Impact of Agricultural Trade Liberalisation in Kerala

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Economic and Political WeeklyAugust 4, 20073243Decline in Exports and Rise in ImportsTraditionally, Kerala has been a major exporter of commoditiessuch as pepper, cardamom, ginger, cashew kernels, coir and coirproducts, tea and coffee. Export of agricultural commodities fromthe state has been recording fairly good growth till towards theend of the 1990s. However, during the current decade so far (till2005-06), the export of spices (mainly pepper, cardamom, ginger,etc), coffee and tea declined (Table 3).While exports of commodities from Kerala suffered a setbackin recent years, there was a rise in the import of commoditieswhich were in fact produced and exported from the state fordecades together. The import of rubber, pepper, cardamom,coffee and tea increased significantly (imports to India whichhave significant bearing on the commodities produced in Kerala).In cardamom, average annual growth of import was as high as88.6 per cent (Table 4).As a result, imports as a percentage of domestic productionincreased considerably in the recent period. For example, theimport of pepper to India is around 22 per cent of domesticproduction (Table 5). The relatively lower productivity levels inIndia coupled with trade liberalisation seem to have led to largerimports. As the state could not improve the productivity of crops,control the cost of cultivation and minimise the crop damagedue to diseases, Kerala’s comparative advantage in respect ofcrops like pepper, tea, coffee, etc, seems to have eroded, whichis resulting in higher imports.Agricultural Prices: Lower Growth and High VolatilityA manifestation of lower exports and higher imports was adecline in domestic prices of the most the commodities. Duringthe 1990s, till 1996-97, the farm prices of rice and non-food cropslike coconut, rubber and pepper were rising at a robust rate ofabove 10 per cent a year. However, with trade liberalisation, therise in price was very low (for paddy and pepper) or negative(forcardamom and coffee) during the period from 1997-98 to 2005-06.In general, crops with high export intensity or facing importcompe-tition experienced wider fluctuations in prices than the other cropsas evident from the coefficient of variation of prices of pepper,cardamom, arecanut, coconut, etc (Table 6). International com-modity prices have remained extremely volatile during theimplementation of the WTO provisions on agricultural trade [Paland Wadhwa 2006]. The increased volatility, in turn, was re-flected in the movement of domestic prices of export-orientedcommodities (Figure 2).While the prices received by farmers were either declining orrising at a lower rate, the prices paid by farmers were increasingat a very high rate. Hence, the price parity, i e, prices receivedby farmers as a per cent of prices paid by them, has been decliningfrom 1987 onwards and it stood at 50 in 2006.Declining Profitability of CultivationThe decline in productivity and prices affected the profitabilityofcultivation, especially on farms using hired labour. As per a recentsurvey, only rubber and cardamom cultivation were found to bereasonably profitable.9 Profit from cultivation of crops like teaandcoconut was marginal. All other crops were not profitable. Lossismore in the case of paddy, pepper, arecanut and ginger (Table7). Another study revealed that average loss per agriculturalfamily (cultivating mixed crops) was Rs 1,689 [Kurup 2005].Aninteresting finding of the study was that when the landholdingsizeis less than one acre, cultivation was marginally profitable andlossin case of landholdings above 1 acre, perhaps because of hiringof labour (Table 8). The above two studies clearly show thatagricultural operation in general is not profitable in Kerala.The above analysis shows that the restructuring of the agri-cultural sector in Kerala, to salvage itself from the “high costTable 4: Import of Agricultural Commodities to IndiaSl NoCommodityQuantity ImportedAverage Annual Growthduring 1996-97 to 2005-06(Per Cent)1Natural rubber40.12Pepper33.63Cardamom88.84Coffee44.55Tea30.5Source:Same as Tale 1.Table 5: Imports as Proportion of Production in India(Per Cent)PeriodPepperGingerCoffeeTeaRubberCashewCoconut1995-19994.34.20.50.41.628.50.02000-200422.08.32.62.00.373.50.2Source:Basic data from Food and Agricultural Organisation – calculated byKerala Agricultural University (2006).Table 6: Trends in Farm Prices of Important CropsPeriodPaddyCoconutPepperRubberArecanutCardamomTeaCoffeeAverage annual growth (per cent)1991-92 to 1996-9713.715.122.816.56.39.915.71997-98 to 2005-060.33.22.35.23.4-1.43.0–1.0Coefficient of variation (per cent)1991-92 to 1996-9724.121.849.739.313.826.810.3–1997-98 to 2005-065.823.152.331.532.732.815.924.8Source:Same as Table 1.Table 7: Classification of Crops according to Profitabilityof CultivationMore ProfitableMarginally ProfitableLossHigh LossRubber(Rs 40,470)Tea(Rs 7,203)Paddy(–Rs 4,592)Ginger(–Rs 25,913)Cardamom(Rs 51,880)Coffee(Rs 7,704)Arecanut(–Rs 336)Coconut(Rs. 7,203)Pepper(–Rs 7,439)Figures in brackets are the net income per hectare.Source:Kerala Agricultural University (2006).

