Doubling Farmers' Income
Source: Flickr, World Fish

Since the 1960s, India’s food production has increased by 45 percent per person, allowing the country to become not only food self-sufficient but also a net food exporter. However, in many cases, farmers’ income has not grown alongside this increase in food output. In 2011-2012, more than one-fifth of rural farming households lived below the poverty line, according to an NSSO Consumption Expenditure Survey. During that same period, a farmer’s income was only 34 percent of the income of a non-agricultural worker - the same as it was in the 1980s. Given externals shocks and the losses possible in farming many people have turned away from farming as a vocation or an investment, which could have detrimental outcomes for the future of agriculture in India.

Realizing the need to address the issue of low farm incomes, Prime Minister Sh. Narendra Modi has set the goal to double farmers’ wages by the year 2023. A recent paper from the National Institution for Transforming India (NITI) looks at how this goal can best be achieved.   The author highlights several important points when looking at the issue of farm incomes, including what exactly is to be doubled (farm output, value added, or income earned through agricultural activities) and whether the aim is to double nominal or real income. He concludes that the government’s intention appears to be doubling the real income earned through agricultural activities. In order to achieve this, there will need to be annual income growth of 10.41 percent to 2023.

Within the agricultural sector, income growth can be achieved through four main channels:

1. Increase in agricultural productivity.  Due to high demand for land use for non-agricultural purposes, coupled with an already high share of arable land, further expansion of cultivated lands in India is likely not possible. Therefore agricultural output must increase by making already existing agricultural land more productive. However, productivity of all crops India with the exception of wheat, is below the global average, according to the NITI report; the report argues that this low productivity is due to a lack of irrigation and a lack of improved agricultural technologies. Increasing access to and use of both of these factors will be the most potent instrument with which to increase agricultural  productivity. According to the NITI report, if crop productivity and livestock productivity are maintained at their current growth rates (3.1 percent per year and 4.5 percent per year, respectively, between 2000-2014), this will mean a 27.5 percent increase in farm income over seven years.

2. Improved total factor productivity (TFP). TFP is the portion of agricultural output not explained by the amount of agricultural inputs used in production; it includes the effects of technological changes, increased skill, improved infrastructure, and more efficient input use. TFP directly contributes to cost savings and therefore to increased income. From 2004-2012, India’s agricultural sector has seen a 2.62 percent increase in TFP, and the NITI report concludes that TFP will likely continue to rise at this rate; this will mean an increase in farmers’ income of 26.3 percent by 2023. 

3. Increased cropping intensity. India has two major crop-growing seasons, which allows for two different crops per year to be cultivated on the same piece of land. If farmers use irrigation and new technologies such as short-growing crops, it is also possible to grow another crop cycle during the second half of the second season. However, more than 60 percent of the available arable land in India is not used this way. Since 2000, annual growth in cropping intensity has been 0.7 percentage points; the NITI report estimates that with that continued growth rate, cropping intensity will increase farmers’ income by 3.4 percent in seven years. The report also suggests that programs to increase access to and use of irrigation, such as Pradhan Mantri Krishi Sinchai Yojana, may play an important role in increasing cropping intensity.

4. Diversification toward high-value crops. Diversification to higher value crops (HVC) is another way to increase farmers’ wages. Staple crops like cereals, pulses, and seed oils account for 77 percent of the total area farmed in India but only for 41 percent of the total output of the crop sector. At the same time, the output of HVCs is substantially more productive, but HVCs account for just 19 percent of the total farmed area. This means that shifting just one hectare of land from staple crops to HVCs like fruits, vegetables, fiber, condiments, spices, and sugarcane could potentially increase gross returns by up to Rs. 1,01,608 per hectare. This would translate into a 5 percent increase in farmers’ income by 2023.

In addition, several sources of growth in farmers’ income exist outside the agricultural sector:

Shifting rural workers from farm to non-farm occupations. According to the NITI report, 64 percent of India’s rural workforce is involved in the agricultural sector, and agriculture contributes 39 percent of the total rural net domestic product. In addition, there is a large difference in productivity between farm and non-farm workers; in 2011-2012, per-worker productivity in the agricultural sector was around Rs. 62,235, compared to Rs. 1,171,587 in non-farm sectors. The author suggests that helping rural workers move into more productive off-farm industries can benefit not only those individuals but also people who remain as farmers by distributing the available farm income among fewer people. However, there are some barriers to moving rural workers to other industries, namely, skill and education levels and a lack of jobs in other industries in close proximity to rural areas.

Improving farmers’ terms of trade. Agricultural income depends on current price rates, not on fixed prices; since current prices can rise due to inflation, deflators must be used to determine the real price that farmers actually receive for their goods. The NITI report uses CPIAL (consumer price index for agricultural labor), which captures inflation in the goods and services in rural areas. If farm gate prices increase more than CPIAL, this leads to an increase in real income. However, in recent years, CPIAL increased significantly more than farm gate prices. To reverse this situation, the Government of India has attempted several market reforms to increase the price that farmers receive for their crops, including reducing middlemen, modernizing agricultural value chains, encouraging private sector engagement in the sector, and creating several on-line trading programs, such as e-NAM and the Unified Market Platform (UMP). The NITI report finds that when these latter programs were used in the state of Karnataka, real wholesale prices for ten commodities increased by 13 percent; this price increase translates to a 9.1 percent increase in farmers’ income.

The paper lays out three categories in which action can be taken to spur growth in farmers’ wages: development initiatives; technology generation and dissemination; and government policies and reforms. It recommends a focus on programs to make inputs like fertilizers, irrigation, and high-quality seeds more affordable and accessible. This will require both increased extension services and increased access to credit for farmers.

Access to and awareness of modern agricultural technologies also needs to be scaled up. Despite the plethora of technologies developed by National Agricultural Research Systems (NARS), farmers’ adoption of these technologies s in many states remains very low. The author recommends that India’s research organizations and state agricultural universities focus on developing farming system models and engage in bi-directional learning by drawing on the experience of innovative farmers.

Finally, support Farm Producers Organizations (FPOs) is needed to help farmers gain better bargaining power and terms of trade through collective action. Reform of state-level Agricultural Produce Market Committees (APMCs) could help liberalize markets, reduce the involvement of middle-men, and promote competition, paving the way for the entry of the private sector into the agricultural sector, further spurring competition and innovation.

The empirical evidence presented in the NITI report suggests that if growth in farmers’ income continues at the same rate as it has over the past 10-15 years, India can achieve a 75 percent increase in farmers’ income by 2023. In order to reach the doubling of income set forth in the Prime Minister’s target, growth must be accelerated by 33 percent across the board. While it will be a challenge to double farmers’ income within the next 10 years, the NITI report emphasizes that this target can be met through a well-coordinated effort between the Centre Government and the State and UT governments.

Photo credit:Flickr, World Fish