Farmer suicides in India: a policy-induced disaster

Farmer suicides in India: a policy-induced disaster

 

23 January, 2012. A World to Win News Service.  Sanhati, an Indian online magazine, has written and published a major report on the farmer suicides that have reached epic proportions in that country. The full article, about twice as long as this version, with charts, graphs and maps, can be found at sanhati.com (15 January issue). The article exposes the choke-hold of the multinational corporations and the impact of neoliberal trade policies on small farmers in India.  

Some background: With the fall of the Soviet Union 1990s, the US was able to accelerate the breaking down of barriers to globalised investment, exploitation and trade. One of the biggest changes came in India, once financially as well as politically dominated by the USSR (where socialism had been overthrown in the 1950s and replaced with a form of capitalism in the guise of state ownership).

 

Indian agricultural production became even more deeply integrated into the workings of the global imperialist market. The U.S., the World Bank, and the IMF pressured India  to privatize many of its state-owned enterprises, cut subsidies to small farmers, and integrate its economy, including agriculture, more closely into the Western imperialist-dominated global capitalist order.

 

A predominantly agrarian society, 70 percent of Indian's population (800 million people) live in rural areas. Food formerly produced for domestic consumption gave way to cash crops for the global market. Today India is now the second largest producer of cotton in the world. Mass farmer suicides were unknown in India before the 1990s.

 

More than 253,000 farmers have been reported to have committed suicide between 1995 and 2010; the actual number is likely to be higher because of deficiencies in reporting. Four states account for about two-thirds of these suicides: Maharashtra, Madhya Pradesh (including Chhattisgarh), Karnataka and Andhra Pradesh. Another four account for a fifth of all the suicides: West Bengal, Kerala, Tamil Nadu and Uttar Pradesh.

 

The evidence regarding the ratio of suicide mortality rate for farmers and non-farmers across Indian states clearly establishes that the spate of farmer suicides can neither be considered a temporary phenomenon, nor can it be considered part of the "ordinary" suicide deaths in the country.

 

Here are two cases studies cotton in Vidarbha (Maharashtra), and coffee in Wayanad (Kerala) that provide details about the factors at work. The conclusion that emerges is the following: farmer suicides are a straightforward case of a policy-induced disaster. Policy changes under a neoliberal dispensation (starting early to mid-1980s) lead to the phenomenon of farmer suicides via the route of acute agrarian distress.

 

What is leading such a large number of farmers to commit suicides? The simple answer is: agrarian distress caused by large, mounting and unsustainable levels of indebtedness. Their incomes are systematically falling below their expenditures.
Income from agricultural production had been dwindling because revenues have stagnated (or falling) due to a complex set of factors while costs of agricultural production have gone up.

First: yield (i.e., crop output per unit of land) growth of most crops have stagnated. This is the direct result of the increasing pressure on cultivable land: the total area under cultivation has declined while the number of operational holdings have increased. Between 1960-61 and 2003, the total number of operational holdings increased from 50.77 million to 101.27 million. During the same period, the total operated area declined from 133.46 million hectares to 107.65 million hectares. Thus average operated area declined from 2.63 hectares to 1.06 hectares. (NSSO, Some Aspects of Operational Land Holdings in India, various issues)

 

On top of this is the fragmentation of each holding into multiple plots. Thus, the declining size of operational holdings, along with continued fragmentation, has meant smaller production units in terms of land area. This constrains the ability to use improved technologies of production, and has been one of the main reasons behind the stagnation of yield growth.

 

Second: due to the neoliberal policy orientation and the neglect of the rural sector, agricultural research and extension services have virtually disappeared from the country; thus new and better crop varieties have not reached the farmer. Along with this, irrigation (surface water) infrastructure has been neglected, and soil improvement and management efforts have been drastically curtailed. Compounding this has been the excessive use of fertilizers in several areas of the country that saw the so-called Green Revolution. All this has led to degradation in the quality of the soil, and contributed to the stagnation of crop yield growth.

 

Third: gradually doing away with import restrictions has meant a flood of low price agricultural imports (the low prices from US and European countries being supported by massive subsidies in those countries). By a perverse turn of policy, the minimum support price (MSP) for many crops have been kept below market prices. Both these factors have put downward pressure on crop prices, especially for smaller farmers who lack storage and transportation facilities (and have to sell to the local trader right after harvest).

 

Enter export restrictions and multinational corporations

 

One of the main reasons behind the rising costs of cultivation over the past two decades is the gradual change in crop patterns that have been directly and indirectly induced by policy changes. The lifting of export restrictions and the entry of multinational corporations have encouraged farmers to shift from traditional crops (like rice, wheat, pulses, etc.) to cash crops like cotton, potato, tomato, etc.