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Economic and Political WeeklyAugust 4, 20073245Second, even though the level of indebtedness is higher, valueof their assets (mainly land) is higher than the outstanding debt.The debt-asset ratio of cultivators in Kerala was relativelyhigher at 3.55 per cent as against the national average of 2.49per cent. The debt-asset ratio was high among the lowest assetholding class at 37.64 and it progressively declines when the sizeof assets goes up (Table 12). The severity of the indebtednessis reflected in the high debt-asset ratio among the lowest assetholding class, which may be causing suicides by farmers.IIIFarmer Suicides: Extent and ReasonsAn unfortunate manifestation of the crisis faced by the sectorwas the rise in the number of farmers who committed suicide.Before examining the suicides committed by farmers in Kerala,it is important to note that suicide (general) rate in Kerala is oneof the highest in India – almost three times the national average14[GoK 2006b]. General suicide rate in farm-distressed districtslike Idukki, Wayanad and Kannur was relatively high. Further,in case of farm distressed districts, the human development index(HDI) was relatively lower, as compared to other districts. Forinstance, among the 14 districts, Wayanad ranked 13th and Idukkiranked 12th in the HDI (Table 13).As per the state government’s estimates (as on November 22,2006), a total 804 farmers committed suicide from 2004 to 2006(up to July). Another 101 farmers committed suicide till February2007 (state assembly on March 25, 2007), thus taking the totalnumber to 905. The district-wise break-up shows that in Wayanadalone 332 farmers committed suicide (41.3 per cent), followedby Kannur (139 farmers), Idukki and Thrissur (86 each) andKasaragod (72). Thus, suicide is mostly concentrated in sixdistricts located in the hilly and northern parts of the state. Inall these districts, the general suicide rate was also relatively high.Thus, it appears that perhaps in some cases even general suicidesmight have been classified as farmer suicides as most people arehaving some area of land and cultivating some crops, thoughagriculture may not be a main activity. In general, farmers’ suicideis more in those districts (especially, Wayanad and Idukki) whichare concentrating more on cultivation of export-oriented com-mercial crops.Farmer Suicide in Wayanad District: Survey FindingsSince Wayanad district was most affected by farmer suicides,let us now examine the details of suicides in that district. A survey,conducted among the families of all the farmers who committedsuicides in the district, shows that a total of 316 farmers com-mitted suicide during the years from 2002 to 2006 (up to July)[Shreyas 2006). During 2004 and 2005, an identical number of82 farmers committed suicide. During 2006 (up to July 2006)40 farmers committed suicide and as per various reports, the trendis still continuing in the district.Agricultural crisis was the reason for suicide in case of 38.9per cent farmers who committed suicide. Other reasons werefamily problems (10.1 per cent), physical illness (4.1 per cent),business loss, etc (Table 13). Around 40 per cent of the surveyedfamilies could not pinpoint the reason for their family membercommitting suicide. This indicates how fragile is the family set-up and communication among the members of the family. Whatit shows is that the agricultural crisis undoubtedly is the majorreason, but it is not the sole reason for taking this drastic step.Perhaps, loss from farming could be a trigger point for alreadydepressed persons due to other sociological and psychologicalreasons.15 Mohanakumar and Sharma (2006) reported that ac-cumulation of debt beyond the repayment capacity during a fewyears was the immediate provocation for resorting to the extremestep of suicide. As indicated earlier, the general suicide rate inWayanad was higher than the state average and the HDI wasone of the lowest. Hence, the issue of farmer suicides cannotbe seen in isolation and it should be studied in greater detail byphysiologists and sociologists.Nearly 60 per cent of farmers who committed suicide had landarea below one acre. About 35 per cent of the farmers had landarea between 11 to 50 cents. Thus, a majority of the farmers weremarginal or small farmers. Another important finding of thesurveyis that nearly 42 per cent of the deceased farmers had cultivationin leased land. Cultivation in leased land