to pay back. This debt trap leads to severe mental distress and culminates in suicide.

The rise in food price, in India, has no effect on farmers as can be seen from the analyses of agriculture and suicide trends of the year 2012 when food prices increased almost continuously throughout the year (as can be seen below). Despite this, the number of suicides by farmers and farm labourers as reported by the National Crime Records Bureau changed only negligibly from 14,027 in 2011 to 13,754 in 2012.

india food inflation

So What Is The Cause For This Phenomenon?

The lack of benefits of food price inflation by the grass root farmer can be attributed to two main reasons: first, the route a farmer takes to put his harvest on shop shelves; second, the inflation in price of farm inputs.

A farmer’s produce reaches the open market through middlemen known as arhatiyas who buy the harvest at a fixed price. This way the benefits of price changes are actually shared by the middle agents instead of the farmers. Hence, at times of drought and famines, farmers earn substantially less despite the increase in food prices. This irregular income makes it difficult to pay the fixed rent of land that they work on.

Another reason as to why food inflation does not have the desired effect on farmers was reported by the National Council of Applied Economic Research (NCAER) when it pointed out that the inflation in the food industry not only impacts prices of farm products but also farm inputs. Thus, the marginal increase in income of the farmer due to the substantial increase in food price is countered by the increase in prices of the inputs to produce the food products.

The solution to these problems lie in creating sufficient storage facilities so that farmers can deal with periods of low productivity in a better way, as well as having a less populated distributor line in place so that farmers reap more of the benefits that they toil for.

Though encouraging efforts are being made by the Government through the National Horticulture Mission scheme to increase the storage spaces in order to help farmers preserve produce, and the Minimum Support Price (MSP) system that the government employs. This system mandates the government to purchase crops at the MSP when the price of the crop falls. It does control exploitation of farmers to a certain extent. However, one feels that far more drastic measures are needed. In fact, a 2013 report by Emerson Climate Technologies India stated that the estimated 6,300 cold storage facilities that India had at the time was only a mere half that India actually needs to optimise the use of its produce and claimed that the country was wasting fruits and vegetables worth Rs. 13,300 crore annually because of its lack of adequate cold storage facilities.

Another step that the Indian Government can take, along with increasing refrigerated storage facilities, is to allow big retailers like Walmart to be set up all over India. As of now farmers are compelled to sell their harvest to approved mandis that figure deep in the distributor chain along with other arhatiyas. Allowing these retailers to come and buy directly from farmers could lead to improved remuneration for the vast network of Indian farmers. Even though the condition of the 600 million farmers and farm workers of India looks bleak at the moment, simple measures like these can significantly alleviate their suffering.