IGC’s look at COVID-19’s economic influence in developing countries continued with an event focused on India, where the pandemic reveals the increasing vulnerabilities of smallholder farmers and an agricultural market badly in need of reform.
Nearly 90% of India’s agricultural sector is made up of small and marginal farmers. These farmers are particularly vulnerable to economic shocks, include those sparked by COVID-19 lockdowns. In August 2020, IGC collaborated with the Asian Development Research Institute (ADRI) to convene a panel to discuss three key influences that COVID-19 has had on India’s agricultural markets:
- Differential impacts on staple versus perishable foods
- Disrupting labour supply chains
- Ongoing consequences of ineffective social safety nets
The discussion, moderated by Anjani Kumar (International Food Policy Research Institute), featured J. V. Meenakshi (Delhi School of Economics), S. Mahendra Dev (Indira Gandhi Institute of Development Research), and N. Saravana Kumar (Secretary, Agriculture Department, Government of Bihar). All panelists offered policy recommendations that might help repair the sector and ensure resiliency for farmers.
Staple versus perishable foods: The impact of government reforms
Reflecting on India’s March 2020 nationwide lockdown, J. V. Meenakshi presented her research focussed on the the differential impact on staple food crops and perishable produce in Haryana, Madhya Pradesh, Punjab, Rajasthan, and Uttar Pradesh. This research assessed if states that had undertaken a greater degree of market reforms were better able to protect farmers from disruptions and how well procurement and agricultural market reform mitigated the lockdown’s adverse impacts .
The results show that the adoption of market reforms matters much more for the perishables than for staples. This is because the Minimum Support Price (MSP) for wheat acts as a price anchor. The results suggest that states that de-listed fruits and vegetables were able to prevent a decrease in prices by over 10 percentage points. Market arrivals affect price effects, and it was seen that perishables saw relatively more sales where markets were deregulated. This highlights the importance of the government’s role both in procurement and market reforms.
Supply chain and labour disruptions: Consequences for harvesting
Saravana Kumar echoed the thought that the COVID-19-related lockdown exacerbated the vulnerabilities of small and marginal farmers by disrupting agricultural inputs and outputs and the harvesting of rabi crops, which are cultivated and harvested in the dry months.
According to Kumar, farmers in Bihar found their movements restricted and faced a shortage of labourers, including farm workers and operators for harvest machinery. When the government lifted the ban on the movement of farm workers, 650 drivers had to be mobilised from Punjab, Haryana, and western Uttar Pradesh to support the harvest in Bihar.
Kumar emphasised the possibility of nimble reform. For example, numerous efforts made by the Government of India (GOI) and the Government of Bihar (GOB) to strengthen the agriculture supply chain during this time include improving income through payments of INR 6,000 to every farmer, approving new subsidy and assistance schemes, promoting Farmer Producer Organisations (FPOs), and addressing pressures beyond the pandemic, such as climate change.
Safety nets: Influencing farmers’ socioeconomic well-being
Discussing the impact of COVID-19 and associated lockdowns on agriculture using available data, Mahendra Dev stated that smallholder farmers are not homogeneous. Rather they boast a diverse set of farm and household characteristics and their practises can vary according to the constraints they face. Still, Dev shared that the income of small farmers is very little—almost one-tenth of large farmers.
While early evidence suggested that the rural economy is reviving more quickly than in urban areas—where the agriculture sector’s growth rate may be 2.3-3% – severe consequences remain for some. Perishable agri-products incurred severe losses as compared to non-perishables. As per data collected by Azim Premji University, 37% of the farmers were unable to harvest, 37% of the harvest was sold at reduced prices, and 77% of the households surveyed consumed less food during the nationwide lockdown. Dev also shared that as per the CMIE Data, the rural unemployment is 22%. He added that even the Consumer Price Index (CPI) and the Wholesale Price Index (WPI) declined which means that farmers are not getting the benefit of the higher prices being paid by consumers. He opines that the government should increase investment in rural infrastructure, storage, and warehouses.
In the post-COVID-19 period, Dev notes, the government should provide a minimum income for the poor and vulnerable groups. He also emphasised the issue of access to credit during the pandemic. As the COVID-19 situation worsened, farmers faced a cash crunch due to the lockdown and closure of microfinance institutions and impact of the new reforms on small-holder farmers is yet to be seen particularly the Essential Commodities Act, AMPC Act, and Contract Farming act with respect to addressing price volatility, centre-state coordination, contract farming, and taxes in APMC and non-APMC traded areas. He also added that the network of illegal moneylenders spread across the eastern states of India has become more active, and the dependence on moneylenders increased during the lockdown.
Key steps for reforming India’s agricultural market
The COVID-19 crisis has exposed the vulnerability of India’s agriculture and food markets. Both demand and supply shocks emphasise the need for reforms to connect farmers to markets, ensure adequate labour supplies, and create safety nets to make them more resilient.
While supply chain and workforce vulnerabilities hurt farming of all scales and forms in India, the most affected have been dairy farming, floriculture, fruit production, fisheries, and poultry farming. There is a need for agricultural market reforms, safety nets to ensure reasonable working conditions, and to decentralise food systems to make them more resilient. The government should provide specific protections for those most affected. Strengthening social protection schemes shouldinclude encouraging farmers to join farmer producer organisations (FPOs), providing them easy access to credit, and and investing in capacity building and guidance on digital and direct marketing solutions. Encouraging agri-tech start-ups to work with FPOs and smallholders and ensuring transparent rules of the game could help improve both input and output supply chains.