is generally undertakenfor making better earnings and also engage farmers themselvesin some activity, as in their own lands they are cultivatingperennial crops which do not need constant care and attention.Table 11: Various Estimates of Outstanding Loans ofFarmers in KeralaSl NoDetails of EstimatesAmount (Rs)1Average loan outstanding per farmerhousehold in Kerala – 2002 – NSSO (2005)339072Average amount of loan taken –Kerala Sasthra Sahitya Parishat (2006)44,3103Average debt of farmers who committedsuicide in Wayanad district – Shreyas (2006)72000+4Average debt of farmers who committed suicidein Wayanad district– Mohanakumar and Sharma (2006)79385$5Average debt of farmers in Wayanad district– Kerala Agricultural University (2006)1891536Average debt of farmers in Wayanad district– Kurup (2005)36191@7Average amount of loans written off by thecommercial banks belonging to farmerswho committed suicide (SLBC 2007)31037**Notes:+Estimated based on a survey among 316 families of farmers whocommitted suicide.$Estimated based on a sample survey among 35 families of farmerswho committed suicide.@Estimated based on a survey among 250 farmers.**In respect of 240 farmers who committed suicide in the state.Table 12: Debt-Asset Ratio as per Asset Holding Classesas on June 30, 2002(Per cent)StateLess ThanRs 30,000Rs 1 toRs 2 to≥ 4.5 LakhAllRs 30,000to2 Lakh4.5 LakhRs 1 LakhKerala37.649.615.575.213.253.86India12.236.063.792.782.162.84Source:NSSO (2006).Table 13: Reasons for Committing SuicideSl NoReasonsNo of FarmersPer Cent of Total1Agricultural crisis12238.92Family problem3210.13Physical illness134.14Mental illness30.95Business loss61.96Others51.67Not known12539.6Total316100.0Source:Shreyas (2006).

Economic and Political WeeklyAugust 4, 20073246The study also reveals that nearly 64 per cent of the farmershad no association with any organisations, be it political, social,cultural and religious, etc. It shows that they were leading areclusive life without any means for discussing their problemsand getting relief and support from the society. One reason forthiscould be that most of the farmers in Wayanad were new settlersinthe 1950s and 1960s and hence, they did not have extended familyconnections in the village. This is a sociological andpsychologicalproblem which needs to be addressed. Alcohol addiction wastherein case of 43 per cent of the farmers committed suicide andanother 19 per cent had alcohol consumption sometimes. Around38 per cent never had alcohol consumption. Chronic illness wasthere only in case of 18 per cent of the deceased farmers.Among the surveyed families, nearly 70 per cent had takenloans from formal financial institutions and the rest (30.8 percent) from informal agencies like moneylenders. The averageamount borrowed (outstanding) was Rs 72,000 per family of theperson committed suicide. Half of the deceased farmers had loansbelow Rs 50,000. Another 30.4 per cent of the farmers had loansbetween Rs 50,000 and Rs 1 lakh. Thus, nearly half of the farmershad land area below 50 cents and loan amount below Rs 50,000,which can be considered as high. Farmers with loan amount aboveRs 1 lakh was only 17.1 per cent.What emerges from the above is that the problem of suicidesis mostly confined to marginal farmers (below one hectare). Thereis a view that it is not the level of borrowings from formal financialinstitutions which was leading to suicides, but the borrowingsfrom moneylenders, friends and relatives, etc. In local parlance,borrowings from friends and relatives are called “kaivayppa” forwhich usually no interest is charged, but one has to return it atthe promised date. When farmers were not able to repay the moneyborrowed from friends and relatives in time, it created tensionand family problems as the creditors are very familiar and seenevery day.Some of the farmers resorted to sale of land to solve the problemof indebtedness. Mohanakumar and Sharma (2006) found that24 per cent of the deceased farmers sold land which constituted8.4 per cent of their total land. It shows that distress sale wasnot very high perhaps because land documents were mostly inthe custody of financial institutions, who had provided loans.Another means resorted by the farmers was cutting of trees andselling them, which were providing the much needed shade tothe standing crops. This, in turn, increased temperature and saidto have affected the crop production.In their urge to make profits, farmers have been increasing scaleof farming without