 

Cotton is the quintessential crop that lies entwined with the wave of farmer suicides. Production of cotton requires large capital outlays, large in comparison to typical earnings of farmer households. Seeds need to be bought from the market every year (because of restrictions put in place by the multinational corporations [MNCs] selling the seeds); large quantities of fertilizers and pesticides are also needed (whose prices are increasing because of reduction of subsidies). Cotton cultivation (like most other cash crops) is very water intensive. Since, during this same period, provision of irrigation was being systematically reduced, farmers had to make investments in bore well (tube well) technology to secure the supply of ground water. This involved substantial outlays, a sum often far beyond the reach of the average farmer. Taken together, these factors implied increasing costs of cotton cultivation.

 

Frequently, these costs (especially the large outlays required for tube wells or even the buying of seeds, fertilizer and pesticides that was part of the cotton cultivation package) could only be met with credit. The credit was provided by the same agency (often a branch of some MNC like Monsanto) that sold the seeds, the fertilizer and the pesticide, along with the knowledge that was required to carry out the cultivation. With such interlinked markets, there was a serious conflict of interest in the sense that the agency would almost always "advise" farmers to use much more than the optimal quantity of inputs.

 

The same neoliberal policy framework that reduced subsidies on fertilizer and diesel (and petrol), let the irrigation infrastructure gradually go to the dogs, opened up the import and export of agricultural crops, increased the cost of electricity, also reduced the rural component of development expenditures. Also the share of expenditures devoted to the agricultural sector fell from 13.1 percent to 7.4 percent during the same period.

 

Taken these factors together, you can see how vulnerable to shocks the poor farmer households became. If there was a medical emergency in the household or if there was an important life event (birth, marriage, death) or if there was a crop failure due to weather shocks or growth of pests, the household had to per force incur debt. This debt is in addition to the debt that the farmer would already have incurred if he/she had decided to move into the cultivation of cash crops like cotton. But where could the farmers turn to for credit at such times?

 

Dwindling institutional credit

 

After nationalization of the banking system in 1969, there was an impressive expansion of credit to the agricultural sector. The share of agricultural credit in total bank lending nearly doubled from around 10 percent in the mid-1970s to about 18 percent in the late 1980s. Financial liberalization, an important part of the neoliberal policy regime, reversed this trend. The share of agricultural credit in total bank lending declined from the peak of 18 percent in the late 1980s to about 11 percent in 2005. The decline has continued since then.

 

Financial sector reforms also struck down the policy of branch expansion to rural areas in the mid-1990s. The result has been that rural branches of commercial banks has declined from 51.2 percent in March 1996 to 45.7 percent in March 2005. Data also shows that the share of agricultural credit cornered by farm sizes of more than 5 acres has increased.

 

With institutional sources of credit drying up as a direct result of policy changes, farmer households, especially small and marginal farmer households, were pushed into the lap of the new breed of moneylenders, including the so-called micro-finance institutions (MFIs). Interest rates charged by these sources were very high if not outright usurious. Thus, debt-service payments became an important, and increasingly large, component of monthly household expenditures. With mounting debt came the pressure of monthly payments. And, if for some reason cash flow problems emerged (for instance, due to a crop failure), it increased the stress on the household enormously. In extreme cases, it led to loss of face, despair and suicide.

 

The adoption of the neoliberal model of capitalism by the ruling elite in India since the early 1990s has led to distinct aggregate-level institutional and policy changes related to public investment, input subsidies, organized credit and external trade; these policy changes have negatively impacted on the incomes of small and marginal farmers while their essential expenditures have continued increasing. Stagnant incomes and rising expenditures have led to pressures of mounting debt, creating acute distress that often lead to the extreme step of suicide.

 

Incidences of what we might call "cotton suicide" have been a pan-Indian phenomenon. From Punjab in the north to Karnataka and Andhra Pradesh in the south, cotton deaths cover broad swathes of land cutting across the heart of rural India. The state that was most severely affected by cotton suicides is Maharashtra. In particular, the eastern part of the state, the Vidarbha region, has the dubious distinction of being the farmer suicide capital of India.

 

Cotton crisis in Vidarbha

 

Vidarbha grows many crops such as jowar, tur, and soya bean, other than cotton. But it is the cotton farmers on whom the spate of suicides has been taking the heaviest toll. From different reports and studies, as we have indicated in the first part of this article, it appears that the reasons behind the agrarian crisis are systemic in nature. The crisis is a result of policy decisions which have blown away the protective covers for farmers in particular small and poor cotton farmers against highly subsidised imports and unscrupulous traders.

