Information Asymmetry in Indian Agriculture
Information is power. Where there is information, there is enlightenment. In a situation where information reaches a farmer at every stage in agriculture, economy enlightenment of a nation can be witnessed.
Agriculture system in India involves many phases. The main phases are pre-harvest phase and post harvest phase. As the sector is vast with so many operational bodies involved in it, information is never the same within different bodies in agriculture.
In order to understand how information asymmetry has lead the farmers to face deprivation, we need to understand the origin of this problem and how it is playing a crucial role in farmers’ financial predicament.
At every stage of agriculture right from farm to fridge, information asymmetry exists. Percentage of sector wise contribution of Agriculture GDP in India has been decreasing from the year 1954 to 2014. This article explains further how information asymmetry has taken a form in each and every stage of farming.
In India, the average size of holdings was 2.28 hectares in 1970–71 which was reduced to 1.82 hectares in 1980–81 and further to 1.50 hectares in 1995–96. The size of the holdings will further decrease with the infinite sub-divisions of the land holdings.
While the size of holdings constantly decreases with increasing sub division of land holdings, there is a need to have more precise execution of creating and storing land records. Each division of a land holding demands excess resources in cultivation and harvesting. India is in a state where it is adding 1 crore farmers in every 5 years. With decreasing size of land holdings, the bank’s cost of financing has doubled and providing extension services has become very difficult.
Due to improper information of land records, the laws that govern the ownership of a land have created lot of issues in rural India. The information of land records often fail to reach the higher ends in the agriculture sector. This happens either when farmers do not get their land records submitted, or due to the inefficient work of the Patwari, who is the main government official responsible for generating and maintaining the land records.
This asymmetry in information creates a lot of chaos in rural India as every division of land holdings is not recorded at the government level. This creates a lot of room for less supply or sometimes no supply of credit from the government to farmers. In the present world, amendments that facilitate leasing of land and protecting the rights of the owner are important. The field level government officials on their part should be active and implement better ways to maintain the land records.
Seed is a critical and basic input for attaining higher crop yields and sustained growth in agricultural production. Production and distribution of quality assured seeds to every farmer in the nation plays a pivotal role in agriculture. There as a time when seed was not a pain point for the farmers in India. Abundant seed varieties were available and accessible in the markets.
Reports on availability and requirement of seeds for kharif plan 2013–14 cites surplus availability in all seeds, including major crops such as paddy and cotton. This report which mentions 31 crops, availability of 1.54 crore quintals of seeds, against a requirement of 1.40 crore quintals, declares a surplus of 14 lakh quintals for kharif in the year 2013–14. Except in Karnataka and Uttar Pradesh, all other states report a surplus of seeds. In Andhra Pradesh, generally known as the big producer of seeds, this surplus is 4 lakh quintals, with availability being 32.43 lakhs against a requirement of 28.33 lakh quintals. Time passed and the information related to seeds in agriculture started to distort. Researches from different parts of the nation brought in new variety of seeds that would assure the best quality of crops. But that increased the cost of the seeds and the farmers often fail to afford these high prices.
Quality is a major issue for farmers as seeds that come in packets and are branded do not germinate, grow, develop leaves, flower or give proper yield. Many farmers, who invest on land preparation, water and electricity, labor, crop protection, land fertilization, etc., find that by the use of low quality seeds, all their efforts go down the drain. This leaves them helpless and a lot of investment makes them poorer.
Risks due to seeds are increasing, and their worries are multiplying with increasing prices and decreasing information in the agriculture system. Seed Testing Laboratories, seed certification standards, seed inspectors and seed germination reports of the government have not helped the farmers. The results of these experiments give better results to the farmers for sure. But farmers who are unable to cross the line of education have so less information about the modern seeds in market. There is no proper medium or an information service which explains the farmers about the importance of quality and the advantages of different variety of seeds available in the market. These kind of information services come at a price a farmer cannot afford thereby leaving him in a state where he prefers traditional selection of seeds.
