The Age of Surplus

We have, indeed, entered a regime of “permanent surpluses” in most crops — a reality our policymakers are unable to grasp, stuck as they are in the era of the Essential Commodities Act.

Written by Harish Damodaran | Updated: June 12, 2018 2:42:34 pm

Farmers throw vegetables on a road during a protest at Bagha Purana in Moga district of Punjab on Friday. (PTI)

There is practically no agri-commodity today that isn’t a victim of “permanent surpluses”. (Representational Image/ PTI)

If there is one thing that has changed in Indian agriculture in recent times, it is supply response — the ability of farmers to increase production when prices go up. Traditionally, the supply curve in most crops was near vertical: No matter the price, the quantity harvested and sold remained virtually the same. Take pulses. Through the 1980s and till the 2000s, the country’s output averaged just over 13 million tonnes (mt), falling to 11-12 mt in droughts and short of 15 mt even in the best years.

In 2010-11, pulses production, for the first time, crossed not 15 mt, but 18 mt. Even in 2014-15 and 2015-16, both drought years, it stayed within 16-17 mt. And as farmers ramped up plantings in response to the high prices of 2015 and 2016, output soared to 23.13 mt in 2016-17 and 24.51 mt in 2017-18. The new crop year from July will open with more than four mt of domestically procured pulses stocks in government warehouses — something never seen before.

It isn’t only pulses. In the past, sugar production typically took two years to recover from a drought. But 2017-18 will see output rebound to a record 32 mt-plus, from a seven-year-low of 20.26 mt last season. Thus, the old “sugar cycle”, where three bumper years were followed by two lows, is dead. Now, we have only one-in-five bad years.

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The same goes for vegetables. Last year, after drought in Karnataka drove up onion prices from July — they went past Rs 30 per kg in Maharashtra’s Lasalgaon market by October — farmers sowed aggressively during the rabi winter season. The result: Average rates crashed to Rs 6-7 this April-May. Farmers did something similar when tomatoes scaled Rs 60-80/kg levels in Kolar (Karnataka) and Madanapalle (Andhra Pradesh) last July. Prices again plunged, to Rs 3-5/kg towards February, and haven’t really looked up even in peak summer this time.

So, what has happened to elicit such supply response?

Better seeds and faster diffusion of technology have made a difference. HD-2967, a blockbuster wheat variety released in 2011, could cover 10 million hectares area in a single season within five years. Along with HD-3086, a newer variety more resistant to yellow rust fungus, it has ensured that the Green Revolution’s yield gains haven’t plateaued yet: The average Punjab wheat farmer harvested 5.12 tonnes per hectare in 2017-18, as against 3.73 tonnes in 1990-91 and 2.24 tonnes in 1970-71. No less impactful has been Co-0238, a cane variety that not only yields more crop per hectare, but also more sugar from every tonne crushed. First planted in 2013-14, it now accounts for well over half of the cane area in North India, while singularly responsible for UP’s sugar output spiralling from 7.5 mt in 2012-13 to 12 mt this season.

But the story of yield increases isn’t limited to publicly-bred open-pollinated varieties (OPV). The 50 quintals/acre yields that farmers in Bihar’s Kosi-Seemanchal belt today realise from rabi corn is comparable to Midwest US levels. With planting of hybrids, as opposed to OPVs, paddy yields have gone up from 15 quintals to 25 quintals per acre even in the Adivasi areas of Jharkhand, Chhattisgarh and Odisha. Kolar farmers, likewise, grow three crops of tomato annually, while Maharashtra’s Jalgaon district would be the world’s seventh largest banana producer, were it a country. The technologies in all these — be it hybrid seeds, high-density cultivation using tissue-cultured plants, or drip irrigation — have been supplied by the likes of DuPont, Monsanto, Bayer, Syngenta and Jain Irrigation.

Advances in plant breeding and genetics aren’t the sole reason, though, for improved supply response from farmers. The Operation Flood programme helped boost India’s milk production from 22 mt in 1970-71 to 66.2 mt in 1995-96. Less appreciated is the subsequent jump — to 165.4 mt in 2016-17. That has come about as much from crossbreeding and more scientific dairying husbandry practices as investments in infrastructure — especially rural roads and electricity — which have enabled milk to be procured from the interiors and chilled at village collection centres.

In short, the farm supply curve has been flattened, both by better seed technology and improved roads, electricity, irrigation and communication infrastructure. Farmers are also more aware about prices and the latest hybrids/varieties, crop protection chemicals, machinery and agronomic practices — from laser levelling and raised-bed planting to seed treatment — than, say, 20 years ago. As a result, they take far less time to respond to high prices.

The flip side of a more elastic supply curve, however, is that it makes gluts commonplace and shortages temporary. We have, indeed, entered a regime of “permanent surpluses” in most crops — a reality our policymakers are unable to grasp, stuck as they are in the era of the Essential Commodities Act.

The moment prices now go up, the immediate reaction is to impose stock-holding limits, allow duty-free imports, restrict exports and inter-state movement of produce, and even let loose income tax sleuths on alleged hoarders. These so-called supply-side management measures have acquired legitimacy with the policy of “inflation targeting”, whose success — given the 45.86 per cent weight of food items in the consumer price index — rests disproportionately on reining in farm produce prices. And adding the impact of demonetisation on the predominantly cash-based produce trade — the liquidity crunch in rural areas is far from over — the Great Depression moment in Indian agriculture has truly arrived.

There is practically no agri-commodity today that isn’t a victim of “permanent surpluses”. Two years ago, garlic fetched an average Rs 60 per kg rate in Rajasthan’s Kota mandi. Enthused by it, farmers in the Hadoti region planted more area, only to see prices halve last May, thanks to demonetisation. This May, rates at Kota further halved to Rs 14/kg.

In July 1932, an Iowa farmer named Elmer Powers wrote about hog prices collapsing to a third of their levels five years ago — how it had reduced him to “resharpening old razor blades” and using “any kind of soap instead of shaving cream”. That was at the height of the Depression. Then, too, US farmers dumped truckloads of milk and cream on roads. It led to the Roosevelt administration passing the Agricultural Adjustment Act, whose chief goal was “restoring farm purchasing power”.

The time has probably come for a similar New Deal for the Indian farmer.

harish.damodaran@expressindia.com

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