Saturday, April 25, 2015

Agrarian woes; is there a solution?

In the manufacturing business, any product usually goes through a life cycle. But how does the entire process really start? It starts with finding out a certain possible need of the customer, who could be an individual or an industry or even Government. The next step is the research and development stage, where the product goes through a complete evolutionary process till it is completely tested under every possible condition ( environmental, thermal, mechanical etc.) till targeted customer finds it entirely satisfactory.

The next stage is set up a manufacturing plant and calculate the costs to decide upon selling price. Every manufacturer faces a dilemma here. If the selling price is too high, he may not get enough customers and if it is low, he may incur losses. Once all this is resolved, the manufacturer starts the manufacture and selling of the product. However, it is not a smooth sailing even then, because every product has a life cycle. No manufactured product sells forever, unless it is selling in a highly controlled economy like that of India in 1960's to 1980's. Things change, customer choices, preferences, better and modern technologies become available. These are some of the things that may drive a product to end of it's life. Even the demand or the need for the product itself may disappear, ringing the death knell for a product. Another factor also may bring a product of a particular manufacturer to its end. This happens when there is a wide spread and too big a demand for the product from ignorant customers. Looking at the large market demand, unhealthy competition invariably kicks in. This results in selling price of the product drooping to such ridiculously low levels that no legitimate manufacture can afford to manufacture the product, unless he has a great brand name, which would allow him to charge his price for the product.

Let me elucidate this process with a product that once was a necessity. During 1960's to about 1990's, India's power generation and distribution systems were hopelessly inadequate. Power supply companies could not maintain and supply power with constant electrical voltage. This caused burn outs or brown outs of TV's, refrigerators and pumps. Sensing a need of a correcting device, manufacturers across the country introduced an automatic voltage corrector or a stabilizer. Since this prevented the burn outs and helped working of electrical gadgets, they became instantly popular. I have seen in Delhi's Chandani Chowk electrical market, hundreds of brands selling essentially the same product at cut throat prices with very low quality.

After 1990's, power supply situation in the country, gradually improved. In addition, most of the manufacturers of electrical gadgets improved their designs so that the gadgets could stand wide voltage fluctuations. It would have been clear to any manufacturer of voltage stabilizers then that the product was nearing the end of its life cycle. Prudent manufacturers, after seeing the gross margins, their stabilizers could fetch from the customers, immediately decided to call quits and got out of the market.

There are some products that are always needed, e.g ceiling fans. Here too, even though the basic product demand is there, customer preferences have changed, People want more decorative fans with lamp fittings, remote controls etc. To adopt to new preferences, manufacturers have to launch new products continuously and junk the old products. There would always be some manufacturers, who simply can not make this change due to many constraints. They have no choice but to give up the product line altogether.

We might conclude that this is the normal life cycle for any produced product, and the product life would be over some time or other, even when need is still there. If a manufacturer finds that his factory is making losses, he may as well close down the factory and shift to some other business. No one finds anything wrong with that.

In the national economy of a nation, there are always three activities that add to its gross domestic product, Agriculture, Industry and services. The latter two have to adopt to economic compulsions that I have outlined above, if an industry closes or gets merged or some services disappear altogether, no one gives a second thought to it.

Why is it then that in case of agriculture, even when the farmer is getting trapped in more and more debt, because his economic activity simply is not profitable, we assume that there is something wrong with the system and the poor farmer should be given all kinds of sops like loan waivers and subsidies so that he can continue with his uneconomic activities exactly in the same way as in the past and drive himself more and more in debt. This problem is not a trivial one and needs serious thinking. As per latest data, a farm household needs to have at least 1 hectare of land to make ends meet every month. Unfortunately, over 65 per cent of farmer households in India have less than one hectare of land, this means that two out of three farm households are simply not able to make ends meet and go into debt successively every year. Over half of all agricultural households are indebted, and these are not small debts; the average loan amount outstanding for a farm household in India today is Rs. 47,000.

The latest data released by National Sample Survey Office’s new survey of India’s agricultural households says that the average farm household makes Rs 6,426 per month. Out of this farming income is just Rs 4,000 per month. We can well imagine that with this kind of income, how anyone can repay his debts?

This basic paradox is well reflected in GDP data too. In year 1950-51, the share of agricultural products/Agriculture and Allied Sectors in Gross Domestic Product of India was 51.9 per cent. This came down to 13.7 per cent in 2012-13. This data by itself does not show any anomaly as similar trends are seen in many other countries. But the problem shows up when we consider this with the manpower involved in agriculture, which has only marginally declined.

It should not come as great surprise that poor desperate farmers running in debt, which is never ending, find an easier way out; that of committing suicides. Just in state of Maharashtra, there have been 10,000 recorded farm suicides between 2011 and 2013. According to figures from the Ministry of Agriculture, the total of number of suicides committed by farmers for agrarian reasons in the last three years, stands at 3313. The five States — Maharashtra, Telangana, Karnataka, Andhra Pradesh and Kerala, which have maximum marginal farmers, accounted for 3301 of them.

To survive in any economic activity (farming is one of it), it is necessary to ensure that the activity continues making profist  even with given economic compulsions. Unfortunately, farmers due to their ignorance or whatever reasons, seem to ignore this basic fact and are paying heavy price; sometimes even with their lives. Successive Governments have done nothing to solve the basic problem and have only tried the subsidies or financial help route. Unless marginal farming is augmented with other incomes, our farmers would always remain victims of vagaries of nature and stonewalling because of their economic compulsions.

25th April 2015

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