Similar problems arouse with fertilizer usage. Modern fertilizers are prepared according to the soil quality and the kind of crops the farmers prefer. But the diverse features of soil and climate in India make it difficult for both the farmers and fertilizer producers. The main environmental problem associated with fertilizer use is contamination of water with nitrates and phosphates. The nitrogen from fertilizers and manures is converted eventually to nitrates by bacteria in the soil. These nitrates can be leached into the groundwater or be washed out of the soil surface into streams and rivers. High nitrate levels in drinking water are considered to be dangerous to human health. Phosphorus cannot be readily washed out of the soil. It is bound to soil particles and moves together with them. Phosphorus can therefore be washed into surface waters together with the soil that is being eroded. The phosphorus is not considered to be dangerous, but it stimulates the growth of algae in slow moving water. These algae eventually die and decompose, removing the oxygen from the water causing fish kills. This process is called eutrophication.
Now a farmer would never have an idea about this valuable information. The use of chemical fertilizers show an impact on the quality of crop and soil over a period of time. Mostly, it becomes too late until a farmer realizes that the fertilizers have been affecting his farm. In some cases farmers do not believe in the modern experiments on seeds and fertilizers. They are resistant to change the traditional approach towards selecting fertilizers and other farm needs. This happens due to information asymmetry. There is no particular medium which explains a farmer, the capability of his soil, type of fertilizer that suits his soil quality and information about every modern fertilizer in the market. This asymmetry again needs to be abolished by introducing strong scientific experiments on soil and fertilizers and also make that study reach the farmer in the form of information. Only when a farmer is educated, we can expect the agriculture economy of the nation to boost its levels.
Although India is the second largest irrigated country of the world after China, only one-third of the cropped area is covered under irrigation. Irrigation is the most important agricultural input in a tropical monsoon country like India where rainfall is uncertain, unreliable and erratic. Rainfall water harvesting has been the most discussed topics in the recent times. But discussions were of no use as the number of farmers who have implemented techniques for rain water harvesting is so minimal. Around 70% of India’s irrigation needs and 80% of its domestic water supplies come from groundwater. A large part of agriculture is dependent on non-renewable groundwater. Water table in many states in the nation has been falling at an alarming rate. For decades, Punjab, Haryana, UP , and Rajasthan, the agriculture rich states, encouraged farmers to sink tube wells to get free water for agricultural use. Electricity required for pumping out this water was supplied virtually free or at heavily subsidized rates.
This led to over-exploitation of groundwater and widespread environmental damage. Even this encouraged farmers to flood crops like rice, wheat and fruit trees with water indiscriminately impacting on soil/environmental degradation and low crop productivity. Rate of groundwater depletion raced faster than the rate of replenishment in many parts of India. NASA scientists in the US, using satellites to track groundwater loss in India’s north-western grain basket have found that there has been an average loss of 33 cubic km per year in water table of the region. This is much higher than the estimates of Government of India. The satellite study has revealed a loss of 109 cubic km groundwater in Punjab, Haryana and Rajasthan between August 2002 and October 2008.
These numbers demand seriousness in developing proper techniques that contribute to effective irrigation systems in farms. Plans have been made to improve supply through rainwater harvesting and make recharging of the aquifer mandatory. In order to improve the situations, irrigating 10 million hectares of new area under Bharat Nirman Program should be properly executed. Water management through improved irrigation practices, including sprinkler and drip irrigation, are to receive priority attention. Focus on Seawater farming in coastal areas through the cultivation of mangroves, salicomia, casuarinas and appropriate halophytic plants. All the mentioned plans if executed well can surely bring in a revolution in Indian farming economy. But the main challenge here is inculcating the idea of innovative irrigation methods in the minds of farmers. This is untruth that farmers are not open to change. There is a limit to the statement that farmers are irresistible to learn modern technology for farming. If provided a proper channel to access and learn the methods for innovative farming and irrigation, most of the farmers in India would love to take up those methods.
The main pain point here is a situation where farmer runs out of methods to utilize traditional irrigation methods and becomes helpless due to lack of information about proper rainwater harvesting or any other modern irrigation methods. India cannot achieve sustained progress in agriculture unless and until more than half of the cropped area is brought under assured irrigation.
Agri Financing is most vulnerable to information asymmetry in Indian agriculture. Minimal awareness or nil awareness of a farmer about how to benefit from a government scheme is a problem that persisted from a very long time. Credit reform is the primary pathway to enhancing small farm productivity. There is also a need to improve efficiency in the financial delivery system by controlling both transactions and risk costs. It has also been noticed that about 12% of loans in India are stressed.
