Terms of Trade: A Broken Promise for Indian Farmers

Introduction The agriculture sector is the backbone of the Indian economy, providing livelihood to over 60% of the population. However, recent trends reveal a widening gap between the terms of trade (ToT) for farmers and agricultural labourers. This disparity has raised concerns about the sustainability of the agriculture sector and the well-being of its participants.

Terms of Trade Disparity ToT measures the ratio of prices received by farmers for their produce to the prices they pay for inputs such as fertilizers, seeds, and machinery. A recent analysis by the Agriculture Ministry shows that over the past two decades, crop prices have increased by 111.2%. However, the cost of inputs has skyrocketed by 198.1%, resulting in a decline in ToT for farmers.

This disparity is primarily driven by rising input costs, particularly fertilizers, which have increased by 282.4% since 2000. The inability of farmers to pass on these increased costs to consumers in the form of higher prices for their produce has led to a cost squeeze.

Impact on Farmers The declining ToT has had a devastating impact on farmers' incomes and livelihoods. Many are forced to sell their produce below cost or take on mounting debts to cover their expenses. The result has been a decline in agricultural investment and a shift towards less profitable crops.

Agricultural Labourers: A Relative Advantage In contrast to farmers, agricultural labourers have witnessed an improvement in their ToT. This is because they receive wages, which are linked to the cost of living, and do not directly bear the burden of input costs. As a result, their purchasing power has increased relative to that of farmers.

Policy Implications The widening ToT gap demands immediate attention from policymakers. Measures are needed to address the rising input costs, such as promoting fertilizer subsidies, providing credit at affordable interest rates, and encouraging the use of innovative agricultural practices.

Additionally, initiatives aimed at improving farmers' market access, reducing post-harvest losses, and increasing value addition can help them realize better prices for their produce.

FAQs

1. What is the reason behind the rising input costs in agriculture? A. Factors such as increasing demand for fertilizers, global supply chain disruptions, and rising energy prices have contributed to the surge in input costs.

2. How has the ToT disparity affected farmers' livelihoods? A. The declining ToT has led to lower incomes, increased debt, and a shift away from profitable crops.

3. What are the benefits of improving market access for farmers? A. Enhanced market access provides farmers with more options to sell their produce, reduces dependence on intermediaries, and potentially leads to higher prices.

4. How can value addition improve farmers' earnings? A. Value addition involves processing or transforming raw agricultural products into more valuable forms, such as packaged foods or processed goods. This process can increase farmers' profits and reduce post-harvest losses.

5. What role can technology play in addressing the ToT gap? A. Technology can enhance farm productivity, reduce input costs, improve market access, and provide farmers with real-time information on crop prices and market trends.