 

Maharashtra had a programme for procurement of cotton since 1972-73. The purpose of the Monopoly Cotton Procurement Scheme (MCPS) was to ensure a stable price to farmers. However, with liberalisation and opening of trade, operation of the MCPS was curtailed. It is true that the Maharashtra government was incurring high losses due to these operations. Serious problems had emerged in the form of middlemen between the farmers and MCPS who appropriated parts of the subsidy that should have gone to farmers. But the losses of the MCPS seem to be a function of other policies as well, which depressed the open market price and inflated the subsidy bill, rather than the inefficiency of farmers. The minimum support price was below the cost of production!

 

The sharp drop in procurement prices announced by the Maharashtra Government fell from Rs. 2500 a quintal (1 quintal = 100 kilos) in 2003-04 to Rs. (1 rupee = .019 USD) in 2004-05. Hence it is clear that this error at the level of policy, which slashed procurement prices even as cost of cultivation (and hence open market price) went up, spurred the crisis. A Planning Commission report tellingly notes that "the immediate trigger of present distress was the sudden shock faced by the farmers due to the withdrawal of monopoly procurement which had been in vogue for over the past two decades."

 

Trade policies

 

It is widely believed in policy circles that with the dismantling of trade barriers, competition takes place on a level playing field where no one has an undue advantage. The most efficient producer wins, ultimately benefiting consumers. Based on this laudable premise and trade theories based on invalid assumptions, India started to do away with trade restrictions. Quantitative restrictions on imports were removed, and import tariffs were drastically reduced.

 

But instead of giving equal opportunity to all farmers of the world, this policy move dealt a heavy blow to the cotton farmers in Maharashtra. The huge subsidies provided to US and European farmers enables them to sell their agricultural products at a price below the cost of production, thus undercutting farmers in India (and other parts of the third world). The average subsidy per hectare in the OECD countries is about four times the subsidy that an Indian farmer gets. According to a recent study, during the period 1998-2003, the export price of US cotton was less than half the cost of production. No wonder the level playing field is a little too steeply inclined!

 

Added to the element of subsidy were other important factors which spoiled the pitch for Indian, and in particular Vidarbha cotton farmers. First, compared to average global yields (i.e., output per unit of land), cotton yield in India is not impressive. China's yield is nearly thrice that of India's. Second, within India, Maharashtra is a rather low-yield state, although it has the highest area under cotton cultivation. Cost per unit is also relatively high in Maharashtra, which means profit per unit is substantially lower. Thus, when subsidised cotton from US and Europe flowed into the domestic economy and depressed cotton prices, this had a particularly devastating effect on the cotton farmers of Maharashtra. Vidarbha was most severely hit because its biggest cash crop is cotton.

 

Harvest failure

 

2004-05 was a particularly bad year for Amravati division in Maharashtra due to deficient monsoon rains in a number of districts. This meant that a part of the cotton crop withered in the fields. But the record harvest of cotton at the national level pushed down the overall price. Squeezed by the low price and low output, many farmers went into debt. They could have recovered, had the next year been any good. However, when procurement price plummeted the next year and procurement volumes were drastically cut, farmers were pushed to the wall. For many farmers, suicide turned out to be the last rational decision in the face of constant harassment by local money lenders and cooperative bank agents.

 

While a deficient monsoon is certainly bad for farmers, the overall impact of rainfall deficiency in Vidarbha was so disastrous because it was magnified several fold by a host of other factors. These magnification factors were (a) the widespread adoption of Bt cotton (a  [genetically-engineered] variety made by the giant US chemical company Monsanto), (b) the contraction of organized credit, and (c) the lack of irrigation facilities.

 

Bt Cotton seeds are arguably superior in that they have a far higher yield (12 quintals per hectare) compared to the desi [Indian] variety (7 quintals per hectare). But the cost of the seed is three times higher for Bt than desi. There are additional concerns that the multinational corporations are making supernormal profits from this.

 

In Maharashtra, most cotton farms are entirely dependent on rainfall, with only 2 percent to 3 percent being irrigated. Hence, when the monsoon failed, Bt cotton crop became particularly vulnerable. It is to be noted that besides irrigation, Bt cotton requires a regular supply of other inputs, such as pesticides, and fertilisers. In short, although Bt cotton gives a higher ratio of revenue and cost, the cost per hectare is much higher than the desi [Indian] variety. The substantially higher cost of production required large amounts (i.e., large as a ratio of average farm incomes) of borrowing, thereby increasing vulnerability and leading to suicides when the crop failed.

 

Organised credit

 

These farmers who commit suicide had substantially higher debt obligations to  moneylenders. The rate of interest on such unorganized loans is significantly higher, ranging between 25 percent  to 50 percent for a period of four to six months.