Finance is required by farmers not only for the production and marketing of crops but also to keep a stagnant agricultural economy alive. Most Indian farmers live near to the level of starvation. A bad monsoon, a poor harvest, an accident or illness in the family makes him helpless and forces him to approach the money lender for a loan. In India, there is the preponderance of such ‘distress’ or unproductive loans. Agricultural finance in India is not just one requirement of the agricultural business but a symptom of the distress prevailing among the majority of the farmers. Rural credit includes not only credit provided to farmers but also credit extended to artisans, owners of small and medium industries in rural areas, small transport operators and so on. Two main sources of rural credit are private and institutional. The former includes private moneylenders, traders and commission agencies, relatives and- landlords. The sources of institutional credit are rural co-operatives, commercial banks, particularly the State Bank of India (SBI). And, with the setting up of a specialized institution called the National Bank for Agricultural and Rural Development (NABARD) the Agricultural Refinance and Development Corporation (ARDC) has ceased to exist. Up to 1982 it was responsible for extending agricultural finance under guidance of the Reserve Bank of India.
It may also be noted that the short- and medium-term credit requirements of the farmers is met by indigenous bankers or village moneylenders, co-operative credit societies and commercial banks. Long-term credit needs are met by land development banks and NABARD. The principal aim of institutional credit is to replace the widely prevalent money-lending at a very high rate of interest. But providing all these credit to the farmers have not helped them to an expected range. The problem here is again information asymmetry.
Farmers not only need credit but also guidance in adopting improved methods of cultivation. Thus, it is necessary to provide such guidance, extension services along with credit, awareness about the ways to benefit from different government schemes and reasons to prefer government loans to private money lenders, traders and commission agencies, relatives and landlords.
Some studies include interaction with many farmers in the region of Haryana that proves that farmers are willing to get their crops insured under the Pradhan Mantri Fasal Bima Yojana. But the only difficulty they face in this process is lack of awareness. Villages in India do not have a concrete local level system that spreads information about important schemes like the PMFBY. The farmers do not know how to initiate the process to get their crops insured. The local bank representatives in villages fail to propagate the idea of crop insurance and its benefits in a long run. The same happens in case of government subsidies for basic farm needs. The farmer does not have a fair idea about the amount of subsidy the government has declared and these issues become difficult to monitor at a nation level or state level. The ray of development can only be seen in the agriculture sector when the farmer has a basic and decent idea about the government schemes, subsidies, funds and implementation ways of Crop insurance, debt recovery and settlement processes etc.
Rescheduling and restructuring of farmer schemes are not enough in the event of successful Indian farming. The Central and State governments must step in to create greater possibilities for information services that can be provided to farmers in the nation.
If post-harvest technology involves improvement in areas of processing, storage, packaging and transportation, it will reduce losses of 6% in grain and 10–15% in fruits and vegetables. In other terms these losses in grains, fruits and vegetables contribute to a loss of 20 crores annually. Involvement of technology in post harvest processes will make farm produce export ready and generate a lot or rural employment. But digitizing traditional farming methods is not the only solution that is necessary. The farmers need to be educated about the operations and the way to utilize technology so that they can acquire maximum benefit. There is a misconception that farmers are not interested in technology and adapting themselves to modern farming methods. But this is a myth and in most cases where farmers have been introduced to technology, they accepted the same. The government is also aiming at penetration of software solutions and upgrading telecommunication infrastructure in the deeper pockets of India for bridging the gap between farmers and other stakeholders.
So it is pretty clear that innovation intrigues farmers as much as it excites other people. They are more than willing to embrace modern techniques as long as it improves farm economics and reduces farm risks. The government should have recommendations on how to make technology easily accessible and affordable for farmers.
There is a huge scope of technology in modern transportation methods. For example, with modern transportation, consumers in Dubai receive fresh carrots from Africa on the same day the carrots leave the gardens in Africa. Modern transportation technology facilities help farmers easily transport fertilizers or other farm products to their farms, and it also speeds the supply of agricultural products from farms to the markets where consumers get them on a daily basis.
