Crop diversification a must for raising farm income

By Shweta Saini & Siraj Hussain
In an earlier article (bit.ly/33dLaQH), we had shown, using NABARD’s NAFIS data, how farmers earned higher incomes on a per hectare basis in Bihar, compared with Punjab. With new data on farmer incomes, we estimate again the per hectare incomes, and this time, Punjab appears to be earning even lower than the all-India average. In September 2021, National Statistical office (NSO) released “Situation assessment of agricultural households and land and livestock holdings of households in rural India, 2019” (SAS 2019).

To estimate per hectare incomes earned by agricultural households (AHHs), we need the estimate of total income farmers earned from cultivation and average size of their operational landholdings. The NSO gives us the income data. However, data on landholding size requires explanation.  SAS 2019 gives an estimate of (i) incomes earned by AHHs from cultivation, and (ii) the average size of their operational landholdings. Logically, to estimate per hectare incomes, we should take the two data from this report. The problem arises, when we compare the landholding sizes as given in SAS 2019 with the latest Agricultural Census (AC) (2015-16). There are huge variations. 

The average operational holding size in India is similar between the two sources, i.e., about 1.004 ha (SAS 2019) to 1.08 ha (AC 2015-16). However, at the state-level, the differences are stark. For Punjab, it appears to have fallen from 3.6 ha (AC 15-16) to 1.5 ha (SAS 18-19). In Rajasthan, it has fallen from 2.7 ha to 1.7 ha.  One may argue that the difference may accrue due to difference in years of assessment (AC gives for 2015-16 and SAS 2019 gives for 2018-19).

But what can possibly explain, for example, the massive fall in Punjab’s holding size? The Agriculture Census (AC) is conducted every five years by the ministry of agriculture. It is an exhaustive exercise where most, if not all, agricultural operational holdings of the country are completely enumerated. SAS, on the other hand, is a sample survey with a much smaller sample size (45,714 AHHs surveyed for SAS 2018-19). Because of its coverage, AC appears to be more representative and thus a more credible measure of the size of landholdings. By combining AC 2015-16 data on average landholding sizes with farmer income data from SAS 2019, we calculated per hectare incomes (see graphic). 

The average AHH in India earned Rs 3,517/month/ ha (Rs 3,798/month from cultivation and average landholding size was about 1.08 ha). The Kerala farmer earned the highest, at Rs 20,211/ha, followed by Meghalaya where farmers made about Rs 16,326/ha from cultivation. Bihar farmers, with an exceptionally low landholding size (0.39 ha), appear to be making Rs 7,023/ha. Punjab, Gujarat, Maharashtra appear to be earning lower incomes on a per hectare basis compared to all-India average. Bihar’s average landholding size is 0.39 ha and Punjab’s is 3.6 ha. In terms of income from cultivation, the average Bihar AHH earned Rs 2,739/month and that in Punjab earned `12,597/month. In other words, from a landholding size which is 9 times bigger, Punjab is able to generate only 5 times more income than Bihar. In terms of value of output (VOO), Punjab produced about Rs 1.1 lakh crore worth of agricultural produce in 2018-19 and Bihar about Rs 0.94 lakh crore.

Over 2012-13 to 2018-19, Punjab’s agricultural-VOO grew at a CAGR of 2.24% and Bihar’s at 2.6%. Then, how did Bihar farmers earn a higher income? Some explanation can be found in the cost of cultivation data from the agriculture ministry; in 2018-19, Bihar appears to have been a low-cost producer for most crops compared with Punjab. Even though Punjab is able to generate higher value for its produce and has higher yields, but high costs of cultivation eat into profitability and farmer income. On a per hectare basis, the cost of cultivating(C2) maize in Punjab was Rs 71,433, but in Bihar, it was only Rs 54,300. In terms of value, maize production generated Rs 65,988/ha in Punjab and Rs 66,616/ha in Bihar. Lower value and higher costs squeezed Punjab profitability from maize (-7.6%) compared to a Bihar farmer’s 23% profits.

And this is despite the Bihar farmer paying much more for irrigation (Rs 5,654/ha) than his Punjab counterpart (Rs 657/ha), possibly because of expensive diesel used for irrigation compared to Punjab where electricity is free. Similar low profitability exists in gram and lentil (masur).  There is no doubt that a farmer in Punjab is far more prosperous and wealthy than a Bihar farmer, but it is also a reality that a Punjabi farmer can earn much more given the rich resource endowment he has.

Continuing with rice-wheat may yield assured returns, but farming in Punjab is costly, and with depleting water table and deteriorating soil quality, costs are only going to escalate.  Every farmer should maximise his profitability from the land he cultivates. But given the nature of farming and the precarious situation of the average farmer, the path to diversification will not be easy and needs a structured, coordinated and a dynamic policy design. The future of agricultural reforms will pivot on state-Centre cooperation. The farmer has to be at the centre, and unless his confidence and trust is regained, no policy will deliver.

The authors are senior visiting fellows, ICRIER