any protection or safety nets. In districts likeWayanad, farmers are increasing the scale of farming by cultivatinglarge area under crops like ginger, vanilla, etc, without takingsufficient safeguards in case of failure of crop or crash in prices.Many farmers lost their money when the ginger was damageddue to flood and when price of vanilla declined drastically.Though some farmers joined the National Agricultural InsuranceScheme, it took a long time to reach settlement of claimin caseof failure of crop and, hence, timely relief was not forthcoming.IVSummary and Concluding ObservationsThe analysis presented in this paper reveals that following tradeliberalisation and also due to a host of other factors like deficientrainfall, excessive concentration on export-oriented perennialcrops, decline in production and productivity, fall in prices, etc,the agricultural sector of state has been facing a crisis duringthe last one decade, which led to a rise in farmers’ indebtednessand suicides. While farm distress continued, there was a signifi-cant rise in loans issued by the formal financial institutions inthe recent period, especially short-term loans, thus, raising theindebtedness of farmers further.In general, farmers’ suicide was more in those districts whichare concentrating more on cultivation of export-oriented com-mercial crops. Agricultural crisis was one of the major reasonsfor suicides, but not the sole reason. Most farmers who committedsuicide had landholdings below one acre and average loanliabilitywas Rs 72,000. Besides this, many farmers had privateborrowings from friends and relatives. Their inability to repaythese loans (liquidity) is considered as the proximate reason(trigger point) for committing suicide.Though the agricultural sector in Kerala has been facingdifficulties from the latter part of the 1990s onwards, till recently,there was no serious attempt to understand the problem and takecorrective measures. However, to address the problem, the stategovernment is providing several forms of assistance like pro-viding cash aid of Rs 50,000 to the family of deceased farmerand writing off their loans upto Rs 5 lakh, waiver of interest onloans taken from cooperatives and has introduced one-timesettlement scheme (OTS), etc. The government also passed a billto solve the indebtedness of farmers.16 The central governmentprovided some financial assistance, took up projects for water-shed development, cattle rearing and fisheries development,imposed restrictions on import of some of the agriculturalcommodities like pepper, assisted coffee growers, etc. Thecommercial banks, on their part, took some steps like writingoff loans of deceased farmers upto Rs 1 lakh, introduced OTS,re-scheduled loans, etc.The impact of these measures, in terms of actual relief receivedby farmers and creating conditions for continuation of agri-cultural operations, on the ground, was not felt in a significantway as evident from the continuation of suicides. Shreyas (2006)found that nearly 58 per cent of the families of the deceasedfarmers did not receive any assistance from government. Reasonsfor the lack of effectiveness of the schemes could be (i) lackof critical minimum effort in redressing the problem, (ii) moneyspent for ad hoc schemes and subsidies went down the drain,(iii) schemes of banks only postponed and increased the debtburden, (iv) some of the measures like watershed developmentprogramme may need years to fructify, and (v) some of the reliefmeasures were announced very late and implemented very slowly(hence people are calling the packages as “paper package”). Inshort, the measures could not address the issue of debt burdenof the farmers in its totality.So far the problem has been addressed in a piecemeal waywithout a set of comprehensive and significant measures toimprove the plight of the farmers. The undue concerns about theefficacy of subsidies and other forms of state support stood inthe way of coming out with a comprehensive set of measuresto solve the problem. Paradoxically, this happened when boththe Indian economy and state economy were recording highgrowth. Given the spread and severity of the problem, a criticalminimum effort is needed from all concerned institutions. Giventhe magnitude of the problem, it is worthwhile to consider(i)selective write-off of legacy loans (which are very old) ofmarginal farmers up to Rs 50,000, (ii) introduce incentivised loan

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