There are apps in the market that digitize the process of Girdawari and also to perform crop cutting experiment etc. Digitizing traditional agriculture techniques is the most proficient way to eradicate information asymmetry in agriculture. People in the agricultural sector need to be trained about the usage and benefits of the applications developed. On the important side, farmers need to be educated about the functionality of every digitized product being used in agriculture. As most of the farmers in India are uneducated, making them familiar to the digital functionality will reduce any possible chances of cheating and exploitation of them which is considered to happen a lot in traditional farming methods. With efficient use of technology, eco-friendly crop protection methods can be offered that support organic farming to improve crop produce and quality with minimal expenditure, soil fertility can be increased to achieve higher agricultural productivity and crop yield with lower resource use, mechanization in farms can be improved, agriculture processes can be monitored, Girdawari and crop cutting experiments can be digitized, portals for government scheme execution can be designed, data analytics and image processing of land patterns can be executed.
The role of technology at present and in coming times is vast in agriculture. The government needs to make sure that introduction of technology into agriculture is backed by a proper medium where farmers get enough agriculture and make sure that the symmetry is always maintained.
In agriculture, marketing is the key factor that determines the economic viability of farming. To bring in the market reforms, a lot of information is required about the complete cycle of cultivation, consumption and commerce. Many times it’s not lack of production but over production that hits the stability of farmers. A supply glut, such as the one presently faced by pulses, chili, potato, and onion cultivators in India, generally leads to a price crash, which results in poor returns. The center should keenly watch the import contracts so when there is a case of excess production, we don’t end up importing. Importing on a large scale further increases competition for local farmers. The concept of e-markets and digitization will surely help the issue of low returns to farmers and also the hardships that occur due to presence of multiple middlemen.
In the absence of sound marketing facilities, the farmers depend upon local traders and middlemen for the disposal of their farm produce which is sold at throw-away price helping the farmer in absolutely no way. In general, the farmers do not have a fair idea about the demand in the region. This information asymmetry makes them financially unstable and end up in a stage where getting out of their indebtedness becomes the most difficult part of life. In some cases, the roads from villages to cities are usually unmade which are not capable of transport during the rainy season. Due to lack of transport facilities the farmer is unable to take his produce to the appropriate market and is forced to sell his produce to the middlemen. Another place where asymmetry place its part is warehouses and storage. Due to lack of abundant storage spaces and warehouses, farmers tend to store their produce at their own farms. Sometimes the farmers have to travel a lot with all their harvested crop and fail to find place in the warehouses due to less space. This results in waste of lot of time and effort. Information regarding availability of space in warehouses needs to be provided to farmers through effective information solutions. This will not only help in saving the time and effort of the farmers, but also will reduce the chances of loss in India. Produce stored outside the warehouses or in self farms is highly vulnerable to climatic affects and there is a high chance of crop destruction and loss.
Information asymmetry is present in almost every sector in the nation. The idea of digitization has reduced this asymmetry to a very large extent. The case of farming is different and difficult. Injecting the idea of digitization into a very delicate sector like farming is a very tough challenge for the nation. But if specific effective measures are executed under a proper medium and structure, we can be successful in creating symmetry in agriculture information. So lets create a medium where every single bit of information reaches the farmer directly without any middle bodies in the process. This will reduce the chance of information getting evaporated in the process. So when we think about how to create this medium, a most simple solution which strikes the mind is a mobile phone. Digitization started with the modern mobile phones taking on the world with utmost smartness level. India is fortunate enough for having reached a stage where mobile phones have paved their way to every single corner of the nation. Every farmer is India is aware of how to attend a call on a mobile phone or read an SMS. If not the farmers, the children of farmers can surely be able to read and convey an SMS message to everyone. So we decided to use these mobile phones to stop information asymmetry to some extent. FarmGuide provides information solutions to farmers directly through call and SMS through regional and farmer-preferred languages. These calls include information services related to market prices, warehouse information, weather advisory, government schemes, crop advisory and contingency situations.
These information services would contribute a lot in farmer development and help them improving their financial situation. Gradually the fate of Indian farming would change. Digitization will spread its wings with perfect implementation and symmetry in information will be established everywhere in the nation.
These all are just a few examples to bring in Farmers’ Movement in India. But if well executed, we all can surely witness “An Evergreen Revolution” that will not just make Indian Agriculture self-sustainable, but also will generate revenue through exports and contribute well to the GDP of the country.
It’s always easier said than done. We believe in this statement, but the agricultural information asymmetry cannot be taken lightly anymore else it will be irreparable.
The above article has been written with reference to different articles on the web.
Originally published at blog.farmguide.in on December 22, 2017.
