A file photo of a wheat field in Punjab. (Prashanth Vishwanathan/Bloomberg)

Budget 2019: Farmers Of This Village In India’s Wheat Bowl Can’t Do Without Middlemen

India sets floor prices for about two-dozen crops but manages to support growers of only a few—like wheat, paddy and cotton, the ones the government buys in large quantities. That encourages farmers like Maqtool Singh to keep planting them. Getting the guaranteed price is not a certainty though.

Every year, Singh sows wheat and paddy on his 2-acre farm along the border with Pakistan in Sohal, about 30 kilometres west of Amritsar, Punjab. The 70-year-old sells his output to a middleman who charges a fee of about 1.5 percent to sell the produce to the government at the minimum support price.

But that’s not always the case. If moisture in the crop is below a certain level, the government doesn’t buy it. And the quality also depends on rains. Farmers like Singh are then forced to sell it to the agents or private parties at a much lower price.

A field in Sohal, 29 kilometres west of Amritsar along India’s border with Pakistan. (Source: BloombergQuint)

This uncertainty about getting the minimum rates comes as India battles a farm distress. Prices of everything from staples to cash crops have fallen, underscoring diminishing returns in agriculture. Prime Minister Narendra Modi promised to ensure at least 50 percent more than the production costs to farmers as he targets to double farm incomes by 2022. But reliance on monsoon and lack of irrigation have made agriculture, which employs more than half of India’s workforce, uncertain in Gujarat and West Bengal. In Punjab, India’s wheat bowl, as BloombergQuint found farmers depend on the arthiyas, as the middlemen are called, to sell their harvest.

“If a commission agent pays lower than the MSP, farmers should refuse to sell but they have no other alternative. They have to sell in the government-regulated markets,” MR Khurana, retired professor (Department of Economics), Panjab University, Chandigarh, said. “The government has fixed a lot of quality norms and if the crop doesn’t meet those, farmers have to sell it to agents at a lower price. There is a need for introducing other crops. It’s the MSP that lures the farmers in Punjab to cultivate wheat and paddy.”

Dharmaim Singh, 20, another farmer from Sohal, acknowledged that. They don’t grow vegetables as returns are even lower because commission agents procure them at rock-bottom rates in the absence of a support price, he said. “When the government doesn’t ensure optimum price on other crops, why should we grow them?”

Middlemen are not unique to Punjab. They are ubiquitous across India as each state regulates its own farm market and auctions. To be sure, the central government has launched an electronic national agricultural market and linked Agriculture Produce Market Committees of 16 states and 2 union territories, according to a reply to a query in Rajya Sabha earlier this month. Still, farmers are yet to benefit from it, at least in Punjab.

The minimum support price for wheat for 2017-18 was Rs 1,735 a quintal. It was Rs 1,550 and Rs 1,590 a quintal for paddy common and grade A varieties, respectively.

Arthiyas take 1.5 percent fee to buy the produce, Avtar Singh, 66, who has a 5-acre field in the border village, said. “We don’t have any option because they are the ones who sell it to the government or private agencies.”

The commission agent said he charges a fee for storing the crops. “And we buy the produce from the farmer at the rate set by the government,” Prem Singh told BloombergQuint.

There’s another reason why farmers can’t dump the middlemen—they also double as moneylenders. If someone falls ill in a farmer’s family, his resources are inadequate, Khurana said. “In that case, he will borrow from a commission agent because public-sector banks won’t fund healthcare activities. If he needs money to marry his son or daughter, he will approach the middlemen because he doesn’t have any other alternative.”

According to Avtar Singh, villagers also take loans from them when they default at banks. “A commission agent charges a higher rate, adding to the burden of a farmer.”

Prem Singh said he charges 1.5 percent a month, which can’t be called usurious lending. “I have been an agent for two years. Five to seven farmers of this village have taken loans from me worth Rs 15 lakh,” he said. “They repay when the produce reaches the mandi. And not in full; about Rs 2-4 lakh is still stuck.”

A field in Sohal, 29 kilometres west of Amritsar along India’s border with Pakistan. (Source: BloombergQuint)

Not Enough

Farm debt has turned into a crisis for Indian agriculture, with governments responding by waiving loans. At least 10 states, including Punjab, have pardoned farm loans worth Rs 1.7 lakh of small and marginal farmers in a little less than two years.

Farmers invariably find themselves under debt because incomes are falling as prices haven’t kept pace with rising input costs. A global commodity crash only amplified the distress.

Dharmaim Singh, who has a 2.5-acre farm, earns around Rs 70,000-80,000 a year by growing wheat and paddy. The cost of production, according to him, is almost Rs 20,000 an acre—that includes sowing, diesel, fertiliser and pesticide costs.

“It’s difficult to run a household with this income, so we have purchased cattle for selling milk as an additional income which fetches us Rs 1,000 a month,” he said. “There are six members in our family. We took a loan of Rs 2.5 lakh from a cooperative bank and repaid it with great difficulty.”

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