 

Not enough organised credit is reaching the farmers of this region. Many cooperative banks have become dysfunctional because the number of defaulters have grown in the face of crisis. Contraction of organized credit interacted with commercialization of seeds to give birth to a new breed of moneylenders: input traders (i.e., traders who sold seeds, pesticides, fertilisers, and other inputs for agricultural production). Since interlinking of credit, input and output markets is a well known territory of exploitation in developing countries, the whole mechanism kicked in. Furthermore, due to dearth of extension services provided by the government, it is the traders on whom farmers depended for counselling, leading to a serious conflict of interest, and resulting in the purchase of unreliable seeds and inputs.

 

Vidarbha receives little state expenditure in irrigation. The dearth of irrigation facilities has compounded the crisis in cotton as uninformed farmers adopted expensive Bt cotton seeds which do not do well in erratic rainfed conditions. 

 

Behind the series of dry statistics presented here are the loss of lives and livelihood of farmers, caused by a pervasive crisis in agriculture. The destruction of agricultural livelihood has a chain reaction on other facets of the local economy. Local business, trade and commerce, the schooling of children, the local manufacturing sector, etc. get severely hit. The interesting, and infuriating, part of it all is that much of this tribulation was neither inevitable nor accidental. These are the direct results of policies as we have argued throughout this article. The total number of suicides in Maharashtra has declined from their level of mid-2000s of more than to 4,000 per year. But even the current number of suicides is quite high. In 2010, 3,141 farmers committed suicide in Maharashtra. That is more than eight persons per day. Hardly a cause for celebration!   

 

Case study 2: Crisis in coffee in Wayanad

 

In 2004-05, around 150 farmers in the prosperous north-eastern Kerala district of Wayanad committed suicide. Numerically, this is not significantly large compared to the Vidarbha suicides. But analysing the case is useful because it throws up interesting common patterns across regions and crops. Here, we will briefly present some characteristic features  underpinning the mass human tragedy in Wayanad.

 

In Wayanad district of Kerala, coffee farming accounts for 70,000 hectares of land, and employs 60,000 small growers. In 2006, the price of coffee crashed to Rs. 24 a kilo from a level of more than Rs. 130 a kilo a few years earlier. The price of raw cherry [beans] declined from Rs. 70-Rs. 80 to Rs. 15-Rs. 16 a kilo. As P. Sainath reports, coffee growers of Wayanad lost nearly Rs. 800 crores within a brief span of four years. This does not however mean that the price of processed coffee has also crashed. Martin Khor of the Thi! rd World Network notes that in "992 producer countries earned $10 billion from a global market worth around $30 billion. In 2002, they made less than $6 billion in a market that had doubled in size."

 

What stands between, on the one hand, the prosperity of the global coffee market and, on the other, the misery of its growers is a thick layer of cartels and monopoly trading houses. The third world countries which produce coffee are given a raw deal by multinational companies. Market power at both ends allow the MNCs to sell the final product at a high price while pushing the price at which they buy from the third world growers to phenomenally low levels. Moreover, there is the added element of playing one third world country against another when they face labour resistance in one country. Sainath reports,

 

"Wayanad briefly saw a great rise in prices in the late 1990s when frost hit the Brazilian crop. 'And also because,' says a senior Government official who has tracked exports for two decades, 'of sheer rigging. Four major companies dominate the world market. When faced with a workers' strike in Brazil, they hike prices for Kerala coffee. So there's a boom. When the crushed Brazilians return to the fields, the companies pull the plug on us. Now they have two major, cheap sources.'"

 

Why can local producers not process their high-quality produce and sell it in the market? After all, the high priced branded coffees that dominate the market are much inferior in quality compared to the local product. Apparently then, the bulk coffee buyers close ranks to exercise monopoly power. In short, growers face boycott from the buyers (firms in the coffee processing industry) if they try to directly sell in the market.

 

As in other cases of agrarian crises, Wayanad's local economy got disarrayed in the wake of the price crash. Shops and cinema theatres have closed, trade and commerce has plummeted. The crisis has had a major effect on local labour markets and migration. On the demand side of the labour market, as production suffered there were fewer jobs available for farm labourers. On the supply side of the labour market, many owner-farmers joined the rank of wage labourers to make ends meet. This raised the supply of labourer and lowered the chances of finding a job even further. In short, not only were fewer days of work generated by the local economy, even wage rates fell as supply of labour outstripped its demand.

 

Farm labourers and small owner-farmers migrated across the state border to Karnataka. P. Sainath reports that the number of trips by government buses has gone up considerably, from 3 to 4 about five years ago to 32 a day in 2005. Do they earn a better livelihood now? In Karnataka farms the wage was about 30 percent lower than what they once earned in Wayanad. If we include the price of the bus ticket, the overall income has declined substantially.

 

Deep in debt, farmers try to cut losses by curtailing production, which thrusts them deeper into penury. Taking one's own life in such times appeared to many as the best choice available to escape harassment from banks and moneylenders.

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